ExxonMobil Corp said yesterday it has signed a preliminary deal to build a petrochemical complex and invest in a liquefied natural gas (LNG) terminal in China, the latest major foreign investment in the world's top chemicals market.

The agreement worth billions of dollars with the southern Guangdong provincial government includes a 1.2 million-tonne-per-year ethylene plant, two polyethylene production lines and two polypropylene lines in the coastal city of Huizhou, it said.

Exxon also agreed to participate in a provincial project to build an LNG terminal in Huizhou and to supply LNG for it. No details about the capacity of the project or timeline were given.

China is allowing greater access by global majors and local independents to its massive chemicals market to feed plastics, coatings and adhesives to the fast-growing consumer electronics and car sectors.

Exxon would be one of only a few international oil majors to invest in LNG infrastructure in China as the country tries to shore up supplies amid a switch to gas-fired boilers by factories and households as part of the government's battle against smog. The news comes after German chemical giant BASF announced plans in July to invest US$10 billion (S$13.7 billion) to build China's first wholly foreign-owned chemicals complex, also in Guangdong. The project includes a steam cracker producing one million tonnes a year of ethylene.

Details of the ownership structure of Exxon's chemical plant and LNG investment were not released yet. Still, the deal could be seen as a goodwill gesture by China amid a deepening trade war between the United States and China as the world's top two economies have traded tit-for-tat punitive tariffs that target US$50 billion of each other's goods. Washington was holding hearings this week on another round of proposed duties on US$200 billion worth of Chinese imports that seem likely to take effect later this month or early next month.

The agreement comes a day before a planned meeting in Beijing between Chinese Premier Li Keqiang and Exxon chairman and chief executive Darren Woods.

The preliminary deal was signed with the local governments of Guangdong province and Huizhou as well as state power company, Guangdong Yuedian Group, according to the Guangzhou Daily.

While the petrochemical deal was largely expected following a joint study signed late last year, the push on LNG was a surprise and would mark a second investment in China's gas infrastructure by an international oil company.

"It marks a salient step for Exxon in their pursuit of becoming an LNG portfolio player," said Mr Saul Kavonic, director for Asia-Pacific markets and head of energy research at Credit Suisse in Australia. An investment in the import facility and downstream gas marketing will help it boost sales and margins compared with just selling the fuel at the import terminal gate, he added.

BP is so far the only global major with a stake in a gas receiving terminal in China, a joint venture with state-owned China National Offshore Oil Corporation which began operations 12 years ago.

Exxon said it is also looking at other chemicals manufacturing projects in Asia to help meet expected demand growth in the region.

A decision to proceed with the petrochemical project will be based on a number of factors, including the receipt of permits and project competitiveness, it said. Startup is planned for 2023.

Exxon already owns a 25 per cent stake in a refinery and petrochemical plant in Fujian in partnership with China's top state refiner Sinopec.

REUTERS