Upstream and downstream integration for KSA

Published on 08 Aug, 2016

Saudi Arabia’s upstream and downstream giants Aramco and Saudi Arabian Basic Industries Corporation (SABIC) are looking into the possibility of developing a crude oil-to-chemicals plant in Saudi Arabia. The two energy giants signed an agreement late in June to conduct a feasibility study on the development of such a facility.

The agreement also contains key principles of co-operation that will form the basis of a joint venture (JV) between the firms, should the joint study reach a positive conclusion. The programme, which could cost upto $30bn, would allow petrochemical products to be produced directly from crude oil instead of refining it into intermediate feedstocks, such as naphtha.

“Our agreement with SABIC reflects our vision to build on Saudi Arabia’s global leadership in crude oil production and commodities export by substantially increasing the production of oil-based petrochemicals and further optimising value across the entire hydrocarbons chain,” Amin H Nasser, president and chief executive officer of Saudi Aramco, said at the agreement signing ceremony.

“The oil-dependent Kingdom of Saudi Arabia (KSA) has a long-term blueprint to transform itself into a more diversified economy, with non-oil government revenues projected to increase six-fold to 1 trillion Saudi Riyals ($27bn) by 2030,” Nikhil Salvi, manager of the investment research practice at Aranca, said.

“It’s an ambitious dream to transform an economy that relies on crude oil exports for more than 70% of government revenues. Deputy Crown Prince Mohammed bin Salman’s 15-year economic plan is the boldest attempt yet in the kingdom’s history to spur additional revenue streams amid a steep fall in commodity prices. The shift from oil-dependent economy to ‘live without oil by 2020’, as foreseen by Deputy Crown Prince Mohammed, is a huge step in this direction,” Salvi added.

Alongside government entities like the Saudi Arabian General Investment Authority or SAGIA, the sole purpose of which is to encourage investment in the kingdom’s non-oil sector, Aramco has increasingly been looking for ways to diversify its portfolio away from crude oil export into refining, petrochemical and chemical production. All of this has been in line with the government’s strategic vision to diversify revenue away from crude oil export and support the development of downstream industry in the kingdom.