NEW YORK (ICIS)--Saudi Aramco is targeting chemicals investments in India and China as part of its global integrated oil-to-downstream chemicals strategy, its CEO said on Thursday.
While short-term adjustments may be necessary with the impact of lower crude oil prices, “we remain firm on our long-term forecasts on creating value through growth and investment”, said Aramco president and CEO Amin Nasser.
“We continue to evaluate and pursue a number of opportunities here in the Kingdom, and around the world in countries like China and India,” he added.
Nasser spoke to ICIS in the fireside chat session of The Chemists’ Club 2020 Kavaler Award, sponsored by ICIS, which was in a virtual format. He received the award on 3 December following a vote among his senior executive peers in the ICIS Top 40 Power Players.
PETCHEMS HALF OF GLOBAL OIL DEMAND
“Over the coming decade we expect about half the growth in oil demand likely to come from petrochemicals. So we expect chemicals to be a major growth area for our industry, and we will convert at Saudi Aramco a significant part of our production into petrochemicals over the next two decades,” said Nasser.
While a number of major oil companies are scaling back refining capacity through shutdowns or conversions to biorefineries where production is reduced significantly, Aramco expects “large growth” in its refining footprint, which will be integrated with petrochemicals.
“Although we are seeing a number of companies announcing global refinery rationalisations or shutdowns - in Europe, the US and at some scale in Asia - we still see opportunities in certain geographies,” said Nasser.
“We expect more than half the world’s new refining capacity that will come on stream in the next 8-10 years will be in Asia, and 70-80% of that will be focused mainly on plastics,” he added.
CRUDE OIL-TO-CHEMICALS, INDIA AND
With chemicals and plastics accounting for a large and growing swath of oil demand, Aramco will focus on converting more of the oil barrel to these materials, and less to transportation fuels.
“In crude-to-chemicals we have made good progress in the development of technologies. The pilot phase of the thermal technology has been completed, and we are moving now to the next phase. And with half of the growth of oil demand coming from petrochemicals, our strategy is to position oil-to-chemicals in playing a major role,” said Nasser.
Aramco expects most of the growth for chemicals to come from developing countries with population growth, and where living standards are rising.
“If you take a look at India for example, just over 20 people out of 1,000 own a car. And it’s about 170 in China for every 1,000. In the US and the UK, it’s around 830 and 580 per 1,000. So even if you assume the US and UK numbers cannot be reached, there is still certainly significant growth potential,” said Nasser.
“With that in mind, Aramco is scaling up thermal and catalytic crude-to-chemicals technologies with the aim of achieving an oil-to-chemicals conversion rate of 70% or higher,” he added.
In India, Aramco is in the process of acquiring a 20% stake in Reliance Industries’ oil-to-chemicals (O2C) business for $15bn. This includes refining and petrochemicals assets which Reliance is planning to spin off into a separate entity to facilitate the stake sale. Reliance expects the deal, which was initially expected to be completed in March 2020, to close in early 2021.
Aramco also continues to work with the Abu Dhabi National Oil Company (ADNOC) and a consortium of Indian oil companies - Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum - on a plan to build a 1.2m bbl/day integrated refining and petrochemical complex in Raigad, on the west coast.
The investment would provide local capacity for the India market, and also position the country as a major manufacturing hub.
In China, Aramco said its planned joint venture refinery and cracker project in Liaoning province with NORINCO Group and Panjin Sincen is in the design phase, and that it continues to work with its partners. It called an August media report on the suspension of the project “inaccurate”.
While India and China are key areas of interest, Aramco is also considering integrating more chemicals capacity into its existing refinery assets in Saudi Arabia and the US (through Motiva), said the CEO.
SABIC COMPLETES THE INTEGRATED
Aramco’s $69bn acquisition of SABIC in June 2020 brings it further downstream in chemicals and specialty polymers, and will be a key part of its strategy.
“We see SABIC as transformational for us and a key enabler to deliver on Aramco’s chemical strategy. SABIC has the global footprint, marketing presence and assets in numerous countries, which will allow us to capitalise on opportunities,” said Nasser.
“If you combine our upstream strength and refining capacity of more than 5m bbl/day with SABIC’s chemicals asset base and global presence, it has made us one of the top global chemical players,” he added.
Aramco and SABIC together had 90m tonnes/year of petrochemicals production in 2019, the CEO noted.
“So you can see how the strategy is coming together with Aramco’s upstream position, large refining base, crude-to-chemicals technology development and SABIC [downstream],” said Nasser.
As for further mergers and acquisitions (M&A), Aramco remains focused on the integration of SABIC while keeping an eye out for future deals.
“We are not ruling out any good opportunities that come our way in the future, and we continue to evaluate a number of opportunities in major growth markets like China and India as part of our long-term strategy,” said Nasser.
POLYMER REBAR FOR
One growth area in specialty polymers for Aramco is in non-metallic materials that can substitute for high carbon emission products such as steel in sectors such as construction, housing, automotive and renewables.
“If you look at corrosion… this is a major issue and estimated to have a global economic impact of about $2tr. But here polymer rebar can be used to reinforce concrete, and it is resistant to corrosion,” said Nasser.
Aramco recently started using glass fibre reinforced polymer composite rebar in concrete for reinforcement instead of steel.
“This was used in a pilot in some of our projects and we are seeing good results,” said Nasser.
CRUDE OIL OUTLOOK
On the upstream crude oil outlook, the Aramco CEO sees light at the end of the tunnel after a tumultuous 2020.
“April was the worst month for our industry when oil demand fell to roughly 80m bbl/day from slightly over 100m bbl in 2019. Such a massive drop was never seen at any time in the industry,” said Nasser.
“There is a recovery taking place… but there is still uncertainty due to the Covid-19 wave, especially in Europe and the US. But China and several countries in Asia are showing good signs of recovery,” he added.
The promising developments on coronavirus vaccines should propel the oil recovery into 2021, he noted.
“Of course the recent announcements of the development of vaccines have been very encouraging for our industry and for the whole world. And if effective vaccines can be deployed widely, I think we can expect a better recovery in the oil market in the second half of 2021,” said Nasser.
“We are still in the tunnel but I believe we can now see more light at the end,” he added.
One concern is that with economies recovering amid a decline in capital spending on oil and gas exploration and production by many energy producers because of financial pressures, “we may also see supply being constrained”, said Nasser.
On the transition towards renewable energy, Aramco recognises that new energy sources will play an important role in creating a sustainable energy future.
“However, we also believe that the global energy transition will be gradual. Covid-19 has prompted a lot of debate and discussion that the sun has set on the oil and gas industry - that oil demand has peaked or that this is close to happening. But in my view, the reality is that conventional and new energy sources will run in parallel for many decades to come,” said Nassser.
“We know that alternatives will improve with time. But if you look at heavy transport like trucks, planes and ships, and petrochemicals and many other industrial uses, there is simply no viable substitute for oil. That’s why the oil and gas industry has a key role in the road to lower emissions. So I believe oil as well as gas will remain a critical part of the world’s energy mix and the global economy for decades,” he added.
At the same time, the CEO said the company is steadily building a cleaner energy portfolio. Aramco is using solar to power a number of unconventional gas projects in Saudi Arabia, along with corporate and residential complexes around its headquarters in Dhahran.
“We are also expanding our gas portfolio, and our unconventional gas programme is making very good progress. It will yield lots of liquids which in turn will help us push our chemical programme. We are also investing in blue hydrogen and actively supporting the Kingdom’s renewable energy programme,” said Nasser.
In September 2020, Aramco made its first shipment of 40 tonnes of “blue ammonia”, to Japan for use in zero-carbon power generation. Ammonia consists of hydrogen and nitrogen, and Aramco’s blue ammonia is produced from hydrocarbons while CO2 is captured in the process.
“So I see a future where oil will be produced with much lower emissions, capitalising a lot on technologies, and I do see a bright future ahead for the petroleum industry. I see it as part of the global energy mix for decades to come,” said Nasser.
Additional reporting by Priya Jestin
Click here for the video replay of the 2020 Kavaler Award
Interview article by Joseph Chang