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The Times: BP, Shell and Kingfisher lead the British rush for contracts in China

The Times: BP, Shell and Kingfisher lead the British rush for contracts in China

By Carl Mortished, International Business Editor

May 12, 2004

BRITISH companies, led by BP, Shell and Kingfisher, have secured contracts in China worth more than $1.5 billion (£850 million) as they seek to profit from soaring demand for energy and consumer goods, and increased private car ownership in the People’s Republic.

BP announced that it had signed $1 billion worth of deals at a ceremony in London in the presence of Wen Jiabao, the Chinese Prime Minister.

The oil multinational is ramping up its chemicals investment with a new 500,000 tonne acetic acid plant in Nanjing and it plans to increase capacity at another site in the Pearl River Delta.

Both Shell and BP are expanding their retail presence in China.

Shell said it would develop a new network of 500 service stations in Jiangsu Province, investing about $200 million in a joint venture with its partner, Sinopec. BP agreed a retail joint venture with Sinopec and another with PetroChina which will together acquire or build 500 petrol stations in Zhejiang and Guangdong provinces.

BP said it had also agreed a partnership in a hydrogen vehicle demonstration project with the Chinese Ministry of Science and Technology. The oil multinational has several similar projects around the world, including a hydrogen refuelling station in London.

Separately, Kingfisher, which owns 15 stores in China, including the world’s largest B&Q, in Shanghai, said that it had agreed a strategic sourcing agreement with Midea Group worth $75 million.

China’s ravenous demand for oil products has confounded analysts and contributed to the soaring oil price, which last week hit $40 per barrel in New York, its highest level since 1990.

China’s oil consumption grew by 10 per cent last year, a huge increase in demand in a market where global consumption typically rises by between 2 and 3 per cent per year.

The surge in imports of fuel stems from China’s manufacturing sector and a shortage of electric power. In order to avoid blackouts, firms are using stand-by generators, thus creating unprecedented demand for diesel.

A cut in car tax imposed by China’s entry into the World Trade Organisation has also increased private car ownership and stimulated demand for petrol. While the European petrol retail market stagnates and independent retail falls by the wayside, China is building petrol stations.

Rob Routs, Shell’s managing director for its downstream businesses, said that the deal was a step-change in Shell’s retail presence in China.

“We are combining our international experience and expertise of developing and managing retail networks worldwide with Sinopec’s extensive experience of running major networks in China,” he said.

Both BP and Shell have been developing energy businesses in China for several decades, waiting for the economy of the People’s Republic to awake from slumbers.

Both companies have big petrochemical investments, including Shell’s Nanhai petrochemical plant, a joint venture with CNOOC, and BP’s Secco, a $2.7 billion petrochemical complex outside Shanghai.

BP’s announcement of further investment in chemicals in China testifies to its confidence that the Chinese market for raw materials will continue to expand, despite fears among some experts that the economy is overheating.

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