LONDON (ICIS)--Royal Dutch Shell’s chemicals business will continue to be a “growth engine” for the company despite the $820m disposal in its Saudi joint venture with SABIC, a spokesperson for the UK-Netherlands energy major said on Monday.
Shell announced late on Sunday it was divesting its 50% stake at SADAF, a 37-year old joint venture with the Saudi petrochemicals major.
The SADAF joint venture, at Jubail Industrial City, has six petrochemical plants with a total output of more than 4m tonnes/year, according to Shell, including production plants of ethylene and styrene with output capacities of 366,000 tonnes/year and 400,000 tonnes/year, respectively, according to Shell's 2015 financial report.
A Shell spokesperson said despite exiting the large joint venture in Saudi Arabia for downstream petrochemicals, the chemicals division remains a “growth engine” for the company, adding SADAF had no trouble in performance but the company decided, anyway, to exit it.
“Even if it [the joint venture] is growing, that doesn’t mean all your [current] assets are the ones you need in 10, 20 or 30 years’ time – in all businesses you invest [thinking] in the long term,” said the spokesperson.
“In terms of chemicals strategy, it is one of growth [and] the company just felt this was the right time to bring some cash here and, maybe, it will be reflected in opportunities for growth in other parts of the world [in the future].”
For the timebeing, however, the $820m proceeds will go into the company’s balance sheet, the spokesperson added, “and take it from there”, without disclosing potential expansionary plans.
“[The proceeds] will come back into the company and go towards our $30bn [target for divestments, of which we have now achieved] about $8bn.”
However, the spokesperson would not say why, if the company wants to make chemicals a “growth engine”, it is exiting a joint venture in Saudi Arabia where cheap feedstock is abundant and which, after 30 years functioning, the capital expenditure (capex) spent setting the plants up has long been amortised.
“We still have a number of businesses in Saudi Arabia. This is just one part of our business there, where the joint venture agreement was due to expire in 2020, anyway,” said Shell’s spokesperson.
Equally, the spokesperson said the current geopolitical instability in Saudi Arabia’s region was not among the reasons to exit the joint venture.
In the past two years, Saudi Arabia has taken part in Yemen’s civil war supporting the former government currently fighting rebel groups. At the same time, it supported rebel groups in Syria which are fighting against the current regime.
“This was an arrangement which benefited both sides and it is no reflection of any political situation,” concluded Shell’s spokesperson.
Whether the exit from SADAF’s is an anticipation of more divestments in Saudi Arabia remains to be seen.
The company has three other joint ventures in the Kingdom – the Aljomaih and Shell Lubricating Oil Company (JOSLOC), together with Aljomaih Holding Company; the Saudi Aramco Shell Refinery Company (SASREF), together with the national energy major Saudi Aramco and with a capacity to distillate 292,000 bbl/day of crude; and the Peninsular Aviation Services (Pasco), a joint venture between Shell and UK’s energy major BP, as well as Saudi firms.
Pictured above: SADAF's facilities at Saudi
Arabia's Al Jubail complex