What’s next for PetroChina and Ineos?

Business, China, Company Strategy, Europe, M&A, Projects

By Malini Hariharan

After months of talks, PetroChina finally signed a framework agreement with Ineos for partnerships in refining, trading and petrochemicals at Grangemouth in Scotland and Lavera in France. The companies will be working towards the formation of these ventures by end-June 2011.

PetroChina’s parent China National Petroleum Corp (CNPC) and Ineos also signed an agreement to share refining and petrochemical technology and expertise.

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Pic Source: www.businessinsider.com

For Ineos, Europe’s largest independent refiner the deal to partner with one of the world’s largest refiner makes a great deal of sense.

It not only secures the future of the two sites but also gives the company an entry into China’s lucrative petrochemicals market.

Ineos director Tom Crotty said the agreement to give Ineos the opportunity to lever its polyolefins, polyvinyl chloride (PVC), chlorine, possibly acrylonitirile (ACN) and other technologies into China.

But beyond sharing of technologies, what Ineos should be looking at is a cracker joint venture in China. This has been difficult task for most foreign companies except those that can offer oil. But the planned joint venture with PetroChina gives Ineos a good platform to pursue a cracker and deriviatives project.

Ineos currently has only one project in the country – a phenol and acetone joint venture with Sinopec at Nanjing.

Financially, Ineos will be pleased as a cash injection by PetroChina would help it in its deleveraging efforts. “We are not talking small numbers here,” said Crotty in this interview.

As for PetroChina, a deal with Inoes is much more than gaining a foothold in Europe. It would help PetroChina hedge against uncertain product pricing policies in China where the government is working hard to tame inflation, says one analyst in this report. A second pointed out that with a share in a refinery in major trading areas, PetroChina would have a secure supply of oil products and storage capacity for its expanding trading operations.

After expanding in Asia (a stake in Singapore Refining Co and a joint venture with JX Nippon Oil in Japan) and Europe, speculation has mounted that the company will soon turn its attention to the US to achieve its ambition of becoming an integrated international energy company.

And PetroChina has deep pockets – its chairman has said that the company plans to spend $60bn in overseas acquisitions.

But it remains to be seen if the PetroChina can to make a smooth entry into the US as the last effort by a Chinese company (CNOOC’s bid for Unocal) to acquire a refining asset was scuttled by political pressure.

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