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Saudi Basic Industries Corp (SABIC), the Middle East’s largest petrochemical producer, expects to form a joint-venture firm with Saudi Aramco that will control their upcoming oil-to-chemicals complex. Speaking to Argaam at the Gulf Petrochemicals and Chemicals Association (GPCA) in Dubai, Mosaed Al-Ohali, executive vice president (corporate finance), shared SABIC’s upcoming expansion plans. He also mentioned that the company is ready to contribute to the development of the Kingdom’s $500 billion NEOM megacity project.
Q: Can you tell us more about the latest MoU that SABIC signed with Aramco on the oil-to-chemicals project?
A: A milestone is going to happen in 2019, but the actual project development will be through 2025. We started work on this project in stages. We had an initial MoU with Aramco. Now we have this MoU, setting the stage for a joint-venture (JV) agreement. This MoU will allow us to work together in developing the project in a more detailed way. Especially, with regard to the specific product portfolio, process units, costs, pricing, etc.
We are looking at between now and until the end of 2019, when we are able to define the project in detail and decide on a JV. From there on, it will not be two parties working together. It will be the JV taking ownership of the project.
Q: What is the cost of the project?
A: The project is so much more significant. Whether it is $15 billion, $20 billion or north of that, it is going to be requiring massive investment.
Q: Are there going to be additional deals between Aramco and SABIC? Do you have specific plans?
A: Yes, you can't avoid it. Aramco is so huge, we are so huge. They are growing in the chemical business, while we are growing in the chemical business. I am sure there are going to be plenty of opportunities. I cannot tell you anything specific yet. But we are growing in Saudi Arabia (and) we are growing outside in similar regions such as North America, Europe and Asia.
Q: How will SABIC be involved in the NEOM megacity project?
A: His Royal Highness Prince Mohammed has called it "the future dream city." What they will do is that they will start from scratch: the design, the infrastructure, how people are going to live, transport, safety, medical services, education, etc.
We are talking about construction of a civil society. And we (SABIC) exist to help. We provide material that goes into infrastructure, transportation, buildings. So, we are going to be ready to support it. It's exciting. Not only for SABIC, but for the whole industry.
Q: What are your expansion plans, within and outside the Kingdom?
A: Our expansion is driven by our 2025 strategy that sets revenue, profitability, and sales volume targets. We are moving towards achieving this.
We seek cost leadership, and feedstock is a big piece of our costs. So, we are going where there is favorably priced feedstock. We are expanding in the US, and we have announced a project with Exxon Mobil on a world-class cracker. In Saudi Arabia, we have teamed up with Aramco. In China, we have announced a joint effort with Shenhua (Ningxia Coal Industry Group Co. Ltd.).
Q: Do you have any upcoming plans to expand in China?
A: We are in the process of expanding our SSTPC (SINOPEC SABIC Tianjin Petrochemical Co.) complex. We are expanding that in polycarbonate, and expanding our olefins and polyolefin.
We are working with Shenhua on expansion in the chemicals and polymers based on coal.
These are the two that we have announced. We are always exploring opportunities in line with our strategy.
Q: At GPCA, you spoke about managing risks. What are the risks that are unique to the Gulf petrochemical sector? How would you define them?
A: We deal with explosive, flammable and poisonous materials, and our approach to these is very dynamic. The basic risk that we manage is being able to contain these materials in proper holds— pipes, tanks, and process equipment.
The biggest risk we have is the loss of primary containment, when a material escapes. This is the basic risk we have, it is safety risk. But if that were to happen, you face financial risks, customer satisfaction risk, etc. The second one we have is the operational risk, such as plant interruptions and extended outages— which affects revenue, and, therefore, profit.
Q: Have there been any incidents that have led to policy change?
A: Whenever there are incidents, and there are incidents, we learn from them to help define the risk better and improve our management system. There is always feedback in our system in improving the leading indicators.
The industry is used to lagging indicators. What we are focusing on and learning from our incidents is to see the early indicators, and how to identify a risk before it happens.
Q: What are the cost-effective risk-control measures that SABIC has implemented?
A: We don't have cost-reduction. We have what we call cost-optimization, because sometimes you have to spend money to get bigger benefits. One of the things that we are doing to achieve cost-optimization and yet improve our risk management is digitalization.
Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com
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Aramco, SABIC sign deal for oil-to-chemicals complex |
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