Sustainable Development and Petrochemical Production in China: The Shell/CNOOC Nanhai Project

Dr. Joseph M. MachadoSustainable Development Manager, Shell ChemicalsChina and Sustainable DevelopmentRice University, HoustonSeptember 27, 2004

Presentation Roadmap

• What is Shell Chemicals?

• Why China?

• What is the Nanhai project?

• What are the Sustainable Development issues?

The expression “Shell Chemicals” refers to the companies of the Royal Dutch/Shell Group of companies which are engaged in the

chemicals business. Each of the companies that make up the Royal Dutch/Shell Group of companies is an independent entity and

has its own separate identity.

What is Shell Chemicals?

21Number of sites

~8500Number of employees

$10 blnCapital employed

11Number of businesses

$15 blnAnnual proceeds

Global strategies, processes and manufacturing assets

Manufactures the basic chemical building blocks enabling the products of modern life

Shell Chemicals portfolio is well integrated…

Lower Olefins

Additives

Polypropylene

Polyethylene

Aromatics

Catalysts

Styrene monomer/ propylene oxide

Solvents

Propane diol/ Corterra

Ethylene Oxide/ Glycols

Phenol

Higher olefins & derivatives

Base Chemicals Intermediates SpecialitiesPolymers

Basell

CRI

Infineum

…with assets focused on world-scale sites

RefineryPetrochemical

Excludes down-stream ventures

Nanhai

Why China?

Size, growth —more like a continent than a country

Hong Kong

Shanghai

Beijing

• Population 1.3 billion

• Area 3.6 million sq. miles

• Economy $5.56 t. on PPP basis

• Railways 44,500 miles

• Highways 870,000 miles

Nanhai

China petrochemicals demand: ethylene derivatives

0

5000

10000

15000

20000

25000

30000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Year

MT

'000

Source: Parpinelli Tecnon2003 estimated

SD challenges: tied to economic development

ConsumerEconomy1 billion

Transitioneconomy2 billion

Survivaleconomy3 billion

USA today

China today

Reducing environmental impacts, health risks

Coping with growth, creating infrastructure

Meeting basic human needs

Shell Strengths: • Brand & global reach• Shell China’s portfolio positions • Sustainable Development • Advanced technologies

“To be the leading multinational company supplying clean energy, oil products and petrochemicals in China,

under the framework of sustainable development.”

What is the Nanhai project?

CNOOC Strengths: • Profitable, state owned, commercially driven • 3rd largest oil/gas group in China• Exclusive rights: China’s offshore oil/gas exploration, development, production• Management strength

Nanhaisite model

The CSPC Nanhai petrochemical project

$4.3 bln total investment 800,000 ton/yr ethylene production 2.3 mln ton/yr total production Primarily supplying domestic market Fully integrated complex World scale and world class technology

• 1.7 sq mile site

• 25,000 workers during peak construction

• 2.3 million tons of products per year

• Resettlement of 2,500 households

• Start-up Q3 2005

• Largest Sino-foreign joint venture

What are the Sustainable Development issues?

Environmental and Social Impact Assessment

Environmental

Construction Operation

Social

Villager resettlement Livelihood restoration

Partnerships – JV parent companies, local government, contractors, communities, lenders, local and international expertise –Learning together

Environmental: construction phase

Construction phase

Coral relocation

Minimize run-off, sediment

Waste – reduce, re-use, recycle (7 recycling companies)

Contractor housing, health, social impacts

Noise impacts

Monitoring and Reporting – 40 environmental parameters

HSE standards – occupational health, lightning, heat, typhoons, driving

Environmental: operation phase

Operations phase

Effluent discharge

Energy Efficiency

Water conservation

Waste minimization

Air emissions

Social: villager resettlement

From

To

From

To

Resettlement – partnership

Two Villages – 2500 households – 8000 people

New village construction –schools, healthcare, etc

Compensation for lost income

Monitoring and reporting - transparency

Community Health Joint Steering Committee

Local price index

Rooftop Gardening program

Social: livelihood restoration

Livelihood Restoration – and more partnership

Commitment to local employment Training – skills, crafts, HSE, language Internships – Huizhou municipality Re-settled village contracting companies – small business support Supporting entrepreneurship Kedeng Fluorescent Light Fittings Factory Commercial building built by villagers Villagers developing industrial land

2004 Targets: Training – 1050 Employment – 70%

Looking ahead ……..

Petrochemical Industrial Park Possible upstream and downstream investments Chinese Business Council for SD

Want to know more?

For further information about Shell Chemicals please visit:

www.Shell.com/chemicals

For further information about the Nanhai joint venture please visit:

www.CNOOCShell.com