Oil giant Saudi Aramco is expanding its footprint into petrochemicals, positioning itself to become a leading provider for Asian markets, where a growing middle class is clamoring for more chemicals and plastics.
Seven years after the state-owned oil company of the world’s leading crude producing country began its march into petrochemicals, Saudi Aramco now stands to become a key player in global chemicals production, according to a new study by Colorado-based energy analysts IHS.
“We expect they will become a force to be reckoned with during this decade,” Sanjay Sharma, vice president of Middle East and India markets at IHS Chemical said in a statement.
The corporation, which has long been a leader in oil production and export, has increasingly started to leverage its access to cheap feedstocks by expanding into the chemical industry. While companies in other countries have long integrated refineries and petrochemicals to capitalize on lower-cost feedstocks, that trend is now starting to catch on in the Middle East, IHS said.
Saudi Aramco is considered the world’s sixth-largest refiner but the company’s chemicals portfolio now accounts for about 10 percent of its revenue and earnings, IHS said.
Earlier this year, Saudi Aramco’s CEO said the company’s downstream investments will top $100 billion in the next decade, Reuters reported.
The company’s foray into the chemical sector comes at a time when foreign companies are investing heavily in the Gulf Coast petrochemical corridor hoping to capitalize on an influx of cheap natural gas unlocked by the U.S. shale boom. This deluge of shale gas has touched off a building spree as downstream companies expand, upgrade, retrofit and build new facilities to process the new products.
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The IHS report says Saudi Aramco has gained a competitive edge in chemical-hungry markets in the Middle East and Northeast Asia thanks in large part to two multibillion dollar projects.
Construction is under way at the Sadara complex, a joint venture between Saudi Aramco and Dow Chemical, which is expected to produce 3 million metric tons per year of plastic and chemical products once it’s fully operational in 2016. The $20 billion complex, based in Jubail Industrial City in Saudi Arabia, will encompass 26 manufacturing plants that will produce an array of products, some which have never been produced in that region, the IHS report said.
Another $10 billion petrochemical complex, opened by in 2009 in Rabigh, Saudi Arabia through a joint venture with Sumitomo of Japan, is already undergoing expansion, further securing Saudi Aramco’s strong foothold in the region, according to IHS.
And in a move that would further extend the corporation’s reach into Asian markets, the company is exploring starting a refinery in Tuban on the north coast of Java in Indonesia, IHS said.
“Saudi Aramco’s entry into the petrochemical space is quite recent, since their facilities first started operations in 2007, so their rapid growth in the space is quite remarkable,” Sharma said in a statement.