Royal Dutch Shells China Refinery Project Shelved

Royal Dutch Shells joint-venture refinery project in China has been dropped after an eight-year wait falling casualty to Beijings unpredictable oil policy, industry sources said on Friday.

Shells high profile $6-billion refinery and petrochemical complex was poised for state approval in December but in a surprise move the 1,60,000-bpd refinery project was dropped, Chinese oil sources said on Friday.

Industry sources said the news would raise doubts about the future of other joint-venture refinery plans in China.

On the drawing board currently are South Koreas Yukong Ltd 120,000 bpd refinery plan in Shenzhen and Saudi Aramcos 200,000-bpd refinery in Qingdao.

 

The latest project to fall foul of Chinese approval was put forward by a consortium led by the Anglo/Dutch oil giant. Shell took a 50 per cent stake and China National Offshore Oil Corp (CNOOC) 20 per cent. Guangdong provincial government, China Merchant Holding Co and state-refiner SINOPEC each held 10 per cent.

The project, including a petrochemical plant, was planned for Huizhou, in southern Chinas booming Guandong province and was first proposed in 1989. Feasibility studies for the project were submitted to the State Planning Commission (SPC) in 1994. Chinese sources said the petrochemical plant would go ahead, to produce 600,000 tonnes per year of ethylene used in making plastic higher than the initially perceived 4,50,000 tonnes.

We want to go ahead with the ethylene plant but...for now, we have planned not to go ahead with the refinery...the decision to drop the refinery was made at end 1996, said a well placed source at (CNOOC). A Shell spokesman in London said the project was on hold but that the company hoped the refinery could still be considered at a later date.

The refinery will come later, the spokesman said. The Shell project is another of the casualties of Chinas unpredictable oil policy, oil experts in Singapore said.

In January, China had said that Beijing would look at proposals for refinery projects from foreign companies on a case-by-case basis. It had also said it would not rule out new projects for the construction of oil refineries, even despite concerns of over capacity.

But in the same month, it has also told senior officials from Mobil Corp that it was not encouraging moves to build joint venture refineries and would rather expand domestic refineries on its own. A planned 1,20,000 bpd refining project in Shanghai with Frances Elf fell through in 1995.

Chinese sources said over capacity of the Chinese refinery sector was a worry for state planners, even if general utilisation rates were only around 70 per cent.