China National Offshore Oil Company (CNOOC), the nation's third largest oil producer, has moved into the petrochemical business after yesterday agreeing with the Shell company to build a US$4.3 billion petrochemical complex.

As the largest foreign-funded scheme to date, the project is expected to produce 800,000 tons of ethylene and 2.3 million tons of petrochemicals a year after its expected completion in late 2005.

It is a bold move by CNOOC, which used to focus on oil and gas production, to diversify its business and latch onto the rapidly increasing demand of China's petrochemical market, the largest in Asia.

The company is also "actively preparing for a large refinery near the petrochemical project" to provide production materials for it, CNOOC President Wei Liucheng said yesterday.

The refinery, if approved by the government, will change the domestic refinery status quo. Presently, rivals PetroChina and Sinopec control half of the domestic refineries.

Wei would not discuss specifics about the refinery but said it would be a world-class facility.

He said the "historic" petrochemical complex was an important step forward for CNOOC to become one of the top 500 international companies by 2005.

CNOOC has taken a 45 percent share in the Nanhai Petrochemical Project, as it is now known, in Huizhou, in South China's Guangdong Province. Shell has a 50 percent stake, while the Guangdong Investment and Development Company gets the remainder.

About US$1.7 billion worth of petrochemicals from the project are expected to be sold each year to industrial customers in Guangdong and other coastal economic zones.

Shell said in a statement that major construction will start early next year.

More than US$1 billion worth of contracts for the processing plants, plant automation and project management services will be awarded by the end of the year.

Evert Henkes, chief executive officer of Shell Chemicals Ltd, said an expansion of the project in the future is likely but will rely on market forces.

Henkes said it is also possible for Shell to invest in CNOOC's proposed refinery, if it is approved.

China has a shortage of petrochemical products compared with its booming economy, with half of the demand being satisfied by imports.

Demand is expected to grow by up to 6 percent annually in the coming years.

To ease the shortage, China is working on several other huge petrochemical joint ventures in the Shanghai Municipality and Jiangsu and Fujian provinces.

Simon Lam Chung Kai, chief executive officer of the Nanhai project's joint venture, said there is little competition within the domestic market as different projects cover different market areas.

"The production capacity still can not meet the rapid demand in China," Kai said.

"Even with these projects commencing operation, China will still need to import a lot."

(China Daily November 2, 2002)