Abu Dhabi: The $69.1 billion deal between Saudi Aramco and Saudi Basic Industries Corporation (Sabic) is expected to help the Saudi oil giant to expand aggressively in the downstream sector and boost its profits, analysts said.
Saudi Aramco on Wednesday said it is acquiring a 70 per cent stake in Sabic from Public Investment Fund of Saudi Arabia to increase its exposure to the petrochemicals sector.
Currently, Saudi Aramco and Sabic have petrochemicals production capacity of 17 and 62 million tonnes per annum respectively with operations in many parts of the world.
Sabic has a market presence in Europe as well as in China where as Saudi Aramco has joint venture projects in South Korea, in China and is also currently planning multiple refinery-integrated investments globally in the US (Motiva), Saudi Arabia, India (Ratnagiri) and in Malaysia.
“One combined entity could allow more efficient capital allocation and focus on mega-projects, such as the crude oil-to-chemicals (COTC) project planned for Saudi Arabia and large refinery-petrochemical integrated ventures in other parts of the world,” said Steven Zinger, vice president, chemicals from Wood Mackenzie.
He also said the portfolio of the two companies aligns well and expansion of Saudi Aramco into downstream offers protection in a lower oil demand outlook.
“Petrochemicals are expected to be one of the main drivers of oil demand growth through to 2040 and Sabic brings this through deep downstream market positions.”
According to a recent report by International Energy Agency, petrochemicals are set to account for more than a third of the growth in world oil demand to 2030, and nearly half the growth to 2050.
Petrochemicals, components derived from oil and gas are used in all sorts of daily products such as plastics, fertilisers, packaging, digital devices, medical equipment, tyres, solar panels, batteries, and electric vehicles, among others.
Abu Dhabi National Oil Company (Adnoc) is also expanding in the downstream sector and unveiled the $45 billion Ruwais project to expand its refining and petrochemicals operations last year.
Adnoc is also investing in India’s $44 billion Ratnagiri petrochemical complex in cooperation with Saudi Aramco. The two companies took 50 per cent stake in the project recently, with $22 billion investment coming from these two entities.
“The move by Saudi Aramco to acquire strategic shares in Sabic is a welcome development that’s in line with GPCA’s advocacy for greater consolidation in the chemical industry in the Arabian Gulf region which will help to create players with critical mass, grant them access to key markets and technology, and increase their competitiveness on a global scale,” said Dr Abdul Wahab Al Sadoun, Secretary General, Gulf Petrochemicals and Chemicals Association.
