Qatar, Shell sign China refinery, petchem deal

CHINA DEAL: Qatar and Royal Dutch Shell, together with PetroChina, plan to build a refining and petrochemical complex in China. (Getty Images)

Qatar and Royal Dutch Shell, together with PetroChina, plan to build an oil refining and petrochemical complex in China, the companies said on Monday.

Although it supplies less than one percent of China's crude imports, the refinery and petrochemical venture represents Qatar's first foray into the massive Chinese oil market, following Middle East peers Saudi Arabia and Kuwait.

"This step will help draw up a road map for setting up economic bridges between Qatar and China and opens investment opportunities," Qatar's Oil Minister Abdulla Bin Hamad Al Attiyah said.

The deal, signed on Monday, cements China's energy ties with Qatar, the world's top exporter of liquefied natural gas (LNG), just two months after the Asian giant agreed to buy from Qatar a total of five million tonnes per year (tpy) of LNG for 25 years.

It will also help usher in Shell after years of hard work trying to break into the tightly state-controlled Chinese fuel market.

The deal, signed in Doha during Chinese Vice President Xi Jinping's state visit, reaffirms analysts' views that Beijing's energy industry policy favours foreign partners with a combination of access to resources and top-notch technology.

"If an international major is hooked up with a resource player, the chances [to break into the Chinese market] will be much higher," said Yan Kefeng of Cambridge Energy Research Associates in Beijing.

But Monday's letter of intent did not give an investment figure, nor the location, scale or timeframe of the proposed multi-billion-dollar venture.

PetroChina, Asia's top oil and gas producer and China's second-largest refinery, will own 51 percent in the proposed joint venture, while Shell and Qatar will own 24.5 percent each, Shell and PetroChina parent CNPC said in separate statements.

The deal also covers join marketing of products, Shell said.

The partnership started with the gas link rather than oil, as Qatar is among the smallest producers in crude oil cartel OPEC but the world's largest exporter of LNG.

China is keen to boost use of gas, either via pipelines from Turkmenistan in central Asia or tanker-shipped LNG, from Algeria to Australia, to fuel its rapid economic growth while trying to cut down carbon emissions.

In April, PetroChina agreed to buy from Qatar three million tonnes of LNG a year for 25 years from 2011. China's number three oil and gas firm, CNOOC, also signed a deal to buy from Qatar two million tpy of the clean fuel from 2009.

Qatar's Monday tie-up with PetroChina follows the lines of a Saudi Aramco/Exxon Mobil venture with PetroChina's domestic rival Sinopec Corp., on a $5 billion refinery, petrochemical complex in southeast coastal province of Fujian.

But in that venture China eyed oil supply from Saudi Arabia, the world's top producer, to satisfy surging import dependence, while the Saudis see China a stable Asian outlet for its oil.

Analysts said a new pattern of petrochemical joint ventures also appears to be taking shape, since a global major such as Shell partnering with a resource nation tends to help smoothe negotiations with Chinese state firms.

Kuwait, for instance, has shortlisted Shell and Dow Chemical Co. as potential partners in a joint venture refinery and petrochemical project with Sinopec in south China that is now undergoing feasibility studies.

"Politically the Chinese may feel more comfortable dealing with a Middle Eastern firm than, say, an American major," a Beijing-based executive with a global major said. (Reuters)

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