By Ron Bousso and Dmitry Zhdannikov
LONDON, Sept 9 (Reuters) - Royal Dutch Shell isbetting on chemicals, lubricants and retail fuel sales to helpit boost the performance of its downstream division where oilrefining will remain a drag on earnings in many regions foryears to come.
Downstream, which combines oil refining, tradingdistribution and chemicals, generated income of $2.9 billion forShell in the first half of 2014, compared to $10.4 billion inoil production or upstream.
John Abbott, the head of Shell's downstream business, saidthe company is targeting a return on average capital employed(ROACE) of 10-12 percent in downstream and cash flows fromoperations of over $10 billion a year compared to $3.4 billionin the first half of 2014.
"The areas where we see particular opportunity in growth arefirstly in chemicals ... we see opportunities in ethylenecrackers and other derivatives in certain parts of the world,"Abbott said.
Ethylene crackers are used for the petrochemical industry.
"The other area where we see growth is in our lubricants andretail business."
China is a particularly attractive area for Shell, where ithas over 1,000 retail sites through joint ventures.
Abbott said the ROACE in the oil products business wasaround 5 percent over the past 12 months, compared with a 15percent return in chemicals business.
The "tough and competitive" global refining environment, dueto weaker-than-expected demand in key markets in Asia and LatinAmerica, are unlikely to change soon, Abbot told reporters.
Like many of its peers, Shell embarked on asset sales underpressure from shareholders to improve return on capital investedand pay out more in the form of dividend.
It has so far this year divested $3 billion worth ofdownstream assets, including the sale of refineries and retailbusinesses in Italy and Australia.
"There is no doubt that there are certain parts of ourportfolio which are challenged, not least, we have quite a toughrefining challenge at the moment in the industry because ofEuropean and Asian margins," Abbott said.
"This is a multi-year story, it is not something that getsfixed in a few quarters."
"If you have assets in Europe you have to decide: am Ifixing it or am I divesting. There is not much in between," headded.
Shell is focusing its review on its four largest refineries- the 325,000 bpd Motiva Port Arthur refinery in Texas, a jointventure with Saudi Aramco, the 400,000 Pernis refinery in theNetherlands and the 195,000 bpd Godorf-Rhineland plants inneighbouring Germany and the 500,000 bpd Pulau Bukom refinery inSingapore.
Abbott said Motiva has improved performance recently thanksto processing all types of feedstock instead of focusing mainlyon importing Saudi crude.
He said the Pernis and Godorf-Rhineland refineries were someof the most modern in Europe and should benefit from tightermarine fuel regulation which will boost demand for diesel: "Wewill survive in a tough environment."
He said the company was determined to fix the problems ofthe Bukom refinery, not to divest it, as it was important forthe group's chemicals division and was also providing goodopportunities as a trading hub. (Reporting by Ron Bousso and Dmitry Zhdannikov)
