BEIJING, May 23 -- Royal Dutch Shell Plc, Europe's second-largest oil company, said it is holding talks on investing in a 19.3 billion-yuan (US$2.4-billion) oil refinery being built by China National Offshore Oil Corp in southern China.

    Shell wants to invest in the refinery to integrate the facility with an adjacent US$4.3 billion chemical joint venture with China National Offshore, Lim Haw Kuang, chairman of Shell's companies in China, said yesterday at Daya Bay in Nanhai, an area in the southern province of Guangdong.

    Shell and China National Offshore, the nation's third-largest oil company, started operating the petrochemical venture in Huizhou City in January. Nearby, China National is building its first refinery to process as much as 12 million metric tons a year of crude oil into fuels starting in June 2008 and to supply naphtha to the chemicals joint venture.

    "We want to be an integrated chain in the downstream business," Lim said.

    Rising demand

    China National Offshore, the parent company of overseas-listed CNOOC Ltd, began work in December on the refinery to benefit from increasing demand for fuels and chemicals. China National Offshore said it mostly will use its own oil pumped from offshore China at the refinery.

    China's oil consumption is rising, partly because of increased demand for oil products such as naphtha, used as a raw material in chemicals. Companies including BASF AG, the world's biggest chemical maker, are expanding output in China as they sell more of their chemical products for use in auto parts, packaging and plastics.

    Shell wants to reduce the cost of naphtha that the joint venture processes into chemicals, said Tan Ek Kia, vice president of ventures and development for Shell Chemicals in Asia Pacific and the Middle East.

    The chemicals venture is testing various types of condensate as feedstock at the plant, which is also designed to process naphtha, gasoil and liquefied petroleum gas.

    Government curbs on fuel prices have prevented refiners from passing on higher costs to consumers. "China will move towards international pricing for its oil products," Shell's Lim said. "The question is how soon but the scope is opening."

    (Source: Shanghai Daily)