Sustainable Development and Petrochemical Production in China The

Sustainable Development and Petrochemical Production in China: The Shell/CNOOC Nanhai Project Dr. Joseph M. Machado Sustainable Development Manager, Shell Chemicals China and Sustainable Development Rice University, Houston September 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? Manufactures the basic chemical building blocks enabling the products of modern life Annual proceeds $15 bln Capital employed $10 bln Number of businesses 11 Number of sites 21 Number of employees ~8500 Global strategies, processes and manufacturing assets

Shell Chemicals portfolio is well integrated… Solvents Basell Lower Olefins Polypropylene Ethylene Oxide/ Glycols Higher olefins & derivatives Propane diol/ Corterra CRI Catalysts Polyethylene Infineum Phenol Additives Aromatics Styrene monomer/ propylene oxide Base Chemicals Intermediates Polymers Specialities

…with assets focused on world-scale sites Nanhai Petrochemical Excludes down-stream ventures Refinery

Why China? Size, growth —more like a continent than a country • 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 Beijing Shanghai Nanhai Hong Kong

China petrochemicals demand: ethylene derivatives Source: Parpinelli Tecnon 2003 estimated

SD challenges: tied to economic development USA today Reducing environmental impacts, health risks Consumer Economy 1 billion China today Transition economy 2 billion Survival economy 3 billion Coping with growth, creating infrastructure Meeting basic human needs

What is the Nanhai project? “To be the leading multinational company supplying clean energy, oil products and petrochemicals in China, under the framework of sustainable development. ” Shell Strengths: • Brand & global reach • Shell China’s portfolio positions • Sustainable Development • Advanced technologies CNOOC Strengths: • Profitable, state owned, commercially driven • 3 rd largest oil/gas group in China • Exclusive rights: China’s offshore oil/gas exploration, development, production • Management strength Nanhai site model

The CSPC Nanhai petrochemical project • 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 Q 3 2005 • Largest Sino-foreign joint venture § $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

What are the Sustainable Development issues? Environmental · Construction · Operation Social · Villager resettlement · Livelihood restoration Environmental and Social Impact Assessment 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 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