Sabic signs agreement to develop methanol facility in Louisiana

Saudi Arabian chemicals company aims to significantly increase methanol share in its portfolio this year

The Aramco-Sabic transaction is a "significant leap forward” for Saudi Aramco’s downstream strategy, Aramco president and chief executive, Amin Nasser said. Reuters

Saudi Basic Industries Corporation signed a preliminary agreement with South Louisiana Methanol to explore the possibility of developing a chemicals plant in the US, as the region's largest energy firms looks to profit from surging North American shale gas production.

The Louisiana-based company, which is majority owned by New Zealand’s Todd Corporation, will evaluate the potential for establishing a methanol plant with capacity of more a 1.8 million metric tonnes annually with Sabic.

The six-month partnership agreement between the two firms has provision for extension. Final investment decision will be taken after obtaining required approvals and licences following the completion of the study, Sabic said in a statement to Saudi Stock Exchange, where its shares are traded.

"The agreement is part of Sabic strategy to focus on geographic diversification of its business to reach new global markets and enable the company to access competitive feedstock," the company said.

Saudi Aramco, the world's biggest oil producing company, is in talks to buy a 70 per cent stake in Sabic, the kingdom's largest listed company. The Saudi chemicals firm has looked to significantly increase methanol in its portfolio this year.

Sabic increased its stake in Arrazi Methanol Company after purchasing Japan Saudi Arabia Methanol Company's 50 per cent interest for $150 million in December.

Sabic and JSMC’s holdings in the methanol company, located in the eastern industrial city of Jubail, will now be 75 per cent and 25 per cent, respectively.

Investment in the downstream segment of the energy value chain has become a priority for Middle East oil producers, as they look to earn revenues from sale of higher value products. Saudi Aramco announced on Monday it had completed acquisition of Dutch rubber company Arlanxeo in a transaction valued at €1.5 billion (Dh6.3bn), after purchasing the remaining 50 per cent stake in German specialty company Lanxess.

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Surging US shale gas production has also been a big draw for Middle East energy firms, hungry for cheap feedstock and access to market.

In February, Mubadala Investment Company subsidiaries Nova Chemicals and Borealis signed a definitive agreement with France’s Total confirming the development of the companies’ $1.7bn petrochemicals facility in Texas.

The joint venture between Nova, Borealis and Total will include a million tonnes per year ethane steam cracker already under construction in Port Arthur, Texas, together with Total’s existing 400,000 tonnes per year polyethylene facility in Bayport in the oil-rich southern state.

The under-construction cracker facility is adjacent to a Total refinery at Port Arthur, as well as an existing Total steam cracker built as part of a separate joint venture with Germany’s BASF.

Sabic made earlier forays into US chemicals through a joint venture with Exxon Mobil in 2017 to build an ethylene plant in Texas. Kuwait’s Equate Petrochemical acquired ethylene glycol-producer MEGlobal in 2015 and is currently building a 750,000-tonne per annum monoethylene glycol facility in Freeport, Texas.

Abu Dhabi’s Mubadala Investment Company’s integrated petroleum and petrochemical unit has also looked to increasingly strengthen its position in North American natural gas and chemicals industry.

In an interview with The National, the platform's chief executive Musabbeh Al Kaabi said the firm was eyeing "an almost strategic shift to North America when it comes to the petrochemicals industries".