Shell moving East for key future markets

Oct 29, 2007 01:00 AM

Royal Dutch Shell is "moving East" to countries including China and India, which the company regards as key future markets, to take advantage of local booming oil products demand, a senior Shell executive said.
Demand in the East is growing strongly along with their economies, while demand in Europe and the US is moderating, due to high pump prices, higher vehicle efficiency and greater use of substitutes such as biofuels, Rob Routs, executive director downstream, said. The growth in India, China, Indonesia and other eastern countries created a refinery shortage that has been filled quickly, he said, adding that refining capacity will increase 22% between now and the end of 2010 in the region.

In Europe, demand for gasoline has fallen around 5% so far this year, while demand for diesel is flat, he said. He added that he wasn't sure if the weak demand was a result of high prices, environmental concerns among users or increased efficiency.
In the US, oil demand growth is slowing to 0.6%-0.7% in the third quarter from 1% last year, he said. Nevertheless, Routs said the slowdown in growth could be seasonal due to the end of driving season. He said he believed current high oil prices were driven by speculation, and that there is enough crude available now and enough capacity being added.

When asked if Shell had been elbowed out of a refinery investment by Kuwait Petroleum Corp. (KPC) and Sinopec in southern China, he said Shell isn't giving up on talks with KPC on refinery investment in China, and is "teaming up" with KPC for refinery options globally. Shell signed a memorandum of understanding with KPC a couple of years ago for refinery opportunities across the world, he said.
So far this year, China has kept its retail oil products prices relatively low despite surging global crude oil prices, resulting in big domestic refining losses. But Routs preferred to emphasize long-run investments instead of short-term losses.
"We need a refinery position in China... China is one of our key markets for the future," he said.

The China market will open up more, and "we need to position ourselves at this point until the market liberalization is set true," he said.
Shell has been operating more than 400 gasoline service stations in China jointly with Sinopec, he said. Shell also has a joint petrochemical complex with China National Offshore Oil Corp. in southern China. The plant is performing well, he said, operating at 94% of capacity in the first three quarters of this year, compared with 85% in the same period of last year. He expected the plant to meet its full design capacity, but said the company has no immediate plans to increase capacity, he said.

Shell will divest its smaller refineries and focus its investment on large and competitive refineries globally, he added. Shell has already sold two French refineries this summer for over $ 1 bn (EUR 680 mm).
In September it announced it was cooperating with Saudi Aramco for a $ 7 bn (EUR 4.7 bn) expansion of its Port Arthur, Texas, refinery that would create the largest US refinery and one of the biggest worldwide.

Source / Dow Jones & Company
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