TELEGRAPH 8:30PM BST 10 Sep 2013
Royal Dutch Shell is likely to face questions over the future of its operations in China after sources claimed an £8.3bn project in the country had been quietly shelved.
The tie-up with China National Petroleum Corp (CNPC), the country’s largest energy producer, and Qatar Petroleum to build a refinery and petrochemical plant is believed to have been suspended after losing political support.
The cancellation of the project in the eastern city of Taizhou will raise doubts about Shell’s bold push into China and its partnership with CNPC.
Shell has assiduously courted the state-owned giant, only to see CNPC swept up in a political purge which has seen at least five current or former executives investigated by the Communist party.
The project would have refined 20m tons of crude and produced 1.2m tons of ethylene a year. It has been planned since 2008 with construction due to begin last year.
The city lies in Zhejiang province, in the manufacturing heartlands of China’s east coast. CNPC was due to take a 51pc stake, with Shell and Qatar providing the raw material for the refinery and each taking a 24.5pc share.
However, the project appears to have fallen victim both to politics and local opposition. Local residents have mounted several protests, fearing that the plant might secretly be used to produce paraxylene, a toxic chemical used in polyester.
“It is not clear what killed it, I heard it might have been to do with land problems,” said a senior petrochemical executive. “Shell told me it was still being planned, but the Chinese confirmed it has definitely been cancelled.”
A second source close to the Chinese oil industry said: “The project will be permanently suspended. At the beginning, it was the local government that really pushed the project because officials were hoping for promotion. Now all these executives are being investigated, nobody cares about the project.”
Zhao Hongzhu, who was the Communist party secretary in Zhejiang when the project was first raised, now holds two hugely important positions in the Communist party apparatus in Beijing.
Shell is also working with CNPC on a shale gas project in the Sichuan basin. According to the Wall Street Journal, progress has been halting, with more than 535 days of exploration lost in the past three years because of “spontaneous village based blockades” or government requests to halt operations.
Shell announced a 19.8pc fall in earnings in the second quarter because of disrupted production in Nigeria and a weak Australian dollar, while also taking a $2.1bn (£1.34bn) write-down on its shale-oil exploration in North America.
A spokesman said Shell is conducting a feasibility study into the project which is ongoing.