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Reuters: Sinopec in talks with Shell, KPC, Dow on refinery

Fri Aug 10, 2007 3:58 AM BST
By Chen Aizhu

BEIJING, Aug 10 (Reuters) – Sinopec Corp. is in early negotiations with Royal Dutch Shell, Kuwait Petroleum Corp and Dow Chemical Co. to build a $5 billion refinery and petrochemical plant in southern China.

Sinopec President Wang Tian Pu told Reuters on Friday the partners were preparing to do feasibility studies for the Guangdong project, which could have a capacity of 350,000 barrels per day (bpd) and would meet Shell’s hopes for a foothold in China’s refining sector.

“What we need from foreign partners is management skills and technology,” Wang said on the sidelines of a Sinopec board meeting.

Shell told Reuters in an interview earlier this year it was working hard to gain entry to the world’s second largest oil consumer after hopes for taking a share in a new $2.5 billion CNOOC refinery were dashed late last year.

China gave preliminary approval last year to the refinery joint venture in the Nansha area of provincial capital Guangzhou, which Kuwait’s energy minister has said will likely have a capacity of between 300,000 and 350,000 bpd.

If it goes ahead, the refinery would become one of the largest joint venture investments in China, overshadowing the nearby Nanhai petrochemical complex built by Shell and CNOOC for $4.3 billion.

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.

But Beijing has pledged to eventually liberalise prices, and oil producers, flush with cash from crude prices over $70 a barrel, may be prepared to take a short-term hit to secure access to China’s vast market.

Beijing is showing a 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.

Big oil companies have also proved more reluctant than state Asian firms or major OPEC producers to invest in new refining facilities, fearing that the upcycle may crash when new Asian capacity comes online at the end of the decade.
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