State-owned oil giant Saudi Aramco has teamed up with the U.S.-based Dow Chemical company in a $20 billion joint bid to produce 3 million tons of chemical products per year, a venture which is set to be officially signed later this week.
The leading oil and chemical companies, which formed a new business called Sadara, hope to make annual sales of $10 billion within a few years of operation.
For Aramco, the project plans to give the Saudi company a “solid revenue stream” and help it diversify away from oil into chemical products, according to a statement released by the companies earlier this year. Aramco already makes 1.3 million tons of ethylene and 900,000 tons of propylene per year from 23 plants.
Sadara hopes to produce chemical products amounting to 3 million tons per year, with a “flexible” cracker capable of producing a wide variety of compounds.
Cracking, a process which adds value to oil, enables a range of petrochemical products, or precursors, to be made from a hydrocarbon chain, says Justin Dargin, a Middle East energy expert at Harvard University.
Dargin expects the project to reap substantial rewards for both Dow and Saudi Arabia; which would be far greater than any financial gains.
“The advantages of this venture are not only financial. Saudi Arabia, for instance, is a country focused on industrialization, job creation, technology transfer; these are all areas that can benefit from greater petrochemical facilities,” Dargin explains.
“Even if this project is financially detrimental in any way, there is a greater economic benefit overall. It is Saudi Arabia’s goal to sustain economic diversification. This project would be part of their national development strategy.”
“It’s a win-win situation for Dow and Aramco, everybody’s going to come out a winner,” Dargin says.