Kuwait wants to drop Royal Dutch Shell as a partner and is instead considering BPin a project to build a $5 billion oil refinery in Guangdong in China, Kuwait's state news agency KUNA reported on Tuesday.
Shell had hoped to gain a foothold in the domestic fuel market of the world's second-largest energy consumer through the Guangdong plant, after an attempt to take a share in another refining project failed last year.
Kuwait was in talks with Shell's competitor BP on participation in the project, KUNA said.
The refinery would be one of the largest joint venture investments in China, of a similar size to the $5 billion refinery to be built by Exxon Mobil and Saudi Aramco in Fujian.
There were several reasons Kuwait no longer wanted Shell involved, including objections from China's National Development and Reform Commission, KUNA reported, citing Chinese sources.
China's Sinopec said in August it was in talks with Kuwait Petroleum, Dow Chemical and Shell to build the new refinery.
Any delays would push up the project cost, currently estimated at $5 billion, KUNA said. The refinery would have capacity of 260,000 barrels per day (bpd), KUNA added. Officials have previously said capacity could be as high as 350,000 bpd.
A KPC official visiting China expressed concern to local government officials about slow progress on the project, KUNA said. For their part, Chinese officials asked KPC to speed up the feasibility study for the plant.
One of the obstacles facing the project and being negotiated is Chinese government control over domestic fuel prices, which make it hard for international companies to make returns on their investment, KUNA said.
Foreign firms have been lured by China's huge retail market and double digit economic growth, though the state-controlled retail prices have crushed refining profit margins.
Analysts say Beijing is showing a preference toward teaming up with state-owned firms that can offer oil supply guarantees such as KPC, with less need for the technology or financing offered by oil majors such as Shell.