South Korean industrial firms to spend $2.6bn on "clean coal" projects

SK Energy, South Korea's largest oil refiner by output, is teaming with domestic steel maker Pohang Iron and Steel Co (Posco) to develop "clean coal" technologies at a total cost of 3.35 trillion won (US$2.6bn, £1.6bn).

The two companies have signed a deal to jointly develop a manufacturing process for synthetic natural gas, according to an announcement at the weekend by the Ministry of Knowledge Economy. The ministry, which regulates economic policy in the industrial and energy sectors, said the two companies' planned facilities would help improve the country's energy security while reducing carbon emissions.

Posco will invest 1 trillion won to build a synthetic natural gas plant in Gwangyang, southwest of Seoul, with an expected annual output of 500,000 tonnes of gas. Posco estimates that its products will replace annual imports of 200bn won of liquefied natural gas.

The firms will also work on the production of controversial coal-based oil, known as synthetic crude, through a coal-to-liquid process that would extract materials needed to make chemical products.

SK Energy will spend 1.8 trillion won to build a plant capable of producing 6.3 million barrels of artificial crude oil annually. It would be equal to about 2.5 per cent of the nation's fuel demand for transportation in 2008.

The company has a further 550bn won earmarked for the manufacture of 200,000 tonnes of coal-based industrial chemicals, including methanol and hydrogen.

Coal-to-liquid processes have been widely criticised by green groups, who argue that in many cases they are even more carbon intensive than petroleum.

The federal government will provide funding of 25 billion won towards research and development for the initiatives. It believes that the domestic cultivation of clean coal and synthetic gas technologies, which could be licensed abroad, would help South Korea enter the global energy market in the future.

Earlier this month, South Korea announced details of its $85bn plan to develop eco-friendly industries. The initiative is aimed at creating a green "growth engine" for the nation’s ailing economy.