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THE WALL STREET JOURNAL: Shell to Boost Presence In China's Chemical Sector

Shell to Boost Presence
In China’s Chemical Sector

May 23, 2006NANHAI, China — Royal Dutch Shell PLC said it plans to step up its presence in the chemicals sector in China on the country’s strong demand for oil products.

Shell is in talks to acquire a stake in a 16.7-billion-yuan ($2.08 billion) refinery owned by China National Offshore Oil Corp. in Nanhai in the southern Guangdong province in China. Tan Ek Kia, Shell chemicals vice president for the Asia-Pacific region and the Middle East, declined to specify the size of the stake Shell wants to acquire.

Shell also plans to raise the capacity of its 50%-owned petrochemicals complex, which is near the Nanhai refinery and has an annual capacity of 2.3 million metric tons, Mr. Tan said, though he didn’t elaborate on the potential increase.

China’s appetite for oil products from fuels to bitumen is among the fastest growing in the world. Companies such as Shell, BP PLC and Exxon Mobil Corp. have been aggressively making their way into the country’s oil-product market.

Most of the refineries in China are still operating at a loss because of the government’s cap on domestic selling prices of petrochemical products, meaning that producers can’t pass increased crude costs on to customers, but Mr. Tan remains bullish on the country’s growing demand for chemicals.

“Demand for chemicals in China tends to be above [the country’s] GDP growth, and I think such a high rate is sustainable,” he said during a visit to the $4.3 billion petrochemical complex, where it accounts for about one-fourth of the nation’s total demand for petrochemical products.

Mr. Tan said Shell is in talks with state-owned Cnooc on the possible acquisition of a stake in the refinery. The refinery is scheduled to start operating in 2008 and will have an annual refining capacity of 12 million metric tons of high-acid heavy offshore crude. Cnooc, the unlisted parent of Cnooc Ltd., couldn’t be reached for comment.

–Ernest Kong in Hong Kong contributed to this article.

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