UPDATE 2-Shell partners with Chinese for Iraq oil bid

Tue Apr 14, 2009 5:59am EDT

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(Adds quotes, industry comment)

* Shell eyes downstream expansion in China

* Delays a coal-to-liquid project

BEIJING, April 14 (Reuters) - Royal Dutch Shell Plc RDSA.L has teamed up with Chinese state oil firms to jointly bid for oil projects in Iraq, and is eyeing the expansion of downstream businesses in China, company executives said on Tuesday.

"We indeed have discussions about bidding...and Chinese companies for certain are part of the bidding partnerships," Chief Executive Jeroen van der Veer told reporters while in Beijing. He did not give the names of the Chinese firms or the makeup of any partnership.

By joining Shell, China would make its second major foray into Iraq after state oil group CNPC's $3 billion project to develop the al-Ahdab field, Iraq's first major oil deal with a foreign firm since the fall of Saddam Hussein.

The Anglo-Dutch oil major has said it wants to expand its presence in the vast fuel retail and refining businesses in China, currently dominated by state-run Chinese giants that are keen to boost oil reserves overseas.

"We are interested in refining participation in China," said Shell Group's Chief Financial Officer Peter Voser. "We look at opportunities...and compare them against other opportunities on a global base."

Asked if the oil giant will participate in a planned expansion of CNOOC's first major refinery in southern China that neighbours a joint petrochemical complex between the two firms, Voser said they will study the "interesting proposition".

"It is natural to look at the two assets in combination...we are business people at the end of the day," said Voser, who is going to replace van der Veer as company CEO from July 1.

The $4.3 billion Nanhai Petrochemicals Project, equally owned by Shell and a CNOOC unit, is able to churn out 800,000 tonnes of ethylene a year and 430,000 tonnes of propylene.

CNOOC, parent of CNOOC Ltd (0883.HK), started operating its 240,000 barrels-per-day Huizhou refinery last month and it has decided to invest $6.5 billion to almost double its crude capacity and add an ethylene unit.

Shell, the world's second-largest non-government controlled oil company by market value, has been downsizing its refining and retail assets in Europe and Africa as demand falls in the regions.

But it has been eager to have a bigger presence in China, the world's No.2 oil consumer, after setting up a small joint-venture fuel marketing firm with top Chinese refiner Sinopec Corp (0386.HK).

"There is no question that Shell, like other IOCs, wants a share of China's refining and petrochemical business, which is growing faster than the rest of the world," said a Beijing-based executive with an international oil company.

Shell's potential investment targets include a proposed refinery in a tie-up with PetroChina (0857.HK) and Qatar, after the Shell and the Middle East exporter landed a huge liquefied natural gas pact with Chinese firms.

Shell may also join hands with Kuwait Petroleum Corp to build a refining and petrochemical complex with Sinopec Corp. The project is waiting for approval from Beijing's environmental watchdog.

Lim Haw Kuang, executive chairman of Shell companies in China, said the firm has postponed a coal-to-liquid project in Ningxia, undergoing a feasibility study, due to economic reasons amid the economic downturn. But he said coal gasification continues to be a growth driver for the company. (Reporting by Jim Bai and Eadie Chen; Writing by Chen Aizhu;)

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