Chinese teapot refiner using Shell tie-up to launch overseas push
By Chen Aizhu
BEIJING (Reuters) - A Chinese private refiner that agreed to buy a stake in Royal Dutch Shell's Malaysia oil refinery will focus on expanding overseas while limiting domestic investment, the company's chairman told Reuters in an interview on Thursday.
Shandong Hengyuan Petrochemical Co last month agreed to buy a 51 percent stake in Shell Refining Co Malaysia for $66.3 million, becoming one of China's few non-major refining firms that own an overseas refinery asset. Shell Refining's main asset is the 156,000 barrels-per-day refinery at Port Dickson that mainly provides fuel to the domestic market.
Facing a surplus in Chinese refining capacity, the Shandong firm wants to boost the trading of oil products by working with Shell, and also expand the higher-value chemicals business at its plant in the eastern province of Shandong, said Wang Youde, chairman of Hengyuan Petrochemical.
"Our goal is to transform into a trading and distribution platform...and curb refining (in Shandong)," Wang told Reuters on the sidelines of China's annual parliament meeting.
Shandong is a hub for dozens of small, independently run oil refineries nicknamed "teapots" that have emerged since last year as the country's new crude oil buyers.
Once the acquisition is completed, Hengyuan will start lifting liquefied petroleum gas (LPG), aromatics and propylene, while Shell will take the main transportation fuels including gasoline and diesel fuel, said Wang.
"These products (LPG, aromatics and propylene) have better values in China," said Wang.
LPG can be processed into gasoline additives and aromatics are also good for blending into the motor fuel, whose demand is growing at a strong pace as the China's vehicle fleet expands despite an easing economy.
Hengyuan will build a desulphurisation unit at the Port Dickson plant by 2018 to upgrade its fuels to Euro V quality from Euro II to primarily supply the Malaysian market, Wang said.
Hengyuan Petrochemical, which operates a 70,000-bpd refinery in Shandong's Lingyi county, is expected to win a 75,000-bpd crude import quota by May. Previously its main feedstock was imported fuel oil from Russia.
The firm will also apply for a refined fuel export quota, hoping to work with Shell to ship Chinese oil products abroad.
"Our first choice will be Shell, both for crude oil procurement and fuel exports," said Wang, adding Hengyuan is also considering expanding the crude terminal at Port Dickson.
Its Shandong plant, which now relies on trucks moving crude from ports to the refinery, will lean on chemicals instead of oil refining for future expansion, he said.
"On refining, we'll further trim the capacity...We may eventually stop as a refiner if our chemical part of the business becomes more established."
(Reporting by Chen Aizhu; Editing by Christian Schmollinger)
