FUZHOU, China – Exxon Mobil Corp. (XOM), Saudi Aramco (search) and top Asian refiner Sinopec (search) signed a $3.5 billion deal on Friday to expand a refinery in south China, sealing what they called the country's largest oil project.
The deal gives Exxon, the world's top oil firm, and Middle Eastern giant Aramco a foothold in China's insular 6.2 million barrel-a-day (bpd) refining sector, now dominated by state giants Sinopec (SNP) and PetroChina (PTR).
China, the world's number two oil consumer, is trying to raise its refining capacity to feed a racing economy that grew 9.4 percent in the first quarter after expanding 9.5 percent in 2004.
Beijing also has to address surging imports, now exceeding 40 percent of its crude oil demand, prompting it to tie up with producing nations such as Saudi Arabia.
The agreement will triple the capacity of a refinery in Fujian province to 12 million tons per year (tpy) — the equivalent of 230,000 barrels per day — and add an 800,000-tpy ethylene cracker, the companies said in a statement.
Several downstream facilities would be built as part of the deal, including a 650,000-tpy polyethylene plant, a 400,000-tpy polypropylene unit and a 1 million tpy aromatics plant.
Polyethylene and polypropylene are commonly used to produce plastics, while aromatics are used as blending agents in the production of gasoline.
The agreement also gives the foreign partners access to China's protected retail sector, where rivals such as Royal Dutch/Shell Group BP and France's Total are already active.
"The retail portion is an important part of the project," Exxon chief executive Lee Raymond told reporters on the sidelines of the signing ceremony.
"This is an integrated project in the sense of refining, chemicals and marketing, which makes it unusual."
Global oil majors have been jostling to get a foothold in China's fast-growing retail oil sector, the second largest in the world, by setting up refining, petrochemical and retail joint ventures with domestic partners.
They have also been anxious to invest in China's refining industry, where capacity is set to expand by nearly 30 percent in the next five years.
Exxon has said it is eyeing another integrated refining complex in China's wealthy southern Guangdong province while Aramco has said it was negotiating with Sinopec for a stake in a proposed $1.2 billion refinery in eastern China.
The Saudi giant already has a strong presence in Asia where it has stakes in refineries in Japan, South Korea and the Philippines.