Foreign capital enters China gas retail market

Royal Dutch Shell (China) Ltd., Shaanxi Yanchang Petroleum (Group) Corp. Ltd and Shaanxi Tianli Investment Co. Ltd jointly announced Monday that their joint-venture, Shaanxi Yanchang and Shell Petroleum Company Ltd. began operations of its 10th gas station in Shaanxi Province. The three companies also stated that there are plans to build about 100 gas stations in Shaanxi.

This is the first time the three companies confirmed cooperating with each other after there were rumors about this joint venture two years. However, no official reason was given for the cooperation or for the reason for the delay in confirming it.

According to Xinhua, a source close to the deal said that in 2007, Yanchang and Shell has signed an agreement on the framework of setting up a joint venture specializing in the retail sale of petroleum products and both agreed to a target of building 100 gas stations in Shaanxi Province at that time as well.

According to the announcement Monday, the three companies signed the joint venture agreement in June 2008 and it was approved by the central government at the end of last year.

In the deal, Yanchang holds 46 percent, Shell holds 45 percent, and Shaanxi Tianli holds 9 percent of the joint venture.The gas stations of the joint venture will adopt the management system and customer service culture of Shell.

"The cooperation with Shell will not only boost the sales of both it and Yanchang's products, but also we can learn the management experience and excellent customer service from Shell to achieve a win-win situation," Shen Hao, chairman of Yanchang was quoted as saying.

But industry analysts pointed out the joint venture is a signal for foreign oil giants to get into the China retail gas market after the launch of a new pricing mechanism that started in January.

"Shell and BP previously cooperated with China National Petroleum Corporation (CNPC) and China Petroleum & Chemical Corporation (Sinopec) to build gas stations in Zhejiang Province many years ago, but the number of gas stations did not expand because the pricing mechanism was not stable then, but with the launch of new pricing mechanism, the last obstacle for foreign capital to enter the Chinese oil retail market has been removed," said an industry analyst.

There are reports thatYanchang and Shaanxi Tianli also planned to invest in Shell China in Sichuan Province to establish Sichuan Yanchang and Shell Petroleum Company Ltd. The allotment of shares will be the same as Shaanxi Yanchang and Shell Petroleum Company Limited.

Yanchang is one of four qualified enterprises for oil and gas exploration in China.

Li Na contributed to the story

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