More than US$50bn worth of deals for Saudi Arabia

SAUDI Arabia has announced more than US$50bn worth of deals in oil, gas, infrastructure and other sectors. The details were announced last week at the Future Investment Initiative held in Riyadh, Saudi Arabia.

Reuters reported that the companies involved in the deals include Trafigura, Total, Hyundai, Norinco, Schlumberger, Halliburton and Baker Hughes.

According to the report, Swiss-based commodity trader Trafigura signed a deal for joint venture partnership with Modern Mining Holding Co (MMC). MMC is a diversified, Riyadh-based industrial company with principal businesses in areas such as petrochemicals, mining, steel, and aluminium. The multi-billion-dollar venture will develop a copper, zinc, and lead integrated smelting and refining complex in Ras Al Khair. This is part of the Kingdom’s Vision 2030 plan and will help the Kingdom develop its mining centre and plug the “midstream”, Trafigura reportedly said.

Saudi Vision 2030 aims to improve Saudi Arabia’s society, nation, and economy. The plan includes objectives of reducing oil reliance and diversifying the economy.

According to the twitter feed of Al-Ekhbariya, a Saudi Arabian state television channel, the Saudi transport minister signed an agreement with a Spanish consortium. The deal is for the second phase of the Haramain high-speed railway. The railway is an important transport project for the Saudi railway network expansion programme.

Saudi Aramco, the global petroleum company, signed international deals worth more than US$34bn. This included an agreement to build an integrated petrochemical complex and downstream park in the second phase of the SATORP refinery. The refinery is an operation jointly held by Saudi Aramco and Total, which started in 2014. Investments in retail petrol stations owned by Saudi Aramco and Total were also included.

The Saudi deals come following a report from the International Energy Agency (IEA) which stated that petrochemicals are rapidly becoming the largest driver of global oil consumption. Saudi Aramco is among those seeking to develop their petrochemicals business.

Saudi Aramco

Saudi Aramco now plans to allocate 2–3m bbl/d of crude to petrochemicals. According to Reuters, CEO Amin Nassar said this is a sign that the state energy group is hedging its bets against possible demand slowdown. The company has boosted its investments in refining and petrochemicals to secure new markets for its crude oil.

Aramco pumps about 10.7m bbl/d of crude oil. Nasser added that if needed, Aramco could boost oil production in three months to a maximum of 12m bbl/d, according to Reuters. Currently Aramco’s refining capacity is about 5m bbl/d. The company aims to raise this to 8–10m bbl/d by 2030. It also aims to double its petrochemicals production by 2030.

Aramco is currently working to acquire a stake (of up to 70%) in Saudi Basic Industries Corp (SABIC), the world’s fourth largest petrochemicals maker. This suits Aramco’s plans to become a leader in the chemical industry. However, SABIC’s international presence may complicate plans due to anti-trust regulations abroad.

The Future Investment Initiative took place in the wake of boycotts by Western political figures, international bankers and executives, prompted by the killing of journalist Jamal Khashoggi. Reuters reported that when asked if bankers were concerned, or if the incident would result in higher funding costs, Nasser said it would not.

A shift towards petrochemicals

Petrochemicals are chemicals derived from oil and gas. They can be used to make a wide range of products such as plastics, fertilisers, and clothing. They are also used in many parts of modern energy systems such as solar panels, wind turbines, and batteries.

According to the IEA report The Future of Petrochemicals, cars and other passenger vehicles are becoming less important. Though they are currently the dominant source of oil demand this demand is decreasing due to a combination of better fuel economy, rising public transport, alternative fuels, and electrification.

Currently, the petrochemicals industry uses approximately 14%, or 13m bbl/d, of the world’s oil. In addition, the sector uses 8%, or 300bn m³, of gas. By 2030 the industry is set to account for a third of global oil demand, and by 2050 it will account for nearly half.

According to the IEA report, petrochemicals are a key “blind-spot” in the global energy demand. They receive little attention due to their complexity and diversity, despite their rising importance.

Fatih Birol, executive director of IEA, said: “As the global economy develops, the future of the petrochemicals industry is of major significance for both global energy security and the environment.”