Saudi Aramco and Saudi Basic Industries Corporation (Sabic) have agreed to conduct a feasibility study to develop a oil-to-chemicals complex in the kingdom, the first joint venture between the energy giant and petrochemical producer.
The companies did not give a time line or a potential size for the complex, which is the first such project in Saudi Arabia, the largest petrochemical producer in the Arabian Gulf.
The project is forecast to cost up to US$30 billion, Sabic officials have indicated previously.
“This agreement will help spur a new era of industrial diversification, job creation and technology development in Saudi Arabia, particularly through downstream conversion of speciality chemicals by small- and medium-sized enterprises,” the Saudi Aramco chief executive, Amin Nasser, said in a statement on Tuesday.
Sabic, one of the world’s biggest petrochemical producers, has been unable to expand in the kingdom because of limited feedstock of gas, which is in demand for power generation and industrial use.
"It is still difficult to say whether such a project would deliver adequate returns to [Sabic] shareholders without further information, such as products to be produced, at what price the oil will be sold to Sabic/Aramco, etc," said Yousef Husseini, the vice president of chemical research at Egypt's investment bank EFG Hermes. "Our main concerns on such a project would be the capital cost, which could be very high, and the fact that it has not been done before on this scale. So there is execution risk."
Sabic, which is 70 per cent owned by the Saudi government, has been grappling with dwindling income because of lower oil prices that influence petrochemicals.
The firm, which is listed in Riyadh, reported a 13.2 per cent drop in first quarter net profit, but beat analyst expectations.
Sabic’s revenue is expected to come further under pressure after the kingdom slashed subsidies on gas this year in a bid to shore up government income.
Sabic shares fell 0.99 per cent on Tuesday to 80.75 Saudi riyals (Dh79) in Riyadh yesterday.
Meanwhile, Saudi Aramco has already teamed up with Dow Chemical of the US in a $20bn petrochemical joint venture in the kingdom, Sadara, which will produce 3 million tonnes of petrochemicals a year once fully operational.
The project is the world’s largest such facility to be built in a single phase.
Both projects fall in line with the kingdom’s Vision 2030, which seeks to trim the country’s reliance on oil revenue, create industrial projects that provide jobs to unemployed Saudis and carve up a downstream industry.
dalsaadi@thenational.ae
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