Better together? Saudi oil rivals Aramco and Sabic rumored to be collaborating on joint refinery

Published April 7th, 2016 - 05:58 GMT
Analysts have praised the collaboration, saying that it will lead to economic rationalization and cost effectiveness. (Shutterstock)
Analysts have praised the collaboration, saying that it will lead to economic rationalization and cost effectiveness. (Shutterstock)

Saudi Arabian Oil Co. and Saudi Basic Industries Corp. are studying a plan to build a joint refinery that would produce chemical products directly from crude oil, according to two people with knowledge of the talks, Bloomberg reported Wednesday.

The world’s largest crude exporter known as Saudi Aramco and Sabic, the second biggest petrochemical maker in the world, are planning to build the refinery in Yanbu, said the people, who asked not to be identified because the talks are confidential. Saudi Aramco declined to comment while Sabic didn’t respond to a request for comment.

“This move is long overdue given that both companies are operating and competing in the same markets,” said Mohamed Ramady, a London-based energy analyst, said by phone. “Sabic and Aramco cooperation will ensure that both companies will avoid duplication of projects in this period of Saudi economic rationalization and cost effectiveness.”

In an interview with Bloomberg in Riyadh last week, Saudi Deputy Crown Prince Mohammed bin Salman said a conflict between Aramco and Sabic had been resolved in the past few months. Both independent companies will have a majority ownership by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, the prince said.

“Having Aramco and Sabic working together is needed since both companies will report to the Public Investment Fund and this eventually will create more natural synergies between them,” John Sfakianakis, the director of economic research at Gulf Research Center in Riyadh, said by phone.

Saudi Aramco and Sabic had been working separately on projects to produce chemicals straight from crude oil without the need to have separate refineries, the people said. Aramco has delayed plans to build an oil refinery with a petrochemical complex in Yanbu with a planned capacity of 400,000 barrels a day as it awaits progress on studies for the joint refinery with Sabic, they said.

Aramco’s Chief Executive Officer Amin Nasser confirmed at a conference in Al-Ahsa on March 30 that the company is testing the new technology to produce chemicals from crude oil. Saudi Oil Minister Ali Al-Naimi had announced in 2013 that the ministry was working with Sabic for the construction of an oil-to-chemical refinery in Yanbu.

The Saudi government is pushing the two state-controlled companies to collaborate on the Yanbu refinery project and to undertake more joint projects, said the two people with knowledge of the talks.

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