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Reuters: Shell’s China cracker on track for end-yr start

Reuters: Shell’s China cracker on track for end-yr start

“Royal Dutch/Shell Group’s $4.3 billion joint-venture naphtha cracker in southern China is on track to start up by late this year…”

Tuesday 13 Sept 2005

Tue Sep 13, 2005

By Lucy Hornby

SHANGHAI (Reuters) – Royal Dutch/Shell Group’s $4.3 billion joint-venture naphtha cracker in southern China is on track to start up by late this year, helping to meet booming demand for the chemical used in products ranging from fertiliser to diapers.

Downstream units to process the venture’s 800,000 tons per year of ethylene output are slated to come online in early 2006, the project’s manager told Reuters in an interview on Tuesday.

A condensate splitter would also be ready at the same time as the cracker, said Colin McKendrick, manager of Shell’s (RD.AS: Quote, Profile, Research) (SHEL.L: Quote, Profile, Research) Nanhai venture, allowing the complex to import either condensate or naphtha as feedstock.

“Today condensate is a bit more attractive than naphtha, but that’s not necessarily the case in the future. You also have to keep in mind that condensate has no import duties, while naphtha does,” McKendrick said.

Shell’s venture with China’s No. 3 oil producer, China National Offshore Oil Corp. (CNOOC) in Nanhai, southern Guangdong Province, would be the third world-scale cracker to start this year in China — a country that still has to import about half its petrochemical needs.

It would follow two in eastern China — one operated by BP Plc. (BP.L: Quote, Profile, Research) and top Asian oil refiner Sinopec Corp. (0386.HK: Quote, Profile, Research) (SNP.N: Quote, Profile, Research) (600028.SS: Quote, Profile, Research), and another between BASF A.G. (BASF.DE: Quote, Profile, Research) and Sinopec unit Yangzi Petrochemical Corp. (000866.SZ: Quote, Profile, Research).

Their demand has helped strengthen naphtha premiums over Brent crude to about $110 a ton in Asia, compared with less than $4/ton in late June.

Some of the feedstock for Shell’s venture plant could come from partner CNOOC nearby 12 million tpy Huizhou refinery, which McKendrick expects to begin operations in mid-2008.

The joint venture, half-owned by Shell and half by CNOOC and a Guangdong government investment arm, will sell its output primarily in Guangdong and southern China, McKendrick said.

Shell is also forming a wholly owned chemicals marketing arm in China, to import and sell output from its plants in Singapore and the Middle East to eastern, central and northeastern China.

One other cracker — an Exxon Mobil Corp. (XOM.N: Quote, Profile, Research), Saudi Aramco and Sinopec joint venture under construction in the southern province of Fujian — could spell the end of an era, McKendrick said.

“It’s going to become increasingly difficult to be a joint venture partner” as Chinese partners develop their own expertise and access to capital, McKendrick said.

“The winning attributes in the future will be those companies that can bring access to crude oil, that can establish research and development centers in China, and offer opportunities to partner abroad.”

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