Aramco to gain wider access to petchem market through SABIC: Wood Mackenzie

An acquisition approach of SABIC allows Saudi Aramco easier and wider access to petrochemical markets, more quickly than would be the case via a focus on an organic expansion, research and consultancy firm Wood Mackenzie has noted in a report.

A combined Saudi Aramco-SABIC entity would allow truly global reach and market leading positions across a strong vertically integrated portfolio of oil-to-chemicals, the report added.

Saudi Aramco is in talks to acquire a majority stake in SABIC (Saudi Basic Industries Corporation) from the current holder, the Public Investment Fund (PIF) of Saudi Arabia.

SABIC, one of the world’s largest petchem producers, currently holds strong market positions in key products such as polyethylene, polypropylene and ethylene glycol. Since Saudi Aramco has a public aspiration for three million bpd of crude oil to be petrochemical-focused, the report maintained that “acquisition is a valid parallel strategy to enhance and further this position.”

The acquisition of SABIC can allow wider collaboration and avoid competition, as the two companies more recently have been overlapping into the natural positions of the two separate businesses, particularly around petrochemicals, the report added.

The portfolio of the two companies aligns well. Expansion for Saudi Aramco into further downstream exposure, offers protection in a lower oil demand outlook, the report noted.

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.

“One combined entity could allow more efficient capital allocation and focus on mega-projects, such as the crude oil-to-chemicals project planned for Saudi Arabia and large refinery-petrochemical integrated ventures in other parts of the world,” it noted.

The report said Saudi Aramco is looking to add value to its refining portfolio via petrochemicals, and the combined Saudi Aramco-SABIC entity could form a strong basis for longer-term technology developments in the entire energy value chain.