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PetroChina Forays Into Europe Refining With Ineos Deal

PetroChina Co., China’s biggest energy producer, agreed to form a venture with U.K. refiner Ineos Group Holdings Plc, gaining a foothold in Europe as it accelerates global expansion.

PetroChina and Ineos, the U.K.’s largest privately-held company, will refine and trade oil products at the Grangemouth refinery in Scotland and the Lavera plant in southern France, the Beijing-based company said in a statement yesterday. Both of Ineos’s facilities have oil-processing capacities of about 210,000 barrels a day, according to the statement.

The venture adds to $6.9 billion of acquisitions in countries from Australia to Singapore in the past two years as PetroChina seeks to meet China’s growing energy demand. In the next decade, the Hong Kong-listed energy producer is planning to spend at least $60 billion on global assets to increase reserves and boost fuel production.

“This is an important part of PetroChina’s long-term strategy to create a global oil trading business,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “You’ve seen PetroChina establish refining and storage bases in Japan and Singapore, and now we have this. The next logical move in the chess game is for PetroChina to secure refining and storage assets in North America.”

Shares of PetroChina advanced 9 percent in Hong Kong trading last year, beating the 5.3 percent gain in the benchmark Hang Seng Index. The stock climbed 0.2 percent to HK$10.16 at 10:38 a.m. local time.

Global Partners

PetroChina and Royal Dutch Shell Plc agreed in November to study energy projects in Canada and China. The Chinese company’s last overseas acquisition was completed in August when it teamed up with Shell to buy Australian gas producer Arrow Energy Ltd. for $3.2 billion.

European oil companies such as Shell and Total SA are selling plants after weak demand for fuels caused by the worst recession since World War II cut refining profits. PetroChina will provide Ineos with an “injection of capital,” the Chinese company said in the statement, without elaborating. The venture is expected to be set up in the first half.

The venture will safeguard more than 2,000 jobs at Grangemouth, Scotland’s only oil-processing plant, Finance Secretary John Swinney said in an e-mailed statement.

“Although we’re the biggest independent refiner in Europe, we’re relatively small in global terms and we’re now partnering up with probably the world’s biggest,” Ineos’s Group Director Tom Crotty said in an interview. “From their point of view it’s a great entry into Europe.”

The agreement will give Ineos a “significant” boost to its efforts to deleverage, according to Crotty. “We’re not talking small numbers here.”

Morgan Stanley

In 2007, Morgan Stanley agreed to supply oil and sell refined products overseas from the two Ineos refineries. Yesterday’s agreement with PetroChina doesn’t cancel out that arrangement, said Richard Longden, a spokesman for Ineos.

“This is the first step towards, hopefully, the formation of the joint venture with PetroChina,” Longden said in a phone interview. “It would be wrong to speculate on what the outcome” will be.

PetroChina’s Chairman Jiang Jiemin had said in March that preliminary work was under way on a bid for the Grangemouth refinery.

“This is all part of PetroChina’s plan to become a global oil company,” Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai, said today. “These refineries in Scotland and France are fairly small in terms of output, but it’s part of a longer-term strategy to develop refining assets overseas.”

Ineos bought Grangemouth from BP Plc in December 2005, along with petrochemical assets. The transaction was part of Ineos’s $9 billion buyout of BP’s Innovene unit.

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