Saudi petrochemical giant sets its sights on US Gulf Coast
Washington - The announcement by Saudi Basic Industries Corporation (SABIC) of a possible joint venture with ExxonMobil in a large petrochemicals complex along the US Gulf Coast is a sign it is seeking a more significant foothold in the US market where it says it can find cheaper and more abundant supplies of natural gas feedstock than at home.
One factor that may have influenced SABIC’s look westward for a production site was the Saudi government’s decision to reduce energy subsidies, which resulted in rising domestic natural gas and ethane prices.
SABIC, which is 70% owned by the Saudi government, has had a 35-year partnership with ExxonMobil focusing on the Yanpet complex in the Red Sea port city of Yanbu in western Saudi Arabia and the Kemya facility in Jubail in Eastern province. SABIC has numerous petrochemical operations in Europe and Asia but only a limited presence in the United States.
In June, ExxonMobil and SABIC announced they were considering developing a giant petrochemical complex in Texas or Louisiana that would take advantage of cheap and readily available shale natural gas supplies produced in the region for feedstock in the production of chemicals and plastics. The partners said they would perform studies and work with local and state officials to determine a potential site that would take into account appropriate infrastructure access before making a final decision.
The focal point of the complex would be a 1.8 million-tonne-a-year ethylene steam cracker that would supply two polyethylene plants and one mono-ethylene glycol plant. Should the plans move forward, the facility would take several years to complete.
SABIC Chief Executive Officer (CEO) Yousef Abdullah al-Benyan said in a statement: “We are focused on geographic diversification to supply new markets. The proposed venture would capture competitive feedstock and reinforce SABIC’s strong position in the value chain.”
Indeed, it is that competitive feedstock that is encouraging SABIC and ExxonMobil to look to the US Gulf Coast for a new production complex rather than expanding their operations in the kingdom. In December, the Saudi government slashed the subsidy on the price of ethane — the kingdom’s main feedstock for petrochemicals manufacturing — hiking its price 133% to $1.75/million British thermal units (MMBtu) and increased its long-standing domestic natural gas price from $0.75/MMBtu to $1.25/MMBtu.
In May, SABIC Chief Financial Officer Mosaed al-Ohali indicated the company was specifically looking to the less expensive US shale gas supply to help SABIC’s production growth. “We see growth chasing where feedstock is competitive,” Ohali said, “and the US is top of the list.”
As significant as the domestic price of ethane has been on SABIC’s growth opportunities, the issue of limited natural gas availability within the kingdom is another key factor prompting the company to look to the United States for feedstock. In the spring of 2014, SABIC’s then-CEO Mohammed al-Mady revealed that a lack of Saudi natural gas supplies constrained SABIC’s growth, saying: “The shortage of gas and many sectors competing for it have made internal expansion very hard.”
Such competition includes the $20 billion petrochemical complex being built by Sadara Chemical Company, a joint venture between Saudi Aramco and US-based Dow Chemical Company. The first of the complex’s manufacturing units was launched in December 2015 with the plant expected to be fully operational in 2017. The facility was designed to run more than half of its operations on naphtha as an alternative feedstock to ethane but it already is demanding large volumes of gas and will require even more when the complex is fully on stream next year.
Domestic pricing issues and political differences between government and oil officials have long constrained development of Saudi Arabia’s natural gas assets. Saudi Aramco is being pushed to greatly expand its gas production over the coming decade, effectively doubling it to 23 billion cubic feet per day (Bcf/d).
Saudi Oil Minister Khalid al-Falih recently indicated that one goal set out in the kingdom’s National Transformation Plan was to boost the share of natural gas in Saudi Arabia’s energy mix from 50% to 70%. Although he stated that achieving this through increased domestic production was preferable, he suggested that gas imports were a consideration if necessary, which reflects a seminal shift in Saudi government thinking.