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GAS SHORTAGE ‘KEY CONSTRAINT’

Sabic CEO eyes expansion abroad as Q1 profit dips

Dubai, April 20, 2014

Saudi Basic Industries Corp (Sabic) reported a dip in its quarterly earnings on Sunday as its chief executive said a shortage of natural gas was limiting its domestic growth, making expansion abroad vital.

Sabic, the biggest listed company in the Gulf and one of the world's largest petrochemical firms, said net profit slipped 1.8 percent from a year earlier to 6.44 billion riyals ($1.72 billion) in the first quarter of 2014.

That was slightly below the average forecast of analysts polled by Reuters, who had predicted a quarterly profit of 6.79 billion riyals.

Chief financial officer Mutlaq al-Morished said sales in the first quarter climbed to 49.5 billion riyals from 46.8 billion a year earlier. But Sabic said lower prices for some of its petrochemical products offset rises in output and sales volumes, while expenses related to sales and administration increased.

More broadly, Sabic chief executive Mohamed al-Mady complained that a lack of ample natural gas supplies within Saudi Arabia had emerged as a key constraint on growth there. Natural gas is used as a feedstock for petrochemical production.

"The shortage of gas and many sectors competing for it have made internal expansion very hard," Mady told a news conference.

Saudi Arabia bans imports of natural gas and its pricing structure for domestic supplies has reduced the financial incentive to explore for it.

Foreign companies formed ventures with state oil firm Saudi Aramco to look for gas deposits, but over the past decade they largely failed to find commercially viable deposits. Saudi authorities now want to focus the search on unconventional deposits - deep, high-temperature reservoirs that would require more complex and expensive technologies.

Mady noted that Sabic had several domestic petrochemical projects under construction, including a synthetic rubber plant at its KEMYA joint venture that would come on line in two to three years.

But he said the company was looking at possible mega-projects in North America and China as avenues for growth, including potential projects involving shale gas in North America.

"We are talking with a number of potential partners in the U.S. for investment in shale gas," he added without giving a specific time frame for any deals. "The cost of shale gas is reasonable compared to oil or alternative materials like coal or solar power."

He added, "Sabic cannot keep relying on one market - China will continue to be a strong market but we have to find new markets...We have South America, it is growing tremendously and we have plans to examine our presence in South America." Africa could become an attractive new market because of its gas supplies, he said.

Mady said the business environment faced by Sabic this year would be similar to 2013, with China's economy growing steadily and Europe stagnant or growing at a rate of about 1 percent. "So if this continues we will probably see 2014 similar to 2013." – Reuters




Tags: sabic | natural gas | Net Profit |

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