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Shell, Sinopec in China Retail Venture

New York Times: Shell, Sinopec in China Retail Venture

“But Shell still lagged rival BP in the race for a piece of the lucrative Chinese market.”


August 30, 2004

SINGAPORE (Reuters) – Royal Dutch/Shell Group(SHEL.L) said it would jointly operate 180 gas stations in China by the end of 2004, the second foreign oil major after BP to enter the country’s huge but tightly controlled retail market.

Shell’s joint-venture with state refiner Sinopec Corp (0386.HK) (SNP.N), would eventually run 500 retail outlets in eastern Jiangsu province, with total investments of $187 million, the companies said in a statement received by Reuters on Monday.

“We believe that this venture will lay an important foundation for our oil products retail business in the world’s fastest growing economy,” said Rob Routs, group managing director of the Royal Dutch/Shell Group of Companies.

Sinopec Corp, which announced on Monday a near doubling in second-quarter net profit to 8.14 billion yuan ($983 million), would hold 60 percent in the joint-venture to be based in the eastern city of Nanjing, the companies said. Anglo-Dutch Shell would hold 40 percent.

The joint-venture would start operations in Suzhou city, where about 180 service stations were planned by the end of the year with another 100 sites each in Wuxi and Changzhou city planned to open by end-2005, they said.

Some sites would be acquired or leased from Sinopec’s existing retail network but the joint venture said it also planned to develop new sites. Sinopec would supply all fuel to the joint venture.

But Shell still lagged rival BP (BP.L) in the race for a piece of the lucrative Chinese market.

China, the world’s second-largest oil consumer after the United States, has about 90,000 petrol stations.

BP operates 360 retail outlets in a tie-up with top Chinese oil major, PetroChina (0857.HK)(PTR.N), in southern Guangdong province, China’s largest regional consumer, said BP’s Beijing-based spokesman Zhao Yuanheng.

“And by the end of this year, our gas stations will emerge in Zhejiang province, in cities of Ningbo, Hangzhou and Shaoxing,” said Zhao, referring to BP’s own joint venture with Sinopec to operate 500 outlets in the booming eastern province.

China has closely guarded its state oil-dominated domestic market. But it has allowed the world’s top oil trio — ExxonMobil (XOM.N), Shell and BP — to take a slice of the business in return for their support in the initial stock offerings of Chinese oil firms in 2000 and 2001.

Each of the global oil giants was offered the chance to build or acquire 500 petrol stations in the booming east and south of the country in joint-ventures with Chinese partners.

ExxonMobil will be the last to flag its logo as its retail investment, in south China’s Fujian and Guangdong provinces, is linked to a refinery expansion project. Negotiations with partner Sinopec also took longer than others.

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