Nov. 5, 2018
After several delays, the anticipated Saudi Aramco IPO—set to be the world's largest at 5% of the USD2-trillion company—was put on hold. Amidst speculation as to why the historical public offering was halted, Aramco and the rest of the oil industry has been making other moves, proving there is never a dull moment in the Saudi oil industry.
Some of the most interesting developments have been between Saudi Aramco and Saudi Arabia Basic Industries Corporation (SABIC), a leader in diversified petrochemicals. Seeing as Saudi Aramco is trying to up its stakes in the downstream, these are strategic moves by Aramco, not merely plan B after the stalled IPO. In November 2017, Aramco and SABIC signed an MoU to develop a crude-oil-to-chemicals (COTC) complex in Yanbu. It marks the first steps toward partnership between two of the largest economic entities in the Kingdom. In typical Aramco, record-breaking fashion, the complex's technology will allow the conversion of crude oil to petrochemical products—such as polyethylene, polypropylene, xylene, and benzene amongst others—at the highest-ever conversion rate doing so in a sustainable way.
And in contrast to the public offering, the industry behemoths are making progress toward the realization of the COTC complex. In April 2018, the two project leaders awarded the project management contract to KBR, which was the second contract announced for the project. According to a press release from Aramco, KBR will deliver the front-end engineering and design component of the master complex. Wood, another leading project management and engineering firm, was awarded the first contract for engineering and design of the refining and several other components.
In line with SABIC's Strategy 2025, the complex is expected to process 400,000 barrels of crude oil per day, producing roughly 9 million tons of chemicals and base oils per annum beginning at the quarter century mark. Within five years of beginning operations, the project is expected to contribute 1.5% to the country's GDP and create 30,000 jobs.
The project is progressing all while Saudi Aramco is discussing its own stake in the petrochemical company with the Public Investment Fund (PIF), the majority stakeholder of SABIC. JPMorgan and Morgan Stanley will most likely advise the deal, which will likely result in Aramco's “controlling stake" in the company. Though no exact size has been confirmed as of July 2018, PIF's 70% stake is valued at USD70 billion—not a small chunk of change but not quite the USD100 billion it was expecting from the IPO.
Chemicals are a major part of Aramco's diversification strategy, and the company has other shares in other petrochemicals endeavors. The Sadara joint-venture project with Dow Chemical was another milestone for the Kingdom as the largest chemical complex built in a single phase at Jubail Industrial City II. The USD20-billion project was a significant step toward moving the Kingdom's oil industry further down the value chain. The Sadara chemical plant is significant progress in transforming the Kingdom from a petrochemicals importer to exporter. Furthermore, the Kingdom's national oil company is focusing on value chain integration and value creation to stimulate the country's broader economic diversification.
Another recent move is Aramco's proposed acquisition of the remaining 50% of ARLANXEO, a synthetic rubber and elastomer products company that was originally a 50-50 joint venture between Aramco and the Dutch company LANXESS. ARLANXEO would remain based in the Netherlands, but according to Saudi Aramco's Vice President of Downstream Abdulaziz M. Al-Judaimi, “The proposed purchase underscores Saudi Aramco's strategy to further diversify our downstream portfolio. Notably, the acquisition will accelerate our growth into C4-based chemicals including butadiene and isobutylene." Subject to regulatory approvals, the transaction is expected to be completed by YE2018.