Partners to add facilities adjacent to current plant in Guangdong province

China's largest offshore oil producer CNOOC reached an agreement with its partner Royal Dutch Shell Plc to expand the existing ethylene cracker in their joint venture, amid a rapid growth in the ethylene demand in the world's second-largest economy.

The pair set up the joint venture CNOOC-Shell Petrochemicals Co Ltd in 2000 and currently operate a $4.1 billion petrochemical complex known as Nanhai, in the Daya Bay of Huizhou in Guangdong province.

The new agreement is expected to add chemical facilities adjacent to the current Nanhai plant, which will increase their ethylene capacity by more than 1 million metric tons a year, about double the current capacity.

Plans also include a styrene monomer and propylene oxide plant, which will become the largest ever built in China.

CNOOC, the country's largest offshore oil producer, has already begun construction of the new complex, and commercial production is expected to start in around two years, said officials.

The expansion comes as China expects to add another 5.75 million tons of ethylene this year to the current production of 23 million tons.

Dong Xiaoli, general manager assistant of CNOOC, said the expanded project is in line with China's long-term reform of the petrochemical industry, which will see more mixed ownership of State facilities, most likely involving private and foreign investment.

"We will bring in advanced patented technologies owned by Shell on the project to meet domestic demand for high-quality petrochemical products," said Dong, who is also general manager of CNOOC Oil & Petrochemicals Co Ltd.

Graham van't Hoff, executive vice-president for Royal Dutch Shell Plc's global Chemicals business, said that the agreement underlined the company's confidence in the strong growth potential of chemicals in China, adding he is hoping for further collaboration with CNOOC.

Ethylene is widely used in the production of everyday items such as plastic bags and food cartons, and has seen rising demand in China in recent years.

Qi Junjie, an analyst at commodities consultancy Sublime China Information Co Ltd, said that global demand for ethylene will exceed production by 0.3 percent over the next five years, and 2017 is likely to see a peak in output.

He predicted annual domestic production of ethylene is expected to hit 30 million tons, with an annual growth rate of 6.8 percent.

"By 2020, ethylene's global production is expected to reach 200 million tons a year," he said.

Other planned Chinese ethylene projects include a 1.5 million ton/year methanol-to-olefins facility in the Ningxia Hui autonomous region owned by mining giant Shenhua Group Corporation Ltd, and two 1-million-ton-capacity sites planned by PetroChina Co Ltd, the country's largest oil and gas producer.