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Sinopec inks landmark deal

By Wang Yu (China Daily)
Updated: 2007-02-27 08:55

Workers fix the roof of a Sinopec filling station in Shanghai. [China Daily]

Top Asian refiner Sinopec inked landmark agreements on Sunday to expand the Fujian petrochemical project and to jointly market its output with foreign counterparts Saudi Aramco and Exxon Mobil.

"It is a positive move for us to strike a refining capacity enhancement deal and marketing agreement with our overseas partners," Zhang Zhiguo, a press official with Beijing-based Sinopec, said yesterday.

"We expect to meet ever-growing local demand for fuel by combining strong points of parties involved," he said.

In a joint statement, Sinopec, Saudi Aramco and Exxon Mobil said they will expand existing capacity from 4 million to 12 million tons per year at the Fujian Refining and Ethylene Joint Venture project in Quanzhou, Fujian Province. The upgraded refinery will primarily process sour Arabian crude. Details on investment for the expansion plan were not available.

The three parties also agreed to set up the Fujian Fuels Marketing Joint Venture Project, which will manage and operate some 750 filling stations and a network of terminals in Fujian. Sinopec holds a 55 percent stake in the marketing venture, with Exxon Mobil and Saudi Aramco taking 22.5 percent each.

Joint venture contracts mark a significant milestone in the development of China's first fully integrated Sino-foreign project involving refining, petrochemicals and fuels marketing, Saudi Aramco said.

Zhang said the driving force for the collaboration is robust market demand.

"Our partners requested a marketing venture from the beginning," he said. "As oil product wholesaling opens up and demand for fuel further picks up, it is a natural tendency for us to cooperate more closely."

Processing sour crude requires advanced technology and equipment, which will be provided by US-based energy giant Exxon Mobil, he explained.

"We will benefit in refining technology and know-how by bringing Exxon Mobil in," the Sinopec press official said. "The Saudi Arabian partner will secure our crude oil supply and we will create the best market environment. That is how we perceive the project as the mutually beneficial."

Han Xuegong, a veteran analyst with CNPC, China's top oil producer, said that Chinese oil firms are strong in upstream operations including exploration and production, but not in downstream business such as refining and petrochemical manufacturing.

"Our capability in sour crude refining is not mature yet. Sinopec is China's leading refiner, but still lags behind global powerhouses such as Exxon Mobil in refining expertise. That is why Sinopec prefers to collaborate with foreign partners," Han explained.

The Fujian joint refining project will see Sinopec take a 50 percent share, Exxon Mobil 25 percent and Saudi Aramco 25 percent.

Start-up of the project is scheduled for early 2009. An initial accord was signed in August 2004 with the project valued at $3.5 billion at that time, according to Bloomberg.

In addition to refining facilities, the project will include new petrochemical equipment such as an 800,000 ton-per-year ethylene steam cracker, an 800,000 ton-per-year polyethylene unit, a 400,000 ton-per-year polypropylene unit and an aromatics complex based on a 700,000 ton-per-year paraxylene unit. Support facilities, including a 300,000-ton crude berth, will also be built.