Tumbling oil price puts squeeze on Rabigh

Petro Rabigh, a Saudi joint venture between Aramco and Japan's Sumitomo Chemical, is likely to face margin pressure on its petrochemical products as oil sinks below $110 a barrel.

The falling price of oil could start squeezing profit margins at Saudi Arabia's Rabigh Refining and Petrochemical.

The company, also known, as Petro Rabigh is "highly geared to the crude prices, with the refinery business contributing up to 85 per cent of its revenues, and hence we believe that it can be susceptible for margin pressure", Al Rajhi Capital said in a note to clients yesterday.

Al Rajhi forecasts petrochemical product prices to drop by 6 per cent in the third quarter and 1 per cent in the fourth quarter, in line with the drop in oil prices.

Petro Rabigh is a joint venture between the oil and gas giant Saudi Aramco and Japan's Sumitomo Chemical, with an annual output of 18 million tonnes of refined products and 2.4 million tonnes of petrochemicals. The company's petrochemical complex was taken offline from April 21 to June 30 for maintenance.

The Rabigh complex includes a 400,000 barrel per day refinery, a 700,000 tonne a year polypropylene plant; a 600,000 tonne a year linear low density polyethylene unit, and a 200,000 tonne a year propylene oxide facility.

"Petro Rabigh missed the opportunity to cash in the upward momentum in crude prices in the second quarter, which rose 11.5 per cent on a quarter-on-quarter basis," the note said. "By the time the company's plant became fully operational, oil prices declined by 7.6 per cent since the start of July due to global macroeconomic concerns."

The maintenance shutdown at all its plants caused its revenues to drop 49 per cent to 7.6 billion riyals in the second quarter, compared with the same period last year.

The company swung to a net loss of 402 million riyals in the second quarter, from a profit of 122m riyals in the same period last year.Petro Rabigh's expansion plan, the Rabigh II project, is due to be completed in the first quarter of 2015, but the construction contract has not yet been awarded, the note said.

As part of the expansion, estimated to cost US$6 billion to $8bn, partners would look to increase the capacity of the existing ethane cracker to take in an additional 30 million cubic feet per day of feedstock ethane.

halsayegh@thenational.ae

Published: August 22, 2011 04:00 AM

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