$5bn deal heralds industry integration

Hepeng Jia/ Beijing, China 

Sinopec, ExxonMobil and Saudi Aramco's US$5.1 billion deal to pursue joint ventures in refining, ethylene and fuel marketing, is expected to boost integration in China's petrochemical industry.  

The agreement, signed on 25 February, will triple the existing oil refining capacity of Fujian Petrochemical Co Ltd - a joint venture equally owned by the Fujian provincial government and Sinopec - to 12 million tonnes per year. The facility will mainly process sour Arabian crude supplied by Saudi Aramco.  

The project will also construct an 800,000 tonnes-per-year ethylene steam cracker, an 800,000 tonnes-per-year polyethylene unit, a 400,000 tonnes-per-year polypropylene unit and an aromatics complex to produce 700,000 tonnes-per-year of paraxylene. Fujian Petrochemical, ExxonMobil and Saudi Aramco will own 50 per cent, 25 per cent and 25 per cent of the joint venture respectively. 

'The stable oil supply and the integrated production and marketing model are likely to increase the project's competitiveness and promote more domestic players to follow,' said Huang Lidao, a senior analyst of China National Chemical Information Centre. 

Surging demand 

A second collaboration between the companies will create and manage about 750 service stations and a network of terminals in Fujian Province. 

'This is the first fully integrated refining, petrochemicals and fuel marketing Sino-foreign joint venture projects in China. The integration of different sectors in the petrochemical industry will greatly improve our competitiveness,' Sarah Du, a spokesperson of ExxonMobil China, told Chemistry World. 

She added that ExxonMobil and other international petrochemical companies have long pursued the integration business model to decrease costs and increase efficiency in the US and Europe.  

But in China, the integration process in the petrochemical industry has until now been almost nonexistent - according to Huang, because of the long-term separation of different sectors. 

'Until the late 1990s, we had the ministry of oil, ministry of chemical industry and the bureau of light industry, each governing different subfields of the petrochemical industry, which dampened any integration effort,' Huang said. It is only since these ministries were disaggregated in 1998 during the government reform that the integration process began.  

'But integration is not simply building things together. It needs sophisticated technologies and efficient management, which the foreign players can bring in through the joint-venture project,' added Huang, who believes that more integrated projects will emerge from the rush to meet the surging demands for petrochemical material in China.