Created from coal, the clean-burning dimethyl ether, or DME, has been touted as a key potential alternative to diesel, liquefied petroleum gas and other fuels for China's energy future.
In an effort to reduce its reliance on oil imports and cut pollution and also bank on its vast coal reserves, China has been promoting the development of DME and some vehicles are already running on the fuel.
But like many other coal conversion projects, which the government had halted in 2006 to prevent overinvestment, the further development of DME needs the support of the industry and new policies, participants have told a recent DME conference.
DME can be blended with LPG as a transport fuel and used in power generation. It is a colorless gas that is liquefied under pressure, and can be made from biomass and certain fossil fuels such as coal.
In 2002, China's annual DME capacity was only 31,800 tons, but it surged to 480,000 tons in 2006 as more companies rushed to invest in the sector betting handsome returns against the backdrop of high oil prices.
While construction of such coal-to-chemicals and coal-to-liquids projects usually require far more investments than that of an oil refinery of comparable size, the government ruled in July 2006 that new projects must meet certain requirements such as scale.
New requirement
The National Development and Reform Commission, China's top industry policy-making body, ruled then that a new DME project must have at least one million tons of annual capacity.
However, some industry officials said the requirement may not be a must because a small DME plant also makes sense.
"In the past we thought that the bigger the better for coal-to-chemicals projects. But actually we should develop both as transport for fuels,'' said Xu Dingming, deputy director of the Office of the National Energy Leading Group.
The government should rethink the requirement as it is set to issue updated rules to govern the construction of projects that convert coal into chemicals and fuels, Xu told the DME conference, co-hosted by Shanghai Petroleum Product Development & Trade Association, industry info provider Oilgas.com.cn and ENN Group, a major DME producer, in Langfang, Hebei Province.
DME will mainly be used to replace LPG in China, said Chen Weiguo, secretary-general of the China National Committee of Methanol & Ether and Clean Fuel Automobile, at the conference.
But many industry players have been waiting a long time for an industry standard for DME as a transport fuel, to facilitate supervision over the market and pave way for large-scale commercialization.
Chen said rules are being drawn up to set standards such as by what ratio DME should be mixed with LPG and how to transport DME. The rules may be released this year, he said.
Shanghai Jiao Tong University and Xi'an Jiao Tong University had developed vehicles powered by DME. In Shanghai, a DME bus line has been put in operation and the city government aims to have a fleet of 1,000 DME-powered buses when the World Expo starts in 2010.
Zhang Wugao, a professor at Shanghai Jiao Tong, said DME vehicles were first developed in Denmark but today Europe has lagged China in this sector.
"Japan also does a good job in promoting DME vehicles, but DME will mean more to China than Japan as Japan imports nearly all of its energy,'' Zhang said.
Still, China's DME capacity is expected to reach 15.8 million tons by 2010, Zhang said, with an increasing number of domestic companies announcing plans to build DME plants. China is now capable of building one-million-ton-level DME projects with its own technological know-how.
Hebei-based ENN is building a one-million-ton-a-year DME plant in Zhangjiagang, Jiangsu Province. ENN was formerly known as XinAo Group, China's leading private piped-gas distributor.
The world's first commercial DME filling station in Shanghai, which supplies the bus line, was co-invested by a unit of ENN in partnership with the local government last year.
ENN has also signed a memorandum with Vancouver-based Methanex to develop a 200,000 ton-a-year DME plant in Egypt as part of its overseas expansion.