Shell Wants 30% of CNOOC Refinery

Shell is in talks with Chinese oil company CNOOC on a 30% stake in a $7.5 billion refining project, the China Daily newspaper reported on Tuesday, citing CNOOC officials.

The project, expected to become operational in 2014 with an annual refining capacity of 10 million tons and ethylene production of 1 million tons, is the second phase of CNOOC's Huizhou refinery at Daya Bay in Guangdong province.

Shell has been looking to reduce its involvement in refining in Europe where it has put plants in Britain and Germany up for sale, but is seeking greater exposure to China, echoing trends in fuel demand.

"The idea of Shell further increasing its presence in China should not really come as any surprise," said analyst Peter Hitchens at brokerage Panmure Gordon. "What you are seeing is that generally the (European) oil companies do not want to invest in refining in developed markets, they are looking at moving into the emerging markets where there is going to be significant growth."

Asian oil companies, however, see gaining a position in European refining plants as a way to expand their global footprint. PetroChina, the world's second most valuable energy firm, on Monday agreed to buy into two refineries in France and Scotland, while Indian group Essar has made a bid for Shell's Stanlow refinery in Britain.

The Chinese government was expected to give the CNOOC refinery project the green light in the first half of this year, Dong Xiaoli, general manager of the Huizhou refinery, told China Daily.

The paper quoted Zhu Mingcai, deputy chief executive of CSPC, a 50/50 joint venture between the two firms, as saying Shell had shown strong interest in participating in the second phase plant, as had several other international petrochemical companies.

Shell is offering to give up 20% of its stake in CSPC to get a refinery deal, the paper said.