Shenhua Group Corp. Ltd. will officially start selling coal-to-liquid (CTL) oil products in the next few weeks as China's largest coal enterprise looks to break into the domestic retail fuel market, oil industry analyst Lü Jianfeng told Interfax.

China's first CTL oil products filling station is located in Inner Mongolia Autonomous Region's Ordos City, near to a direct CTL refinery owned by Shenhua Group. Inner Mongolia is a major coal production base.

The company plans to open several more filling stations locally before expanding to neighboring regions. "Shenhua Group already sells CTL fuels on the wholesale market but is eyeing more profitable retail sales," Lü said. "However, it is a little bit late for the company to enter the market."

Lü noted Shenhua Group's move will have almost no impact on the dominance of Shanghai and Hong Kong stock exchange-listed PetroChina Ltd. and Sinopec Corp., which currently supply more than 80 percent of retail oil products in China.

Liquid fuels from coal can be delivered directly to commercial autos without modifications to existing filling stations, according to the World Coal Association.

The refinery operates one line with a designed fuel production capacity of 1.08 million tons per year. Annual output at the facility topped 800,000 tons in 2011 and is expected to hit maximum design capacity this year, Xie Shunmin, a senior executive in charge of CTL at Shenhua Group, was cited as saying by China Business News.

Shenhua Group plans to raise total annual production capacity at the refinery to more than five million tons in the coming years by adding four more 1.08-million ton lines, the company has said.

The company is a leading player in China's CTL sector, the development of which has been stalled by central government policy changes in recent years. An initial burst of enthusiasm for the technology came to a halt in 2008 when several projects were cancelled amid concerns about high production costs and the impact on water resources.

Shenhua Group deployed RMB 12.6 billion ($2 billion) on the first line of the refinery in 2008. Sinochem Group Corp. by contrast is building an oil refinery with annual production capacity of 12 million tons in Fujian Province for RMB 30 billion ($4.6 billion).

CTL looks to be making a comeback this year as persistently high international crude oil prices increase demand for alternative fuels and the government rolls out large infrastructure projects to boost the weakening domestic economy. A four million ton indirect CTL project operated by Shenhua Ningxia Coal Industry Group Co. Ltd. has received government approval, while a green light for Hong Kong Stock Exchange-listed Inner Mongolia Yitai Coal Co. Ltd.'s two million ton indirect CTL facility is also expected soon, the official Xinhua news agency reported late last week.

Such projects however will remain of secondary importance for now because of the high investment cost and pollution, noted Lü.

South Africa is the world's leading CTL producing nation but few other countries have adopted the technology on a wide scale because of concerns that such fuel produces more carbon dioxide than conventional petroleum. In the United States there is a Congressional ban on the military using high-carbon alternative fuels.