CNOOC Group, China's largest offshore oil producer, will build a 12 million ton-per-year oil refinery in Guangdong Province in the next three years to tap the lucrative south China oil market.

Investment in the project, which was approved by the central government last week, will total at least 16 billion yuan (US$1.93 billion).

"We don't have the exact investment amount or some other details of the project now because we haven't got the formal document yet, but hopefully it will arrive soon," said a press officer of CNOOC Group, confirming earlier media reports.

"We will then carry out pre-construction activities such as raising funds, determining final designs and inviting bids," he said. Normally, a project of this size would take three years, or would be completed around 2007/2008, he said.

The refinery, to be located near the group's mammoth petrochemical joint venture with Anglo-Dutch oil giant Royal Dutch/Shell in Daya Bay in Huizhou City, marks the group's first major refinery investment. It will turn the country's third oil firm into an integrated one providing upstream and downstream products.

"Daya Bay is an ideal location for the new project because it could share the public facilities with the nearby petrochemical joint venture to cut costs; meanwhile, the refinery could provide raw materials that the joint venture's ethylene project needs," said the officer. The procedure could save US$100 million for both refinery and ethylene projects.

Besides, the location is expected to shorten transportation distances since the products of the refinery will mainly be marketed in South China, he said.

Different from other refineries in the country, CNOOC's is designed to focus more on heavy oil processing with the crude oil coming from east China's Bohai Bay, which is still under exploration at this stage.

"The equipment will be specially designed for heavy oil that could greatly improve the utilization of the resource," he said.

An official with Daya Bay Economic and Technological Zone said the project had been arranged in the latest blueprint of Daya Bay and will cover a total of 2 square kilometers. "We have made full preparation for the construction of the project," said the official.

CNOOC did not rule out the possibility of operating the project with a foreign partner. "Our financing plan should be open to both domestic and international investors, but it's also possible for the group to run the project on its own," the press officer told China Daily.

The group had proposed to Shell another marriage early this year when the feasibility research report for the refinery project was still seeking approval. However, Shell said it would consider the offer and evaluate the project.

"Our stance (towards CNOOC's proposal) did not change at the moment it got approval. We are pleased to be invited to participate but we are still evaluating the opportunity," Shell China spokeswoman Li Lusha told China Daily yesterday. She did not reveal when the evaluation would end.

If Shell decides to go ahead, it will be the first foreign investment in the refinery sector in China for some years.

CNOOC began to lose its attraction as China's sole offshore oil explorer after the country granted offshore exploration licences to Sinopec Group and recently to PetroChina Group, the country's second and first largest oil firms.

It has become more crucial for CNOOC to develop its downstream business, which is mainly dominated by Sinopec and PetroChina.

(China Daily July 28, 2004)