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Cablegate: Exxonmobil Petrochemical Project Looks Likely

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS CARACAS 000163

SIPDIS


SENSITIVE

NSC FOR TSHANNON
ENERGY FOR DPUMPHREY AND ALOCKWOOD

E.O. 12958: N/A
TAGS: EPET VE
SUBJECT: EXXONMOBIL PETROCHEMICAL PROJECT LOOKS LIKELY

1. (U) The following message is Sensitive but Unclassified
because it contains corporate information. Please handle
accordingly.

-------
SUMMARY
-------

2. (SBU) The Ambassador met January 13 with Dan Sanders,
President of the ExxonMobil Chemical Company, to discuss the
status of a possible investment in Venezuela. The project, a
joint venture with Pequiven, state oil compamy PDVSA's
chemical affiliate, would see the construction of a $2.3
billion petrochemical plant to create feedstock for the
plastics industry. ExxonMobil appears to be ready to move
ahead with this investment, under discussion since 1996,
despite some concerns about the political environment and its
possible impact on the financing package. The signature of a
Preliminary Development Agreement (PDA), which may be
preceded by a meeting in Venezuela between ExxonMobil
Chairman Lee Raymond and President Chavez, is likely within
the next two to three months. In a best case scenario, the
plant would come on stream in 2008-2010. End Summary.

3. (SBU) On January 13, the Ambassador, accompanied by
EconCouns, Resources Attache and visiting Deskoff, met with
ExxonMobil Chemical Company (EMCC) President Dan Sanders, two
EMCC vice presidents, ExxonMobil de Venezuela President Mark
Ward, and other company personnel. Sanders and his team
asked the Ambassador to comment on possible 2004 political
events, saying ExxonMobil would be concerned about anything
that could impact on investor confidence or the execution of
the project. Sanders informed the Ambassador that the
signature of a Project Development Agreement (PDA) may be as
little as a month away, following a possible visit to
Venezuela by ExxonMobil Chairman Lee Raymond.

-----------
THE PROJECT
-----------

4. (U) The centerpiece of the proposed joint
ExxonMobil/Pequiven (PDVSA chemical affiliate) project would
be an ethane-based, ethylene cracker which would provide
feedstock for three related facilities. The integrated
facility, to be located in the Jose Industrial Complex in
Anzoategui State, 140 miles east of Caracas, would convert
1.3 million metric tons of ethane into 1 million tons of
ethylene. The ethylene in turn would be converted into
760,000 metric tons of both high- and low-density
polyethylene (used for items such as grocery sacks and
garment bags respectively) and 430,000 tons of ethylene
glycol (used in polyester clothing). The polyethylene would
be used primarily to spur domestic projects and to penetrate
export markets in South and Central American and the
Caribbean. The ethylene glycol production would be exported
to European and Asian markets. The capital investment for
the project is estimated at approximately $2.3 billion.

----------
NEXT STEPS
----------

5. (SBU) Once the PDA is signed, a two to three year period
will start in which ExxonMobil will have to revalidate the
economics of the project, negotiate detailed agreements, get
the GOV to agree to the necessary package of fiscal
incentives, do the engineering, and, most importantly, get
the financing. Construction is expected to take three to
four years and would generate approximately 8,000 jobs at its
peak. The project would create about 700 direct permanent
jobs and would be expected to come on stream in 2008-2010 in
a best case scenario.

6. (SBU) PDVSA Gas was originally supposed to construct a gas
separation plant to separate the ethane feedstock for the
plant from gas provided in Anaco or associated gas from
Venezuela,s eastern oil fields. PDVSA was also expected to
construct a dedicated pipeline directly to the plant.
PDVSA's ability to provide enough gas for feedstock has been
questioned. EMCC President Sanders, however, told the

Ambassador that ExxonMobil believes there is enough gas
on-shore for development of the first train (i.e., production
line). Successive trains would likely be supported by
off-shore gas.

7. (SBU) Sanders conceded that there are questions about
PDVSA's ability to meet its $1 billion plus commitment in the
50-50 joint venture (as well as to fund construction of the
plants mentioned above). He said ExxonMobil has received
assurances that the project funding has been included in
PDVSA's budget. He added, however, that ExxonMobil will be
looking at investment models adopted by other projects that
have locked in PDVSA cash calls. He acknowledged that
getting the financing will be difficult in the absence of
investor confidence in PDVSA.

-------
COMMENT
-------

8. (SBU) ExxonMobil's interests in this project happen to
coincide with Chavez's efforts to promote downstream
industrial development in Venezuela. Company sources believe
the GOV dragged its feet so long on approving this project
because it saw it exclusively as an export project.
ExxonMobil, however, has bent over backwards to accommodate
Chavez Administration goals to expand domestic industry. For
example, ExxonMobil has engaged to start importing resins to
spur the further development of the domestic Venezuelan
plastics industry before project construction. The company
has also pledged to provide technical assistance to the
national industry in such areas as how to process resins,
product applications, etc.

9. (SBU) Comment Continued: ExxonMobil has told us that,
despite their best efforts to push for a low key ceremony for
signature of the PDA, the GOV is likely to insist on a
televized splash. Any visit by ExxonMobil's Chairman to
Venezuela is also likely to provide President Chavez with
electioneering fodder. GOV officials have already been
quoted in the local press as saying that Sanders' visit is a
sign of investor confidence in Venezuela.
SHAPIRO


NNNN

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