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Forbes: China Taps Kuwait

Lionel Laurent, 12.05.07, 3:00 PM ET

LONDON – China has given the go-ahead to a $5 billion oil refinery project shared between China’s Sinopec and Kuwait’s national oil company, marking a big step towards even closer ties between the Persian Gulf and its loyal Asian customer. But the European oil majors that were once reportedly involved in the project, such as Royal Dutch Shell, remained conspicuously absent from the announcement.

Chinese oil refiner Sinopec (nyse: SHI – news – people ) said that the Chinese government had approved plans to start work on the refinery project in the Guangdong province, which is slated to begin processing 300,000 barrels per day in 2010. Kuwaiti oil will be used, according to a memorandum of understanding signed with the Gulf country in 2005, and the project could be the biggest international energy joint venture of its kind in China.

Sinopec’s New York-listed shares rose $3.71, or 5.9%, to $66.89, during afternoon trading. The state-owned company lost its chairman in June, after rumors of corruption and embezzlement. (See “Sinopec Chief Abruptly Resigns”)

“Kuwait has been investing in downstream and consumer markets of the oil business, using the windfall and building up a global industry,” said Samuel Ciszuk, energy analyst with Global Insight. “And since China is emerging as a big fuel market for the future, it makes sense for them to go to China and establish a foothold.”

China relies on the Middle East for over half its total oil imports, and the Institute for the Analysis of Global Security has predicted this share will rise to 70% by 2015.

Press reports had previously claimed that Royal Dutch Shell (nyse: RDS.B – news – people ) would be a partner on the project, with the official Kuwait News Agency reporting in September that it was set to be dropped from the joint venture. The report said that the Kuwait Petroleum Corporation wanted to replace Shell with a different company such as BP (nyse: BP – news – people ) after several objections from China.

Neither Shell nor BP would comment on the story Wednesday.

Shell currently operates a $4.3 billion petrochemical facility with China’s National Offshore Oil Company, also located in the Guangdong province.

The Associated Press contributed to this article.

http://www.forbes.com/markets/2007/12/05/kuwait-china-shell-markets-equity-cx_ll_1205markets16xml.html

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