Shell in Talks to Invest in China National Refinery
May 22 (Bloomberg) -- Royal Dutch Shell Plc, Europe's second-largest oil company, said it's in talks about investing in a 19.3 billion-yuan ($2.4-billion) oil refinery being built by China National Offshore Oil Corp. in southern China.
Shell wants to invest in the refinery to integrate the facility with an adjacent $4.3 billion chemical joint venture with China National Offshore, Lim Haw Kuang, chairman of Shell's companies in China, said today at Daya Bay in Nanhai, an area in the southern province of Guangdong.
Shell and China National Offshore, the nation's third- largest oil company, started operating the petrochemical venture in Huizhou city in January. Nearby, China National is building its first refinery to process as much as 12 million metric tons a year of crude oil into fuels starting in June 2008 and to supply naphtha to the chemicals joint venture.
``We want to be an integrated chain in the downstream business,'' Lim said. ``We want to participate in the value chain when it makes economic sense.''
China National Offshore, the parent company of overseas- listed Cnooc Ltd., in December began work on the refinery to benefit from increasing demand for fuels and chemicals. China National Offshore said it will use mostly its own oil pumped from offshore China at the refinery.
China's Consumption
China's oil consumption is rising, partly because of increased demand for oil products such as naphtha, used as a raw material in chemicals. Companies including BASF AG, the world's biggest chemical maker, are expanding output in China as they sell more of their chemical products for use in autoparts, packaging and plastics.
China's economy expanded by an average 10 percent over the last three years and maintained that pace in the first quarter as investment in factories, real estate and other fixed-assets accelerated. The Chinese government forecast economic growth may average 7.5 percent a year over the next five years, Premier Wen Jiabao said in March.
China's chemicals demand is forecast to keep expanding in line with the economy, said Tan Ek Kia, vice president of ventures and development for Shell Chemicals in Asia Pacific and the Middle East, prompting a plan to expand output at the Nanhai venture.
``Definitely it is in our plan to expand,'' Tan said. ``It's still early days, but we are focusing more on expansion from debottlenecking,'' or removing output restrictions in any part of the process that limits overall production.
Shell wants to reduce the cost of naphtha that the joint venture processes into chemicals, Tan said.
Condensate
The chemicals venture is testing various types of condensate as feedstock at the plant, which is also designed to process naphtha, gasoil and liquefied petroleum gas, Simon Lam, chief executive of Cnooc & Shell Petrochemicals Co., which operates the chemicals plant at Daya Bay, said today.
Government curbs on fuel prices have prevented refiners from passing on higher costs to consumers. China Petroleum & Chemical Corp., Asia's largest refiner, lost $1.03 processing each barrel in the first quarter, and losses will extend into the second quarter, Chief Financial Officer Zhang Jiaren said on April 28.
``China will move towards international pricing for its oil products,'' Shell's Lim said. ``The question is how soon, but the scope is opening.''