1. 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

2. 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.

3. What is Shell Chemicals? 21Number of sites ~8500Number of employees $10 blnCapital employed 11Number of businesses $15 blnAnnual proceeds Global strategies, processes and manufacturing assets Manufactures the basic chemical building blocks enabling the products of modern life

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

5. …with assets focused on world-scale sites RefineryPetrochemical Excludes down-stream ventures Nanhai

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

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

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

9. Shell Strengths: Brand & global reach Shell China’s portfolio positions Sustainable Development Advanced technologies “To be the leading multinational company supplying clean energy, oil products and petrochemicals in China, under the framework of sustainable development.” What is the Nanhai project? 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

10. The CSPC Nanhai petrochemical project  $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 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 Q3 2005 Largest Sino-foreign joint venture

11. What are the Sustainable Development issues? Environmental and Social Impact Assessment Environmental  Construction  Operation Social  Villager resettlement  Livelihood restoration Partnerships – JV parent companies, local government, contractors, communities, lenders, local and international expertise – Learning together

12. Environmental: construction phase

13. 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

14. Environmental: operation phase

15. Operations phase  Effluent discharge  Energy Efficiency  Water conservation  Waste minimization  Air emissions

16. Social: villager resettlement From To From To

17. 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

18. Social: livelihood restoration

19. 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%

20. Looking ahead ……..  Petrochemical Industrial Park  Possible upstream and downstream investments  Chinese Business Council for SD

21. 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