Saudi Aramco to boost chemical exposure, M&A appears likely
Saudi Aramco plans to more than triple the amount of oil going into downstream chemicals production by 2025-2030, a Wall Street analyst said after a meeting with former Dow CEO and current Aramco board member Andrew Liveris.
“Particularly germane for our audience was the discussion of Aramco’s current 10m bbl/day output, of which around 1.5m bbl/day is going toward downstream chemicals production, especially into India,” said Frank Mitsch, analyst at Fermium Research.
“In an effort to further diversify its end markets for oil, Aramco is looking to increase the portion heading to petrochemicals to up to 5m bbl/day in the 2025-2030 timeframe,” he added.
Aramco, with low-cost oil production at $4/bbl as revealed in its initial public offering (IPO) prospectus, is beholden to OPEC production caps. However, oil production going into petrochemicals are not subject to such restrictions, the analyst noted.
Aramco is undertaking two massive projects in Saudi Arabia - a crude oil-to-chemicals (CTC) project in Yanbu to produce 9m tonnes/year of chemicals and base oils by 2025, and the Amiral 1.5m tonne/year cracker JV project with France-based Total downstream from the SATORP refinery slated for start-up in 2024 in Jubail.
Outside the kingdom, Aramco’s PRefChem JV refinery/cracker project with PETRONAS in Malaysia, is expected to start up in the second half of 2020, according to the prospectus. In China, a $10bn joint venture refinery and cracker with NORINCO and Panjin Sincen in Liaoning is planned for start-up in 2024.
And a massive $44bn refinery and petrochemicals complex is planned in Raigad, India with a consortium of Indian oil companies and ADNOC, the Abu Dhabi National Oil Company, for potential start-up in 2025. In Saudi Arabia, following the 14 September attacks on Aramco’s facilities, everything is now fully up and running and steps have been taken to prevent similar attacks, Liveris said.
“Furthermore, there have been major finds of unconventional gas skewing towards wet, which would lead to multiple decades of new supply for ethane and propane. Following expansions of domestic petrochemical production, it’s more than likely that Saudi Arabia will become a major LNG exporter,” said Mitsch.
On the M&A front, Aramco’s $69bn acquisition of a 70% stake in SABIC is expected to close in the first half of 2020. And more chemical deals appear likely. “While we do NOT anticipate the Saudis making moves into basic chemicals in the US, we believe downstream may be a different story (call for potential targets!),” said Mitsch. ■