Shell Cleans Up Some of the Dirtiest Tasks

For almost 20 years, Huizhou Daya Bay, the development zone 40 miles north of Hong Kong, has been at the heart of China's economic miracle. Now, a local partnership between European oil major Royal Dutch Shell and China National Offshore Oil Corp. (CNOOC) is taking on a new challenge: greening the heavy-polluting petrochemicals industry.

The $4.1 billion project is one of the largest Sino-foreign joint ventures of recent years, pumping out more than 2 million metric tons of chemicals each year for use in everything from trash bags to product packaging. Yet even as it holds the title of China's largest petrochemicals plant, the Nanhai partnership also is one of the most eco-friendly. The joint venture's energy use, for instance, is more efficient than the national average by at least one-third, while it consumes 95% less water than other domestic petrochemicals plants. The companies plan to increase output by 15% over the next 12 months.

That helps explain why energy giant Shell was a winner of the 2009 BusinessWeek Greener China Business Award. For sure, the Anglo-Dutch company is more often linked with oil refineries than wind farms. But its CNOOC partnership is proving to be an investment that is both economically savvy and environmentally sound. The multibillion-dollar project helps sate the increasing thirst for petrochemicals from Daya Bay's industry. At the same time, the plant's pollution-control measures keep it from exacerbating environmental degradation in Southern China's Pearl River Delta. "Using green technology makes business sense," says Ben van Beurden, Shell Chemicals' executive vice-president. "By increasing efficiencies, the plant still will be relevant in 20 years time."

Backing off Wind and Solar

It is troubling to some environmental experts that Shell's green activities in China come just as the company is scaling back clean-energy investments in other parts of the world. In March, the company's chief executive officer, Jeroen van der Veer, said the oil major won't be making future investments in wind and solar power, for example. Instead, he explained, capital spending would now focus on second-generation biofuels using research carried out at the Quingdao-based Chinese Academy of Sciences in the northeast of the country, as well as at other research centers worldwide.

So far, clean-tech experts say, Shell isn't backing off from sustainability commitments it has made to China's petrochemicals market. That's important because demand is expected to grow in coming years. Domestic petrochemical consumption has tripled since 1998, according to Tecnon a British chemicals market research firm. The growth is driven primarily by a nearly insatiable appetite from Chinese exporters. Recently, the global recession has taken the wind out of the industry's sails, but HSBC analyst Hassan Ahmad reckons demand has picked up in recent months, primarily because of a rundown in locally held reserves.

Nobody disputes that good public relations may play a role in Shell's preference for efficient, eco-friendly technologies in China. But PR is just one factor. Unlike other domestic industries that can leverage China's low workforce costs as a market advantage, the petrochemicals industry isn't labor-intensive, and it faces global competition from highly efficient competitors. To outdo foreign rivals and survive, Chinese companies instead must squeeze out every last drop of savings, including lowering water and energy use. "In China, you need to make bucks through efficiency," says Marcus Huebel, lead partner for chemicals strategy at consultants Accenture. "There's no logic investing in outdated technology. You have to get the most out of your carbon footprint."

Huebel says limited domestic oil reserves also mean Chinese petrochemicals companies have to use resources in the most economic way possible. The Middle East is blessed with vast oil deposits, and Europe has built a world-beating network of pipelines. Against that backdrop, China naturally sees a competitive advantage in energy efficiency. "That's why companies are bringing the best technology into the country," Huebel adds.

Shell's use of energy-reducing knowhow has won praise from an important quarter: the environmental lobby. Fuqiang Yang, the World Wildlife Fund's International's director for global climate solutions, says he was pleasantly surprised when he visited the CNOOC joint venture two years ago. Carbon emissions, for instance, are less than at comparable plants, and Nanhai's air quality and water pollution both fall in line with domestic standards. "Compared with others, Shell's joint venture has done a pretty good job," Yang says.

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