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Gulf-Times: Exxon: 12-yr wait on China energy project to pay off

Published: Sunday, 1 April, 2007, 08:45 AM Doha Time
Beijing: ExxonMobil said a 12-year wait to start a $5bn refining and chemicals venture in China will pay off because the Communist government will free the world’s fastest-growing gasoline market and ensure profits.

The project, first mooted in 1995, combines Exxon, the world’s biggest publicly traded oil company, Saudi Aramco, the largest oil producer, and China’s top refiner. It will tap a fuel market growing at 2.7 times the global pace, Exxon Director Steve Simon said on Friday.

The company expects China to use a quarter of the world’s petrochemicals by 2015.

“This is one of the few places in the world where you see that a grass-root facility or major expansion is warranted,” Simon, head of global refining, marketing and petrochemicals at Irving, Texas-based Exxon, said in an interview in Beijing.

China’s oil demand has doubled since Exxon started negotiations to build a so-called “fully integrated” fuel and chemicals factory.

Rivals Royal Dutch Shell and BP started petrochemical ventures and stayed out of straight oil refining.

Last year, government caps on fuel prices handed China’s state refiners more than $7.5bn of losses.

Selling both transportation fuels and petrochemicals will help “ride out some of the tough periods in one area or another,” Simon said.

While China’s control on retail fuel prices is “a concern,” he said “it’s going to be in China’s long-term best interests to transition into a free market” as the nation increases its dependence on oil product imports.

Exxon, Saudi Arabia’s state oil company and China Petroleum & Chemical Corp on Friday signed a final agreement at Beijing’s Great Hall of the People.

The companies started talks on the venture in 1995 and an initial agreement, valuing the project at $3.5bn, was signed in August 2004.

The increase in the cost estimate since then is due to the inclusion of working capital and the cost of buying the existing refinery in Fujian from China Petroleum, Simon said.

Exxon is among the last of the world’s biggest oil companies to conclude a major energy agreement in China.

“I am not surprised by the 12-year delay because it is a big investment and it requires various government approvals,” Liu Gu, an oil analyst at Guotai Jun-an Securities HK Ltd, said by telephone from Shenzhen. – Bloomberg

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