March 30 (Bloomberg) -- Exxon Mobil Corp. said a 12-year wait to start a $5 billion refining and chemicals venture in China will pay off because the Communist government will free the world's fastest-growing gasoline market and ensure profits.

The project, first mooted in 1995, combines Exxon, the world's biggest publicly traded oil company, Saudi Aramco, the largest oil producer, and China's top refiner. It will tap a fuel market growing at 2.7 times the global pace, Exxon Director Steve Simon said yesterday. The company expects China to use a quarter of the world's petrochemicals by 2015.

``This is one of the few places in the world where you see that a grass-root facility or major expansion is warranted,'' Simon, head of global refining, marketing and petrochemicals at Irving, Texas-based Exxon, said in an interview in Beijing.

China's oil demand has doubled since Exxon started negotiations to build a so-called ``fully integrated'' fuel and chemicals factory. Rivals Royal Dutch Shell Plc and BP Plc started petrochemical ventures and stayed out of straight oil refining. Last year, government caps on fuel prices handed China's state refiners more than $7.5 billion of losses.

Selling both transportation fuels and petrochemicals will help ``ride out some of the tough periods in one area or another,'' Simon said. While China's control on retail fuel prices is ``a concern,'' he said ``it's going to be in China's long-term best interests to transition into a free market'' as the nation increases its dependence on oil product imports.

Project Delay

Exxon, Saudi Arabia's state oil company and China Petroleum & Chemical Corp. today signed a final agreement at Beijing's Great Hall of the People.

The companies started talks on the venture in 1995 and an initial agreement, valuing the project at $3.5 billion, was signed in August 2004. The increase in the cost estimate since then is due to the inclusion of working capital and the cost of buying the existing refinery in Fujian from China Petroleum, Simon said.

Exxon is among the last of the world's biggest oil companies to conclude a major energy agreement in China.

``I am not surprised by the 12-year delay because it is a big investment and it requires various government approvals,'' Liu Gu, an oil analyst at Guotai Jun-an Securities HK Ltd., said by telephone from Shenzhen. ``I see very good outlook for the project because there is growing demand for oil and petrochemical products in China.''

Getting the government approvals for the project ``takes time,'' Simon said. ``We develop things differently from our competition.''

Plant Expansion

The partners will expand a crude oil refinery in Fujian, southwestern China to about 240,000 barrels a day from 80,000 barrels a day, and add four petrochemicals units. The venture, which will include 750 gas stations, will mostly process crude oil from Saudi Arabia.

A so-called steam cracker will produce 800,000 tons a year of ethylene. The other plants will produce 800,000 tons a year of polyethylene, 400,000 tons a year of polypropylene and there will be an aromatics complex based on a 700,000 tons-a-year paraxylene unit.

Exxon has ``probably eight of these integrated sites of this magnitude around the world,'' where integration between refining and chemicals plants has saved about $750 billion a year in costs, Simon said. ``That's over the past five years, and it just keeps growing.''

Exxon, Aramco and China Petroleum, known as Sinopec, will each own 25 percent of the project to be completed in 2009, and the Fujian government the other 25 percent.

Demand Growth

China's oil demand will grow at about 4.3 percent a year in the next five years, compared with the global average of 1.6 percent a year, according to Simon. Growth in the U.S. is about 0.9 percent a year and in Europe, demand is rising at a rate of 0.4 percent a year.

China demand for petrochemicals, the raw materials for plastics, cosmetics and detergents, is surging. China will account for 25 percent of global demand by 2015, Sherman J. Glass, senior vice president of Exxon's chemical unit said on March 22 in a conference speech in Singapore.

China, the world's second-biggest energy user, restricts gains in prices of oil products including gasoline and diesel to limit their impact on inflation. State-controlled PetroChina Co., Asia's biggest oil company, had an oil refining loss of 29.1 billion yuan ($3.8 billion) last year. China Petroleum, Asia's biggest refiner, which is due to report 2006 earnings next week, lost 29.2 billion yuan in the first three quarters.

The government plans to boost refining capacity in China, the world's second-largest energy consumer, by 25 percent within about five years. Sinopec supplies 77 percent of the oil products sold in China. About half of Saudi Arabia's crude oil exports are consumed in Asia.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net;

Last Updated: March 30, 2007 02:34 EDT