Saudi Aramco forms $8bn joint venture with Acwa and Air Products

The JV will own and operate gasification assets, power block and other facilities at Jazan Economic City in the kingdom

Saudi Aramco will supply feed stock to the joint venture, which in turn will produce power and hydrogen for the Saudi oil producer.. Ahmed Jadallah/Reuters

Saudi Aramco on Sunday agreed to form an $8 billion power and gasification joint venture with Saudi Arabia’s Acwa Power and US-based Air Products as part of plans to attract foreign investment to the power sector.

Air Products will hold at least a 55 per cent stake in the joint venture, which will buy from Aramco gasification assets, power block and associated facilities located in the kingdom’s Jazan Economic City. Aramco and Acwa will own the remainder of the joint venture.

Saudi Aramco will supply feed stock to the joint venture, which in turn will produce power and hydrogen for the Saudi oil producer.

“The joint venture builds upon the importance and recognition that critical infrastructure assets in the region are being developed and operated under the Public Private Partnership (PPP) model,” Aramco said in a statement.

State-owned Aramco is building a 23 billion riyals (Dh22.5bn) refinery in Jazan Economic City on the Red Sea coast, which is part of the kingdom’s plans to develop industrial zones, create jobs and attract foreign direct investment.

The 400,000 barrel-per-day facility will process heavy and medium crude oil to create liquefied petroleum gas, sulfur, asphalt, benzene and paraxylene.

“The gasification/power joint venture will be central to the self-sufficiency of our megaprojects at Jazan,” said Saudi Aramco senior vice president of downstream Abdulaziz Al Judaimi. “The joint venture will enhance the overall value of the refinery and integrated gasification combined cycle power plant, and aid in transforming the province by positioning JEC for additional foreign direct investment and private sector involvement.”

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Appointing US-based Air Products as lead on the project was a smart move to take the burden off Saudi Aramco, which has increasingly looked to develop a leaner business model, said Robin Mills, chief executive at UAE-based consultancy Qamar Energy.

The joint venture will own and operate the assets for a fixed monthly fee under a 25-year contract. These assets are currently under construction and will be transferred to the joint venture upon scheduled completion in 2019.

Acwa Power was also in a good capitalised position to take on such large investments, said Mr Mills. The Public Investment Fund, Saudi Arabia's sovereign wealth fund, has a 25 per cent stake in the company.

“Acwa is very well aligned with the Saudi strategy and [with] PIF's stake and is able to get into a deal like this, which has a big capital commitment and [where] the technology is quite advanced,” he added.

Acwa Power, which has veered more towards renewable power development, still generates a significant portion of its business from the conventional utilities segments. The developer, which is also mulling an initial public offering, is currently executing phase one of the Hassyan clean coal power project in the UAE.

The Aramco investment comes amid an increasing pivot towards integrating more gas-fired power plants in Saudi Arabia, which has previously burnt crude to generate electricity.

Natural gas related infrastructure will continue to play “a growing role in driving non-residential growth in Saudi Arabia” over the coming years, research firm Fitch Solutions said in a note on Monday.

“Ambitious government targets with respect to boosting natural gas production will continue to be underpinned by the need to move away from burning crude oil to generate power and instead free it for export,” it added.