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Kuwait eyes Shell, Dow Chem for China refinery JV

Reuters

Kuwait eyes Shell, Dow Chem for China refinery JV

Tue Jun 3, 2008 1:23am EDT

BEIJING, June 3 (Reuters) – Kuwait Petroleum Corp (KPC) is considering Royal Dutch Shell (RDSa.L: QuoteProfile,Research) and Dow Chemical Co (DOW.N:QuoteProfileResearch) as possible partners in a refinery it intends to build as a joint venture with Sinopec in the southern Chinese province of Guangdong, a senior KPC executive said on Tuesday.

Abdullatif Al-Houti, KPC’s managing director for international marketing, said Sinopec (0386.HK: QuoteProfileResearch) (600028.SS: Quote,ProfileResearch) (SNP.N: QuoteProfileResearch) would have 50 or 51 percent of the Nansha refinery, which would have a capacity of 250,000 to 300,000 bpd.

KPC was awaiting final approval for the refinery from the National Development and Reform Commission, China’s main economic planning agency, and from the environment ministry, Al-Houti told an industry conference.

“We are in talks with Shell and Dow. They are very strong candidates to be partners, and their names have been submitted to the NDRC,” he said.

Sinopec has said before that it was in talks with Royal Dutch Shell and Dow Chemical about bringing their management skills and technology to the project, which will be one of the largest joint venture investments in China.

State-owned KPC and Sinopec, Asia’s top refiner, received preliminary government approval for the Guangdong plant in 2006, but negotiations for major projects in the sensitive energy sector can sometimes drag on for years.

The refinery will include a petrochemical plant with annual ethylene output of 1 million tonnes, which Al-Houti said was a key requirement of both the Kuwaiti and Chinese sides.

Petrochemical production helps ensure profitability in a market where fuel prices are tightly controlled by the government, which in recent years has often set them at loss-making levels.

Sinopec itself received a government subsidy of 7.1 billion yuan ($1.02 billion) in April alone to offset processing losses, Xinhua news agency reported on May 27.

Al-Houti said it was too early to estimate the cost of the refinery because different engineering configurations were still being discussed.

As a rule of thumb, though, a new refinery costs about $30,000 a barrel, he said.

That would put a price tag of $7.5 billion to $9 billion on the Guangdong project — more than the bill of $5 billion that has frequently been floated.

KPC has said it aims to become one of China’s top five crude suppliers within three years.

By 2015, KPC expects to supply between 500,000 and 700,000 barrels per day of crude to the Nansha plant and a second one in Quanzhou owned by a smaller firm, Sinochem, an executive from the firm’s overseas arm said last month.

Exxon Mobil (XOM.N: QuoteProfileResearch) and Saudi Aramco are also building a $5 billion refinery in Fujian province to help meet China’s fast-growing demand for oil. (Reporting by Emma Graham-Harrison; Writing by Alan Wheatley; Editing by Ken Wills)

 

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