London. Royal Dutch Shell dashed hopes that China's booming energy demand would offer vast opportunities for oil refiners, by withdrawing from a joint venture with Sinopec to build a plant in China.
Shell signed a preliminary deal with Chinese state-controlled Sinopec, state-owned Kuwait Petroleum International and U.S.-based Dow Chemical in 2007 to build an integrated refinery and chemical plant.
However, the company has now decided to exit the project.
"Due to strategic and commercial considerations we have decided not to pursue the downstream opportunity," a spokesman said on Friday. He declined to elaborate further on the reasons for the decision.
Chinese retail prices for gasoline and diesel are controlled by government and, when oil prices are high, this can make crude processing a heavily loss-making business.
Nonetheless, expectations that price controls will be eased or lifted, and for continued strong demand for motor fuel, means oil companies have been falling over themselves to seek joint ventures to build refineries and retail operations with state-controlled Chinese oil companies.
Shell has been selling refineries in the U.S. and Europe in recent years and says its refining focus is shifting eastward.
Despite this, Jason Kenney, oil analyst at ING in Edinburgh, said the decision was likely good news for Shell.
"The move may prove to be a key strategy change with respect to China from Shell and is perhaps indicative that returns in China refining are simply not worth it even with the potential for a rapidly expanding market exposure medium and long term," he said in a research note.
Shell already has lubricants manufacturing operations in China, sells aviation fuel and has a fuel retail joint venture with Sinopec.
Reported by Cristina Gallardo, write to This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Related information
- Siemens and Aramco Overseas Company, B.V. enter exclusive licensing agreement for a new water reuse system under joint development
- Shell and Cosan sign MOU to form joint venture in Brazil
- TOTAL and ERG create a marketing and refining joint venture in Italy
- Shell floating LNG technology chosen by joint venture for Greater Sunrise project
- PetroSA appoints legal advisers for refinery project in South Africa
- Ecuador, China to create oil joint venture
