China National Offshore Oil Corporation (CNOOC) has signed a new cooperative agreement with Royal Dutch Shell Plc with the aim to increase its ability to better serve its petrochemical customers in China. The agreement also includes a signed strategic deal between the government of Huizhou and Shell and CNOOC's joint venture company.
On Sunday, Huizhou officials announced that the strategic cooperation agreement will involve the expansion of the 50-50 joint venture company's facility in China's Guangdong province. The expansion project will allow the facility to supply essential petrochemical products such as ethylene glycol, polyethylene, polypropylene, and SMPOs.
The joint venture company between CNOOC and Shell called the CNOOC and Shell Petrochemical Company Limited was established back in 2000. It is currently Shell's largest joint venture chemical firm in China.
Shell CEO, Ben van Beurden, previously stated that the joint venture has since become one of the world's most competitive petrochemical firms. As of December 2019, the joint venture's facility has managed to produce a total of 15 million tons of ethylene, earning the company an annual net profit of 20 billion yuan.
The deal was signed by representatives from both companies along with Guangzhou officials via a video teleconference powered by 5G network technology. The enhanced facility is estimated to have an annual output value of roughly 38.2 billion yuan or nearly $5.4 billion. Construction of the enhancements will reportedly begin sometime in 2021.
The chemicals that will be produced in the enhanced facility are essential materials used in a wide range of end products. The demand for the chemicals is still high despite the current economic downturn as they are used in essential industries such as healthcare, packaging, electronics, fabrics, and construction.
Under the deal, Shell will, for the first time, apply its advanced technologies and processes for linear alpha olefins in Asia. The joint venture's facility will also be equipped with a new ethylene cracker. The addition of the new component along with other enhancements on the mega-site is expected to enhance both companies' competitiveness by leverage economies of scale.
Shell's executive vice president for its global chemical business, Thomas Caspari, mentioned in a statement that the deal is part of its wider growth strategy to serve the market's long-term chemical demand. He added that the company does not enter into such deals very easily and it is very selective with its investments, particularly given the current state of the business environment. However, Shell is confident in its newly formed partnership with CNOOC and the Huizhou government.
