As China's energy demands continue to grow, one new technology is in the spotlight. Coal liquefaction converts coal into diesel fuel, but takes a hefty toll on the environment. Here's more on the story.

China is the world's second largest importer of crude oil.

And with a growing demand for the black gold the country is turning its cheap surplus coal into liquid fuel.

Coal giant Shenhua produces almost 3,000 tons of diesel daily from coal at its massive plant in Ordos in Inner Mongolia.

The process, called coal liquefaction, produces only a small proportion of the total amount of fuel that has still to be imported.

But Zhang Jiming, a manager at Shenhua, says the process is an investment in the future.

[Zhang Jiming, Manager, Shenhua]:
"Beginning to develop crude oil has its limitations. There are very few crude oil resources. But there are, relatively speaking, a lot of coal resources worldwide. So in the future, when oil resources start to decrease, we'll have to heavily rely on coal. Therefore, breaking this path open is not merely beneficial in strategic terms for China but the entire world when it comes to developing energy sources."

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Coal liquefaction produces twice as much CO2 as traditional coal industries and China is already the world's top polluter.

The process also relies heavily on water - a resource that many coal mining regions lack, says Shi Shidong, chief engineer at the China Coal Research Institute.

[Shi Shidong, Chief Engineer, China Coal Research Institute]:
"When it comes to developing this further, it'll be limited by the availability of water, since one ton of oil needs about six to eight tons of water. And the western parts of China lack water. So how big this will become depends on the availability of water."

But China's crude oil imports hit a monthly record high in September of nearly 24 million tons.

With this kind of demand, China may decide to satisfy its thirst for diesel regardless of the cost.