BEIJING - Lured
by huge opportunities in the Chinese oil
product market, Shell has come back to the
country's refining sector through its participation in
the Nansha greenfield refinery, a refining branch
of China Petroleum and Chemical Corp's
(Sinopec) Guangzhou Petrochemical.
Dow Chemical, a global chemical giant, has
followed Shell's move. Of interest at the Nansha
greenfield refinery is a soon-to-be-constructed ethylene
plant with an annual capacity of 1 million
tonnes.
With bigger ambitions, Shell is planning
to enter both the refining sector and the chemical
sector as they offer huge potential, even though
the Chinese central government still controls oil
product pricing rights.
China National Offshore
Oil Corp's (CNOOC) Nanhai ethylene plant,
with a capacity of 800,000 tonnes a year and now
under operation, is the first attempt by Shell to
enter the country's ethylene sector.
Shell
hopes to develop the Nansha greenfield refinery as
its first foothold in the country's refining
sector, though the company withdrew from CNOOC's
Huizhou greenfield refinery in late 2006. It is
believed that Shell has now become optimistic over
the prospect of China's refining industry and
reform of the oil product pricing system.
A senior manager of Sinopec told China Oil
Gas and Petrochemicals that both Shell and Dow
Chemical had intentions to participate in the
Nansha refining project. But it is not Sinopec but
Kuwait Petroleum Company (KPC), the agreed partner
of the refining project, that has invited Shell
and Dow Chemical to invest in the project.
The manager said that negotiations over
the Nansha refining project could become more
complicated, but fortunately Sinopec will not
conduct direct negotiations with Shell and Dow
Chemical. It is KPC that carries out direct
negotiations with the two foreign partners, but
any results between the three parties will be
handed to Sinopec for approval.
Insiders
also believe that it is not necessary for Sinopec
to invite any other foreign oil players to
participate in the Nansha refining project if the
crude oil supplier is settled. But it seems that
Sinopec finds it hard to reject KPC's invitation,
for Sinopec has to rely on the Middle East company
to ensure crude oil supplies for the Nansha
project.
Oil companies from the Middle
East have been actively participating in China's
refining projects in recent years. They have found
a large, stable market for their crude exports and
relatively convenient access to China's refining
and oil product distribution sectors.
The
key reason for Kuwait to ask Shell and Dow
Chemical to enter is that Shell and Dow Chemical
are so powerful in refining and chemical
production. Their involvement should ensure the
normal completion and operation of the Nansha
project and reduce risks.
Apart from Shell
and Dow Chemical's involvement, the joint venture
of the Fujian refining/ethylene complex project
between Sinopec, ExxonMobil and Saudi Aramco will
help Sinopec accumulate expertise in building and
operating a large-scale refining and ethylene
project.
Besides the Fujian project, the
Nansha project, with an estimated investment of
US$5 billion, will be the second one involving
both refining and petrochemicals, but this will be
the largest Sino-foreign joint venture of its
kind. If successful, the Nansha refinery will help
Shell explore the country's wholesale oil product
market.
Sinopec's manager said that
negotiations were underway, but he was not clear
when they would be finished and a joint venture
would be established.
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