China’s second largest energy company Sinopec has concluded a deal for the right to explore coal reserves in northern China’s Inner Mongolia, with the aim of utilising coal as feedstock for chemical production.

China’s low-carbon strategy has refocused coal consumption, shifting it away from the traditional use as fuel for power generation or heating to using it as feedstock for chemicals manufacture.

The Beijing-headquartered company has just won an auction for the exploration right at Nalinhebayan Qaidam coalmine for $4.4 billion.

Sinopec is now building a coal-to-olefins complex in Inner Mongolia. The $3.4 billion plant with annual olefins production capacity of 800,000 tonnes. It is scheduled for operation in 2024. The plant will use coal as feedstock to produce olefins, which are otherwise produced from oil.

Located in Ordos city of Inner Mongolia, the coal mine hosts 2.131 billion tonnes of coal reserves, with production capacity planned at 10 million tonnes per annum.

Sinopec, led by chairman Ma Yongsheng, now owns and operates five coal-to-chemicals production bases respectively located in Ningxia, Inner Mongolia, Anhui, Guizhou and Xinjiang provinces and regions. These projects could reduce Sinopec’s reliance on crude oil imports in the interests of national energy security.

China’s abundant and low-cost coal justifies the economics of coal-to-chemicals projects, especially at a time when the international benchmark crude price is trending upwards.