The agreement gives the go-ahead for second-stage feasibility studies on the viability of two 80,000 barrel per day CTL projects west of Beijing.

The plants are expected to cost more than $US5 billion each and should the projects go ahead, they could be brought into operation as early as 2012. In developing new CTL plants, Sasol said its objective was to design carbon capture-ready facilities, which can significantly reduce greenhouse gas emissions.

The agreement comes as the booming growth of the Chinese economy has caused the country to increase its oil imports exponentially.

Sasol chief executive Pat Davies said that as a result, CTL conversion technology has been recognised at the highest levels in China as having the potential to reduce dependence on the importation of crude oil and refined products.

Davies said coal utilisation technologies have been flagged in the 11th Five Year Plan of the People’s Republic of China as an area for policy intervention and support.

“This policy makes eminent sense,” said Davies.

“China has all the energy it needs in the form of coal and Sasol can provide the means of turning this coal into valuable transportation fuel to replace imported crude oil.”

The agreement signing was followed by a Sasol presentation on the value proposition of CTL for China to Chinese Premier Wen Jiabao, who is on an official visit to South Africa.

Sasol said it has produced more than 1.5 billion barrels of oil equivalent fuel in South Africa and is recognised as the world leader in producing fuel from coal.

“Sasol offers China commercially proven and world-class experience in converting abundant coal reserves into valuable synthetic liquid fuels. Our proprietary and proven Fischer-Tropsch technology offers China a compelling and competitive fast-forward to meeting its future energy requirements in an efficient, reliable and sustainable manner,” Davies said.

The second-stage feasibility studies will go into more detail in determining capital cost, feedstock cost, water supply and market conditions and will also determine most of the major commercial and funding issues.

Sasol said the establishment of the two new plants in the western hinterland is expected to result in thousands of new jobs and spin-off economic development outside of China's existing high-growth regions.

“Sasol seeks to establish a mutually beneficial relationship that will contribute to China's economic development and energy security. Such relationships signal a new form of cooperation between developing nations,” said Davies.