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Shell Signs On for Possible China Refinery

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Shell Signs On for Possible China Refinery

June 25, 2008; Page B4

BEIJING — Royal Dutch Shell PLC said it has signed a letter of intent withPetroChina Co. and the international arm of Qatar Petroleum to study the feasibility of a new refinery and petrochemical complex in China.

Shell has long signaled its desire to gain a stake in a refinery in China, which it sees as a key growth market for oil products, even though state caps on gasoline, diesel and jet-fuel prices mean domestic refineries are losing money right now.

The pact comes a little over two months after the three companies were involved in a 25-year agreement to ship three million metric tons of liquefied natural gas to China from Qatar, starting in 2011.

China is expanding refining capacity to meet rising demand for fuels, boosted by record economic growth. It imported 33.8 million metric tons of oil products last year and 163 million tons of crude oil, meaning that its dependency on foreign oil is around 50%.

Shell and Qatar Petroleum International will each have 24.5% stakes in the potential refinery and petrochemical facility, with PetroChina having majority control with a 51% interest.

The trio plan “to commence joint preliminary studies to assess the viability of building a refinery and petrochemical-manufacturing complex and marketing its products in China,” Shell said.

Shell didn’t disclose the likely scale of investment in the project, nor which locations were being considered for the refinery and petrochemical complex. However, Shen Diancheng, vice president and general manager of PetroChina’s chemical and marketing unit, said on May 6 that PetroChina and Qatar Petroleum were in talks on building a refinery in the eastern province of Zhejiang with crude to be supplied from Qatar.

China’s state-owned oil companies have been aggressively courting Middle Eastern countries — Qatar in particular — offering access to their rapidly growing market in exchange for long-term energy supply deals.

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