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The Brunei Times: Shell clings to China refinery investment

Felicia Loo and Jonathan Leff
SINGAPORE
22-Apr-07

OIL major Royal Dutch Shell is working hard to gain a foothold in China’s refining sector after hopes for taking a share in a new CNOOC refinery was dashed, a top company executive said last Friday.

But its eagerness to own a share of capacity in the world’s second-largest oil consumer is not matched in India, where a huge wave of new refining capacity should provide more than enough fuel to supply its plans to expand into the retail sector.

Shell, the world’s third-largest listed oil firm by market value, and China National Offshore Oil Corp (CNOOC) ended talks late last year about investing in a US$2.5 billion, 240,000 barrels per day brefinery CNOOC is building in southern China.

“It’s not a question of not wanting to,” Rob Routs, Shell’s global head of refining, said of the failed talks. Shell already partners CNOOC Group, parent of Hong Kong and US listed CNOOC Ltd, in the US$4.3 billion Nanhai naphtha cracker in Guangdong province, next to the planned refinery, from where it could get oil product feedstocks.

He said that Shell was talking to all the major players in a market dominated by Asia’s biggest refiner Sinopec and rival PetroChina, but competition for partnerships was tough. “It will be more of a joint venture as China is not an open market at this point. We are trying very hard,” he said.

Although Exxon Mobil Corp this year put the finishing touches on a US$5 billion joint-venture with Sinopec and Saudi Aramco for a major refining and petrochemical venture, oil majors are facing an increasingly uphill task in entering China.

Beijing is showing a clear preference toward teaming up with state-owned firms who can offer supply guarantees from producers such as Kuwait and Venezuela, with less need for the technology or financing offered by the majors, analysts say.

Despite the allure of China’s huge retail market and double-digit economic growth, foreign firms have been put off by state-controlled retail prices that often crush margins. Routs linked the importance of owning capacity to its plan to expand Shell’s modest retail presence in China. “That’s tiny… 400 stations will not do in a country like that,” he said. Shell is taking a different approach in India, Asia’s third-largest fuel consumer, where it figures the rush to build export-oriented refining capacity will ensure more than enough supplies to support its small but growing retail business.Reuters 

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