KYIV, Ukraine, December 27, 2012 /PRNewswire/ --

The state oil and gas company Naftogaz  signed the USD 3.656 billion credit agreement with the state-owned China Development Bank to finance the program of substituting natural gas with locally produced coal. The program is aimed at improving Ukraine's energy security and alleviating dependence on foreign natural gas.

The contract, guaranteed by the Ukrainian government, stipulates implementation of four separate investment projects, which are to transfer national thermal energy production facilities to using coal-water fuel, and build five coal gasification plants.

If successful the project will allow the replacement of about four billion cubic meters of natural gas with coal, create 2,020 jobs, help Ukraine save an average of USD 1.5 billion annually and stimulate the production of 10 million tons of domestic coal per year. In addition, Ukraine will receive modern technology, upgrade infrastructure as well as create a strong market for domestic coal producers.

Previously, Ukraine expressed its interest in the Chinese technology of coal gasification and coal-water fuel production. Nowadays, "coal gasification offers one of the most versatile and clean ways to convert coal into electricity, hydrogen and other valuable energy products," said George Muntean, the Department of Energy's Pacific Northwest National Laboratory, as quoted by sciencedaily.com. Coal gasification does not involve burning coal; the rock is broken down using high temperature and pressure instead. This technology allows for easier extraction of carbon dioxide from a gas stream.

Another option for Ukraine is to use coal-water slurry fuel, sometimes referred to as coal-in-water or CWS, instead of oil and gas at heating and power stations. The fuel is a mixture of coal and water. The use of CWS allows the reduction of emissions in the atmosphere by 20 to 35 percent. Reportedly, such fuel is explosion-proof. Moreover, the price of CWS may be 30 to 70 percent lower than that of oil or gas due to the geographical locations of oil and gas fields.

Increasing energy production from coal aligns with Ukraine's goals to strengthen its energy independence. According to the State Program on Energy Efficiency 2010-2015, Ukraine will reduce domestic energy consumption by increasing energy efficiency, developing domestic gas reserves, introducing green energy production technology, and diversifying gas import.