Exxon’s 12 year wait to invest in China to finally pay off

30-Mar-07

It seems that Exxon Mobil Corp.’s 12-year wait to start a US$5 billion refining and chemicals venture in China will finally pay off. A decision by the country’s Communist government will free the world's fastest-growing gasoline market and ensure profits. The project, first proposed in 1995, was conceived as a venture between Exxon, the world's biggest publicly traded oil company, Saudi Aramco, the largest oil producer, and China's top refiner, and will tap a fuel market growing at 2.7 times the global pace. Exxon, Saudi Arabia's state oil company and China Petroleum & Chemical Corp. today signed a final agreement. Exxon, Aramco and China Petroleum, known as Sinopec, will each own 25% of the project to be completed in 2009, and the Fujian government the other 25%. The partners will expand a crude oil refinery in Fujian, southwestern China to about 240,000 bpd from 80,000 bpd, and add four petrochemicals units. The venture, which will include 750 gas stations, will mostly process crude oil from Saudi Arabia. The venture includes an ethylene 800,000 tpa steam cracker, 800,000 pa polyethylene, 400,000 tpa polypropylene, and an aromatics complex based on a 700,000 tpa paraxylene unit. Exxon and its partners started talks on the venture in 1995 and an initial agreement, valuing the project at US$3.5 billion was signed in August 2004. The increase in the cost estimate since then can be attributed to the inclusion of working capital and the cost of buying the existing refinery in Fujian from China Petroleum. However, the growing demand for oil and petrochemical products in China forecasts a very good outlook for the project. China's oil demand will grow at 4.3% pa in the next five years, compared with the global average of 1.6% pa. China will account for 25% of global petrochemical demand by 2015.