13 July 2005

China, Exxon, and Aramco team

Exxon Mobil Corp. and Saudi Aramco are proceeding with a joint $3.5 billion refinery and petrochemical project with China Petroleum & Chemical Corp.

The Wall Street Journal reported the announcement of the deal comes on the heels of a bid by Cnooc Ltd., another Chinese oil company, to buy midsize U.S. oil and natural-gas producer Unocal Corp., a move that has heightened concerns about U.S. energy independence.

But the Exxon Mobil-Aramco refining joint venture indicates the world’s oil majors also are working to build assets in China, the world’s fastest-growing oil market, which is second only to the U.S. in demand.

Exxon Mobil said it signed a contract with a unit of state-owned Aramco and Fujian Petrochemical Co., which Sinopec and the province of Fujian own together.

The three partners had been trying to clinch a deal for years. Exxon and Aramco will each hold a 25% interest in the Fujian Refining & Ethylene Joint Venture Project, while the remaining half will belong to Fujian Petrochemical.

Sinopec is among the largest oil concerns in China, which is short on both crude oil and the capacity to refine it. Exxon Mobil, meanwhile, has a considerable amount of cash for investment and a reputation as one of the most cost-conscious oil majors in designing and operating projects. Aramco, the world’s largest oil exporter, is looking for a market for its high-sulfur crudes, which many of the world’s refineries aren’t designed to process and, therefore, don’t want. Saudi Arabia also wants to extract more value from its crude by refining it into oil products.

The deal would add some 160,000 barrels a day of crude-processing capability to an existing 80,000 barrel-a-day refinery in Quongang, a Fujian province. The refinery will handle sour Arabian crude, which Aramco will supply under a long-term contract also signed Friday. While Exxon Mobil gave no timetable for completion of the project, construction typically takes years.