Chinese state-run energy giant Sinopec has drilled hundreds of wells across the country without finding a single drop of oil. But that was precisely the point: instead of black gold, the almost mile deep holes are providing clean heat for local homes.

While two-thirds of China's electricity is generated by coal, almost all of the homes in northern Hebei province's Xiong district -- home to 400,000 people -- are heated by wells as deep as 1,500 metres (5,000 feet).

In a new apartment in the district, a 60-year-old retiree watched his granddaughters hop about in bare feet, impervious to the frost outside.

"This floor heating works like a dream," said Li Fuzeng. "And they say it's clean energy."

The temperature inside his home was 28 degrees Celsius (82 degrees Fahrenheit) and a citrus tree in the corner showed no signs of winter.

Chen Menghui, director of Sinopec's geothermal branch in Hebei, said the process depends on a cycle of running water.

"These underground wells are pumped with water, which comes out at a temperature of around 70 C before flowing into the heating system," he said.

Though experts say there is immense potential in China's subterranean heat reserves, they remain largely unexploited, accounting for less than 0.5 percent of the Asian giant's energy consumption.

Sinopec's geothermal projects in China make up for more than 40 percent of the total number of homes heated by geothermal energy in the country, making them a potential model for how it can tap this resource.

- An Icelandic ally -

Before launching itself into the geothermal industry, Sinopec found an unusual partner in the Icelandic company Arctic Green Energy.

Sinopec needed technical support and Iceland is regarded as the leader in extracting energy from the ground.

In a joint venture beginning in 2009, they invested 400 million yuan ($58 million) into the Xiong project, where they drilled almost 70 wells.

The idea was to apply the technology that had already been tested in the Nordic country to northern China.

"Iceland, on the mid-Atlantic ridge, has exceptional resources, with temperatures exceeding 250 C -- hot enough to supply power plants," said Wang Yanxin, a geological research officer at Sinopec.

"In China, with the exception of Sichuan and Tibet, there are hardly any temperatures exceeding 150 C, which forces us to concentrate on heating systems," he added.

Sinopec, which has suffered in recent years from the tumble in oil prices and the slowdown of the Chinese economy, appears to be investing further in renewable energy, including solar and wind, as well as geothermal.

The company has geothermal facilities in 16 Chinese provinces, allowing it to heat some 40 million square metres of homes and factories -- and avoiding an estimated three million tonnes of CO2 emissions.

One potential benefit of the project could be a significant reduction in local air pollution, a problem that has plagued much of northern China.

According to Sinopec, Xiong has become China's first "smokeless town" by eliminating the coal-fired heating systems common throughout other parts of the country.

The moniker is not entirely accurate, though. Although the city has done away with polluting furnaces, Li's neighbourhood is still regularly covered with a thick layer of pollution coming from surrounding industrial districts.

Still, Sinopec aims to develop 20 such "smokeless cities" nationwide by 2020.

The company's ambitions align with the ruling Communist Party's plan to significantly reduce air pollution in Chinese cities, in part by increasing the use of clean energy to replace carbon-based fuels.

That goal includes a ten-fold increase in geothermal resources: growing electrical output to 530 megawatts by 2020 and tripling the floorspace of buildings heated by geothermal energy.

Although it sounds like a big number, it would still be a drop in the bucket of overall Chinese electricity production (5.638 billion megawatts in 2014) and very modest compared to Iceland (close to 700 MW) or the United States (3,930 MW).

-'Meagre profits'-

Lin Boqiang, the director of the energy research centre at Xiamen University, is sceptical of the project.

"It's clean, but compared to solar or wind, the cost of geothermal is incredibly high," he told AFP, questioning whether the project could survive without state support.

"Its future is certainly not as assured as solar... The market for Sinopec is still marginal."

At Sinopec, Duan Qiaohong, who is responsible for the Communist Party committee involved with the Sino-Icelandic joint venture, discussed the problem in veiled terms.

"It is evidently a crucial question whether there is demand in the market, that's ultimately what decides in the end," he told AFP.

The sector produces only "meagre profits" and in the absence -- for the time being -- of national support, it still depends on subsidies from local authorities, he said.

But "other big public groups have followed in Sinopec's footsteps" and increased competition could encourage the development of cheaper geothermal technologies, Duan said.

Either way, he added, the future looks bright: "The geothermal industry corresponds perfectly with current clean energy priorities."

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SINOPEC - CHINA PETROLEUM & CHEMICAL CORPORATION