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Wed 18 Jun 2008 09:18 AM

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SABIC to expand China petrochemical stake

Saudi Basic Industries Corp. set to double investment in China ethylene complex.

State-controlled Saudi Basic Industries Corp. (SABIC) could more than double its investment in a China ethylene complex that will give the Middle Eastern chemical giant a solid foothold in the fast growing Chinese petrochemical sector.

SABIC and partner Sinopec Corp. want to expand an earlier agreed project into a full-fledged venture that could see investment reach $4 billion from the $1.7 billion initially announced in January, industry executives estimated.

An industry executive familiar with the project told Reuters that the firms will sign a deal in the next week in Riyadh for broadening cooperation on the 1 million tonne per year cracker project in northern Chinese port city of Tianjin.

The signing of the accord, the first major investment in China for the Saudi firm, will coincide with Chinese Vice President Xi Jinping's first state visit to the Kingdom, the world's top oil producer already supplying 16 percent of China's crude imports.

Under the new pact, the venture will cover production of ethylene, the primary building block for petrochemicals and all downstream products. The earlier plan called for SABIC's involvement in only a few production lines.

The deal will make SABIC one of the handful of foreign players in the massive Chinese petrochemical market, which has been expanding at double-digit rates in recent years.

It will also mark the beginning of China diversifying away from global majors like Exxon Mobil, Royal Dutch Shell, partners picked in the industry's first round of foreign tie-ups over a decade ago for their cash and savvy management.

"It's foresight for the Saudis to form strategic alliances with major emerging economies like China with foreseeable energy demand growth," said Zhang Xiaodong, a Middle East expert with China Academy of Social Sciences. "Having both oil trade ties and investment in oil-related businesses like this will be a solid partnership," said Zhang.

"China wants to spread out the risk by giving everybody a bit of the market," said an official with an international major who requested anonymity due to company policy on speaking to the press. "Both sides have a sincere intention to expand the cooperation.

Talks are underway to jointly invest in the whole ethylene project, including all the by-product lines," said the first executive familiar with the talks, without giving an updated investment figure.

A similar-sized complex ExxonMobil is building in Singapore will cost about $4 billion. (Reuters)

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