BP, the UK oil and gas company, has announced plans to invest $2 billion (£1.1 billion) in a plastics plant in Saudi Arabia to cash in on rapidly growing demand from Asian consumers.

Innovene, the BP petrochemicals unit that will be spun off later this year, has signed a memorandum of understanding with Delta International, the Saudi company, to build a “cracker” unit. The cracker unit converts natural gas into ethylene, the raw material for plastic wrappings and containers. Ethylene is also used to make pipes and car parts.

BP said that it expected the unit to be operational in late 2008 and produce about 1.2 million tonnes of ethylene a year.

BP and Delta are also considering plans for an adjacent, second cracker plant.

Innovene has its headquarters in Chicago and most of its manufacturing sites are in North America and Europe.

Analysts said that the decision to build a cracker plant in Saudi Arabia was driven by the strong economic growth in Asia, in particular China and India. In addition, the Saudi plant would benefit from lower gas input costs compared with similar operations in Europe or North America, they said.

The addition of an Asiafocused manufacturing operation is likely to make Innovene more attractive to investors ahead of its proposed spin-off.

BP is expected to sell up to 30 per cent of Innovene as part of an initial public offering later this year that could value the unit at $8 billion.

Innovene and Delta will contribute equally to the cost of the cracker plant but are also seeking a third investor.

The plant is likely to be built in Jubail, on the east coast of Saudi Arabia. Both parties expect to sign a final agreement by the end of the year.

Meanwhile, Total, the French oil group, is leading a push to create a trans-Caspian shipping system to ease the flow of Kazakh crude oil.

Total is considering building a one million barrel a day terminal on the Azeri coast of the Caspian Sea, where tankers from Kazakhstan could unload their cargoes. The oil would then go through the new BP-led Baku-Ceyhan pipeline to Turkey or by rail to Georgia.

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