OREANDA-NEWS. June 24, 2014. Multinational oil company Royal Dutch Shell Plc will continue to invest in China and considers the country to be its most important market in which to grow its retail business, a senior official said.

Istvan Kapitany, executive vice-president of Shell Retail, said China plays a key role for the company in 70 targeted countries. "We will continue to invest in China since the potential of the retail market in China is significant," said Kapitany.

According to the Netherlands-based company, Shell opened almost one service station per day in China in 2012 as demand grew. At present, the company operates about 1,100 service stations in the country.

Kapitany said the company is shifting its core market from Europe to Asia as the global economy changes. "Our business in Europe is no longer in a growth phase, but it is still growing in North America and Asia," he said. As market leader in North America, Shell has 15,000 service stations in the United States and Canada.

In China, the petroleum retail industry is dominated by Sinopec Group, the country's largest refiner, and PetroChina Corp, the nation's biggest oil and gas producer.

By the end of 2013, Sinopec owned more than 30,500 gas stations in the country, accounting for about 33 percent of the total market, and PetroChina had more than 20,000. The two giants together take up more than half of the country's gas retail businesses.

In order to diversify the ownership of State-owned companies, Sinopec announced in February that it would open up 30 percent of its retail businesses to social capital and private investors.

Kapitany said Shell is seeking details about this new move.

Yann Cohen, partner with Monitor Deloitte's Energy & Chemicals unit, said foreign companies cannot operate a retail gas station unless partnered with a Chinese player, which means overseas companies may wish to look for integrated partnerships along the value chain, combining refining, wholesaling and retailing.

"In China, it is not simple due to specific cost allocations and regulated pricing, but the rule of thumb is 'you lose money in refining and earn money in retailing,'" he said.

China's service stations, in particular, have huge potential for non-fuel businesses.

Rebecca Chan, retail director of Shell China Ltd, said the retail industry will see a higher-than-GDP growth of non-fuel income from service stations in coming years as China's consumption power grows.

She said the country saw double-digit growth of non-fuel income in recent years for the whole industry.

"We have rich experience in the non-fuel sector in our service stations in global markets, and Shell China will bring ones that can fit into the market," Kapitany said.

He said up to 60 percent of Shell Retail's income in Norway is from non-fuel businesses such as car washes, fast food and convenience stores.

Oil deal to bolster Sino-Kuwait ties

China and Kuwait have signed an agreement that seeks to expand the cooperation between the two countries in the oil sector.

An agreement to this effect was signed by China's National Energy Administration and Kuwait's Ministry of Oil during Kuwaiti Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah's recent trip to Beijing.

Under the deal, announced on Thursday by the NEA, Kuwait will increase its crude exports to China, a move that experts said would help the world's second-largest economy's plan to create strategic oil reserves.

The two governments will also increase cooperation in sectors like upstream crude exploration, engineering services and downstream refining.

Companies from the two sides will also strengthen their cooperation in oil technology and oil projects iin other nations.

Kuwait is one of the major crude producers in the Middle East and the 10th-biggest foreign crude supplier to China with an export volume of 9.4 million metric tons in 2013. China imported 280 million metric tons of crude from other countries in 2013.

"Chinese oil companies have already established good cooperation with the Kuwaiti side in exploration, refining and oil services in recent years," said Han Jingyuan, analyst with JYD Online Corp, a Beijing-based bulk commodity consultancy.

Sinopec Group, China's largest refiner, teamed up with Kuwait's national oil company for a refining project with a total investment of 59 billion yuan in 2011, according to Han.

The project, located in Zhanjiang, Guangdong province, has an annual refining capacity of 15 million metric tons and ethylene production capacity of 1 million metric tons a year.

Han said the new agreement signed between the two countries will accelerate the progress of the project.