Saudi Aramco’s acquisition of a 70 per cent stake in Saudi Basic Industries Corporation (Sabic) from the Public Investment Fund (PIF) for $69.1 billion will create an integrated oil and chemicals outfit that Riyadh hopes will be the world’s largest chemicals producer within a decade.
Aramco acquisition of Sabic
The acquisition of Sabic forms part of this objective, alongside Aramco’s plans to increase its global refining capacity from 4.9 million barrels a day (b/d) to 8-10 million b/d, including a further 2-3 million b/d of additional petrochemical capacity.
Sabic produced 75 million metric tonnes of chemicals in 2018, with sales of $45 billion and a net income of $5.7 billion, focused on products such as polyethylene, polypropylene and ethylene glycol.
“A combined Saudi Aramco/Sabic entity would allow truly global reach and market-leading positions across a strong vertically integrated portfolio of oil-to-chemicals,” said Steve Zinger, chemicals senior vice-president at Wood Mackenzie.
A key motive for Riyadh in allowing the buy-out of PIF’s stake in Sabic was to increase Aramco’s assets ahead of its planned initial public offering (IPO), but there are other factors that make the union of Aramco and Sabic a winning business proposition.
First, downstream expansion spreads Aramco’s exposure to lower oil prices, as petrochemicals are expected to be one of the main drivers of oil demand growth through to 2040.
Also, while Sabic has a strong chemical production footprint based around ethane-based petrochemicals projects, noted Wood Mackenzie, Aramco has activity in paraxylene investments in a chain where Sabic is largely absent. The resulting co-product, benzene, will fit well with Sabic’s engineering plastics business.
A combined entity could also allow more efficient capital allocation and focus on megaprojects, such as the two companies’ crude oil-to-chemicals (COTC) project planned to be built in Yanbu, Saudi Arabia, and integrated refinery-petrochemical ventures in other parts of the world.
Secondly, Sabic has chemicals marketing operations in all major regions of the globe, including Europe and China, granting Saudi Aramco ready market access for any new products it develops either directly or through joint projects.
Reciprocally, Aramco has also successfully expanded overseas through acquisitions, including that of Dutch DSM in 2002; US-based Huntsman Petrochemicals’ UK petrochemicals operations in 2006; GE Plastics in 2007; and more recently a nearly 25 per cent stake in Swiss chemicals maker Clariant in September 2018.
Aramco additionally has joint venture positions in South Korea (S Oil and Hyundai Oilbank Company) and in China (Fujian) and is planning multiple refinery-integrated investments globally in the US (Motiva), Saudi Arabia (COTC and Satorp projects), India (Maharashtra) and Malaysia (Rapid).
All of these investments are centred on long-term petrochemical growth markets where Sabic’s expertise in olefins, polyolefins and aromatics markets, in particular, could support the development of such projects, notes Wood Mackenzie.
This second point also relates to the third and final advantage, which is technology transfer.
Sabic is a market leader in polyethylene and ethylene glycol production, while its stake in Clariant provides access to speciality chemicals technology, particularly in catalysis. Aramco holds proprietary technology in the COTC domain and is strong in the C4-chemical value chain.
Both entities have meanwhile formed successful joint ventures with petrochemical majors such as DowDuPont, ExxonMobil and Total.
According to Wood Mackenzie, technology transfer between the two provides for a wide range of possibilities and potential project configuration options. The combined Aramco-Sabic entity also forms a strong basis for longer-term technology developments in the entire energy value chain.
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