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Aramco, Dow to net $1bn a year from venture

Khobar, July 26, 2011

A mammoth petrochemical joint venture between Saudi Aramco and Dow Chemical should net $500 million annually for each of its owners when it opens in five years, Dow said.

The companies are spending $20 billion to build one of the world's largest petrochemical facilities near Saudi Arabia's vast oil and natural gas reserves.   

The joint venture, to be called Sadara Chemical Co, will annually produce more than 3 million metric tonnes of the chemical products and plastics used in packaging, furniture, electronics and scores of other consumer goods.

Sadara -- an Arabic word meaning 'in the lead' -- should have annual sales of $10 billion within a decade of opening and create thousands of jobs, the companies said on Monday.

Sources told Reuters last week the project, first announced in 2007, would be finalised by the end of July or early August.

Sadara will launch an initial public offering on the Saudi stock exchange by 2014, Dow said. 'We're an equal partner today, so it's a 50-50 stake,' Dow chief executive Andrew Liveris told Reuters. 'We haven't disclosed at what amount the IPO will be, but there will be an IPO in the kingdom' of Saudi Arabia.

The first production units are expected to come on line in the second half of 2015, with the project fully operational in 2016. The project is split into 26 production units. In 2009 Saudi Aramco said it would have 35. The lower number means Sadara will produce less than initially expected by Wall Street, though it still will have a massive presence on the global chemicals market.   

About 45 percent of the venture's products will be sold in Asia, one of the chemical industry's fastest growing regions. The rest will be sold primarily in the Middle East and Europe.   

Bidding for the construction of several parts of the project is continuing, but Aramco and Dow said in a joint statement that construction would begin immediately.   

'You can expect within the next few weeks that we're going to be moving dirt,' Dow spokeswoman Rebecca Bentley said. 'There's going to be visible equipment out there. We're not talking about months and months from now.'    

The venture will give Dow access to cheap Saudi gas feedstocks and proximity to customers in Asia, Africa and Europe.

Dow said Sadara will be able to use several different blends of crude and different natural gas liquids -- a term known in the chemical industry as 'feedstock flexibility.'    

Dow specifically likes the cheap ethane prices in Saudi Arabia. Ethane, a byproduct of natural gas, can be used as a building block for thousands of common chemicals.   

In Saudi Arabia, the price of ethane is set at 75 cents per million BTUs, far below international prices, which has helped fuel cheap expansion for petrochemical firms, including Dow rival Saudi Basic Industries Corp, or Sabic.

Dow declined to disclose the exact price the venture will pay for ethane, but Liveris said on a call with investors that in Saudi Arabia 'we have been treated exactly like every other investment.'    

The venture has signed long-term contractual supply agreements at domestic prices, he said. For its part, Saudi Aramco gets a dedicated revenue source, part of its plan to expand its petrochemical industry and diversify away from oil.

'This enterprise will play a key role in the kingdom's industrial and economic diversification while contributing to the creation of thousands of high-quality jobs,' Khalid Al-Falih, Saudi Aramco's CEO, said in a statement.

The project has gone through several iterations, including a change in location from Ras Tanura, home to the world's biggest offshore oil facility, to cut costs and be closer to other oil and chemical plants in Jubail, off the Gulf coast of Saudi Arabia.   

'Being near more than one refinery (in Jubail) has enhanced the economics of the joint venture considerably,' Liveris said in an interview. 'We'll be producing all high-value specialty products.'  - Reuters      




Tags: petrochemical | aramco | Dow | venture |

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