LONDON (Reuters) – Oil major BP Plc (LSE: BP.L – news – msgs) ”s Innovene petrochemicals unit has signed an agreement to build a $2 billion (1.1 billion pound) plastics plant in Saudi Arabia, in a move to orient the soon to be spun out unit toward fast-growing Asian markets.
BP said on Wednesday that Innovene had signed a memorandum of understanding with Saudi-owned Delta International to build a "cracker" unit, which will convert natural gas into ethylene, the raw material for plastic wrappings and containers.
The cracker, which is expected to start up in late 2008, will produce around 1.2 million tonnes of ethylene per annum. Delta added in a statement that the long-term goal was to build two crackers at a cost of around $2 billion each.
Analysts said the joint venture could make Innovene, which BP plans to float later this year, more attractive to investors.
Innovene”s manufacturing sites are mainly based in the United States and Europe, while the fastest growing markets for ethylene and its derivatives, which are also used to make pipes and car parts, are in Asia, and particularly in China.
A BP spokesman said Saudi manufacturing sites would help Chicago-headquartered Innovene better capture buoyant Asian demand. The project should also benefit from cheaper gas than is available in the United States and Europe.
Analysts expect London-based BP, which is the world”s second largest oil firm by market capitalisation, to sell around 20-30 percent of Innovene in late 2005 in an IPO that may value the firm at around $8 billion.
Innovene and Delta will contribute equal amounts to the project but the partners will also now seek funding from third parties to meet part of the costs involved.
Delta group has interests in oil exploration and develops energy infrastructure projects. A BP spokesman said the firm”s extensive contacts in the Kingdom would play a key role in securing natural gas, and possibly financing, for the project.
The parties are exploring site locations in Jubail, an industrial city on the east coast of Saudi Arabia, and expect to sign a final agreement before the end of the year.
Innovene”s Shanghai-based SECCO joint venture with China”s Sinopec and Singapore Petroleum Company, which is the largest petrochemical complex in China to date, became fully operational in March.
BP shares traded down 0.5 percent at 559-1/2 pence at morning trade, in line with the DJ European Oil and Gas index.