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Towering above the sweeping grasslands of Erdos, in North China's Inner Mongolia Autonomous Region, two 60-meter-high cylindrical structures stand against the skyline.

The structures - reactors for liquefying coal - are part of a project to mass-produce desperately needed fuel oils from the country's rich coal resources.

More than 10,000 workers from across China are constructing the massive project, the first industrial facility in Ejin Horo Banner.

"The project is in its final stage of construction and will be ready for production late in the year," said Wang Yulong, deputy manager in charge of the coal-liquefying arm of the Liquefied Coal Oil Company of Shenhua Group Corporation Ltd, the country's top coal producer.

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The facility will produce mostly diesel oil, plus liquefied petroleum gas (LPG), naphtha (a volatile, flammable liquid hydrocarbon mixture) and hydroxybenzene.

With a budget of 12.3 billion yuan and an annual production capacity of five million tons of oil, the project will be completed in two stages. In the first phase, three production lines will be installed.

"We're installing the first production line and its infrastructure," said Wang. "Upon completion, the line will be able to process annually 3.45 million tons of coal into 1.08 million tons of oils, including 720,000 tons of diesel oil."

Before starting the project, Shenhua successfully tested the technology at a specially built converter in Shanghai, according to Wang.

"The project in Erdos is about 1,000 times the size of the Shanghai model," said Wang, claiming it would be both environmentally friendly and lucrative.

Preliminary estimates showed 3.4 to 3.5 tons of coal could produce a ton of oil, and if the price for a barrel of crude remained at $35, the facility would be profitable, said Wang.

Industry observers say the Erdos project is significant to China's food and energy security.

"The efficiency of conventional coal use is very low, but the profits from coal-oils can be much higher," said an expert surnamed Wu. "Moreover, grains, such as maize, will be spared from being processed into ethanol."