(Yahoo, Dec 20, 2006) Royal Dutch Shell has given up hopes of taking a stake in a Chinese refinery but is upbeat about growth in 2007 with clean coal technology showing particular promise, the firm's China head said on Wednesday.

The oil major this year started production at the Nanhai petrochemicals complex and said then it was in talks with partner China National Offshore Oil Corp. (CNOOC) about investing in the neighbouring 19.3 billion yuan ($2.47 billion) Huizhou refinery.

Lim Haw Kuang, Shell's China chief, said talks have now been abandoned. He declined to comment on why, but added that he expected strong growth next year from other sectors after around $500 million of investment in the Asian giant in 2006.

"We are making money in China...and for next year, you have been watching what I am trying to do so you can expect that we will continue to grow," he told a small group of journalists.

Foreign firms have been keen to invest in Chinese refineries as a gateway to the downstream market of the world's number two oil consumer.

Beijing's tight controls of imports, exports and domestic product prices mean most refiners have been in the red for well over a year, and contributed to a failure to finalize some preliminary deals with foreign firms.       
 
China also published guidelines this month to the opening of its wholesale market from January 1, agreed as part of its accession to the World Trade Organisation five years ago.

But the new regulations have disappointed many would-be investors who say they stick to the letter but not the spirit of the WTO deal, with provisions that do little to weaken the current duopoly of state-controlled Sinopec and PetroChina.

Lim said he thought they offered some business opportunities but declined to comment further, saying the firm was still exploring the implications of the complicated rules.

Retail, subject to similarly tight restraints, has been one of the most challenging areas of the oil businesses because of state set prices that crush margins.

But Shell is pushing on with a joint venture in eastern Jiangsu province and expects to have the bulk of a planned 500 stations up and running in the first quarter of 2007, Lim said.

UPSTREAM SUCCESS

Among other potential targets for investment next year are coal gasification, wind farms and the upstream sector where it has had rare success.

China has jealously guarded most of its upstream sector from foreign firms, but strong performance in a joint venture with PetroChina exploiting the northwestern Changbei gas field has won Shell a license for a neighbouring block, Lim said.

The company is also interested in 12 exploration blocks in the northwestern Tarim basin that PetroChina plans to open to foreign partners in a rare tender, although Lim said they were still at a preliminary stage, examining data.

Demand for gas could be one of the main drivers for the expansion of the clean coal industry. Shell is a global leader in coal gasification which Lim sees as a perfect investment area for foreigners looking to dovetail with government priorities of boosting energy security and environmental protection.

"If I can produce syn(thetic) gas for a fertilizer plant, what happens if I could produce a lot of gas for a whole industrial complex?" he said. "You will be hearing a lot more success stories in coming weeks and months," he added.

Shell would also like to expand its presence in the wind power industry but a tariff bidding system is pushing margins down to uninviting levels.

"We are certainly very interested in wind power, but are also looking for reasonable returns, not just investing in a portfolio for the sake of (it)," Lim said.

Analysts have warned that state power firms are putting in barely-profitable offers solely to meet government targets for increasing their portion of renewable energy.

Source:Yahoo