Shell considers $2bn Chinese refinery plan

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Last updated at: (Beijing Time) Monday, December 29, 2003

Shell considers $2bn Chinese refinery plan

Royal Dutch/Shell is considering investing in a $2bn oil refinery in Guangdong province, next to the petrochemicals complex it is building in association with China National Offshore Oil Corporation.

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Royal Dutch/Shell is considering investing in a $2bn oil refinery in Guangdong province, next to the petrochemicals complex it is building in association with China National Offshore Oil Corporation.

The planned venture would expand the Anglo-Dutch group's $4.3bn, Nanhai petrochemicals complex being developed with CNOOC at Daya Bay, the largest Sino-foreignjoint venture to date.

Simon Lam, chief executive officer of the CSPC joint venture, said work had started on a feasibility study examining potential synergies from a refinery adjacent to the petrochemicals plant. "We are interested and we are looking into it," he said.

However, the local Communist party secretary, Li Xiufeng, said: "Shell has the intention to build a refinery here in Daya Bay. I support this refinery."

CNOOC, which owns the site adjacent to the petrochemicals complex, has applied to the Chinese government for permission to build the refinery.

Mr Li said he expected central government to grant approval for the refinery in the next six months.

The proposed facility would supply materials to a cracker, or processing plant, which produces ingredients for plastics used in cars and television sets.

Initial estimates put synergies at $50m-$150m a year, though Shell said the cracker was designed to be profitable with or without a refinery next door.

"All crackers in the world will need a refinery next to them. Otherwise they will die," said Jean-Louis Bilhou, manufacturing director at CSPC.

The project was originally intended to be a refinery when Beijing first discussed it with Shell 14 years ago.

By 1997, the plans had changed to accommodate a petrochemicals site and a refinery, Mr Lam said. Construction of the petro-chemicals complex, which is funded by Asia's largest-ever project finance deal, began in May. It is expected to begin commercial operations in January 2006, supplying downstream plants and other customers.

Nanhai, the largest of three such complexes being built through joint ventures with foreign groups, is intended to meet rising demand for petrochemicals to fuel China's rapidly growing industrial base. Because of a shortage in production capacity, China has become the world's largest chemicals importer. Goldman Sachs estimates China will account for 40 per cent of global demand growth in 2003-2006.

Moreover, with imports accounting for 35 per cent of crude use in 2003, big Chinese oil groups are also expected to look for overseas acquisitions in addition to their domestic joint ventures with overseas oil companies.

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