Saudi Aramco to take 70% majority stake in SABIC

Saudi Aramco has signed a share purchase agreement to acquire a 70% majority stake in Saudi Basic Industries Corporation (SABIC) from the Public Investment Fund of Saudi Arabia, in a private transaction valued at $69.1bn. The remaining 30% of SABIC will continue to be publically traded on the Saudi stock exchange.

Commenting on the announcement, Amin Nasser, President and CEO, Saudi Aramco said: ‘This transaction is a major step in accelerating Saudi Aramco’s transformative downstream growth strategy of integrated refining and petrochemicals. SABIC is a world-class company with an outstanding workforce and chemicals capabilities. As part of the Saudi Aramco family of companies, together we will create a stronger, more robust business to enhance competitiveness and help meet rising demand for energy and chemicals products needed by our customers around the world.’

The acquisition is in line with Saudi Aramco’s long-term strategy to drive growth through an enhanced downstream portfolio by increasing globally participated refining capacity from 4.9mn to 8–10mn b/d by 2030, of which 2–3mn b/d will be converted into petrochemical products.

Steve Zinger, Wood Mackenzie Chemicals Senior Vice President sees three key motivators for the deal between Saudi Aramco and SABIC – vertical integration, geographical expansion and technology transfer. He notes:

Vertical integration – The portfolio of the two companies aligns well. 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.

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

SABIC has a strong and highly profitable base chemical production footprint in Saudi Arabia, based around several large ethane-based petrochemical projects. Saudi Aramco’s activity in paraxylene investments is a chain where SABIC is largely absent. The resulting co-product benzene production will fit well with SABIC’s Engineering Plastics  business.

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. The human aspect of the upstream and downstream industries also requires different competencies and skill sets. Acquisition accelerates this development across both companies. 

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. SABIC's former acquisitions have provided direct access to the European market in particular. SABIC is also active in China, another key market for petrochemicals, with plans for further ethylene capacity expansion.

Saudi Aramco has joint ventures in South Korea (S Oil) and in China (Fujian) and is also currently planning multiple refinery-integrated investments in the US (Motiva), Saudi Arabia (COTC and SATORP projects), India (Ratnagiri) and Malaysia (RAPID). All projects contain a petrochemicals focus, with many being centred in long-term petrochemical growth markets. SABIC's expertise in olefins, polyolefins and downstream aromatics markets could support development of these projects.

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 optimisation across the combined global footprint is undoubtedly possible.

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. Strengthening its stake in Clariant also provides SABIC with further technology access in the speciality chemicals area, particularly around catalysis.

Saudi Aramco also holds proprietary technology in the COTC area and now a very strong position in the C4-chemical value chain. Both SABIC and Saudi Aramco have also formed successful joint ventures with many other major players in the petrochemical industry such as DowDuPont, ExxonMobil, Total, etc. 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.