SABIC acquisition to allow global reach for Saudi Aramco: Wood Mackenzie

The decision on Wednesday announced by oil giant Saudi Aramco to acquire a 70 percent majority stake in 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, Wood Mackenzie has said 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,” Steve Zinger, Wood Mackenzie Chemicals Senior Vice President, noted in the report.

Also read: Saudi Aramco acquires 70% majority stake in SABIC for $69 bln

According to Wood Mackenzie, there are many drivers for and synergies from this large transaction. It sees the three key pillars supporting the deal for both companies. These are, namely, vertical integration, geographical expansion and technology transfer.

Vertical integration

The portfolio of the two companies aligns well, noted Wood Mackenzie, adding that expansion for Saudi Aramco into further downstream exposure offers protection in a lower oil demand outlook.

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.

“An acquisition approach allows Saudi Aramco to obtain further exposure to petrochemical markets more quickly than would be the case via a sole focus on organic expansion and development,” it noted.

Geographical expansion

SABIC holds strong chemicals marketing in all major regions, allowing heightened market access for new products developed under Saudi Aramco, or joint projects, noted Zinger in the report.

SABIC's former acquisitions have provided direct access particularly to the European market. Saudi Aramco has existing joint venture positions in South Korea (S Oil) and in China (Fujian) and is also currently planning multiple refinery-integrated investments globally in the US (Motiva), Saudi Arabia (COTC and SATORP projects), India (Ratnagiri) and Malaysia (RAPID).

“A combined Saudi Aramco-SABIC entity allows truly global reach and market-leading positions across a strong vertically-integrated portfolio of oil-to-chemicals. Synergies and optimization across the combined global footprint is undoubtedly possible,” Zinger added.

Technology transfer

SABIC holds very strong petrochemical assets and several technologies in some of the chains that it has market leading positions, such as polyethylene and ethylene glycol, Zinger noted, adding that Saudi Aramco is looking to add value to its refining portfolio via petrochemicals.

Technology transfer across the two companies provides a wider range of possibilities and options for potential project configurations.

“The combined Saudi Aramco-SABIC entity also forms a strong basis for longer-term technology developments in the entire energy value chain,” he maintained.