Saudi Aramco And Dow Unveil $20Bn Sadara ‘Game Changer’

Saudi Aramco And Dow Unveil $20Bn Sadara ‘Game Changer’

State-owned Saudi Aramco and Dow Chemical on 8 October held the official signing ceremony for the creation of their 3mn tons/year Sadara integrated petrochemical complex joint venture at the Jubail II site. Both parties were ebullient about what they described as a game changing project, and the “single biggest ever investment ever made in the kingdom,” and MEES soundings indicate that the hype is largely justified.

Just arriving at the final investment decision (FID) announced in July has involved five years of work, a radical scale-down in project scope, a change of location from Ras Tanura, and the introduction of new front-end engineering and design (FEED) contractors. “Getting here has not been easy nor has getting here been a linear process,” conceded Saudi Aramco CEO Khalid al-Falih. Sadara has been carefully engineered to leverage the four key advantages of feedstock, technology, investment environment and markets, Mr Falih said. “These layered advantages put Sadara on course to achieve progressively higher levels of performance,” he said, adding that: “Investing in Sadara is also consistent with our intent of becoming the world’s number one integrated energy company by the year 2020… Make no mistake about it, Sadara will be a game changer.”

Sadara, the “largest chemical facility ever built in one phase” is “arguably the most ambitious petrochemical project undertaken on our planet,” claimed Dow CEO Andrew Liveris. The project is made up of 26 units, “each of them representing a major project in its own right,” said Mr Falih. Products will include polyurethanes (isocyanates, polyether polyols), propylene oxide, propylene glycol, elastomers, linear low density polyethylene, low density polyethylene, glycol ethers and amines. “Sadara will market products within a regional zone of eight countries, including the kingdom. Dow will leverage its global marketing know-how to market and sell on behalf of Sadara to the rest of the world,” read a Saudi Aramco press release.” The first production units are expected to come on line in the second half of 2015. All units are expected to be up and running in 2016,” it continued. Construction has already begun.

At the heart of the project is a dual-feed cracker which will produce 1.5mn t/y of ethylene and 400,000 t/y of propylene. Sadara will take methane and ethane from the Juhaymah, Berri, Wasit, and Khursaniya gas plants. Liquids, largely naphtha, which will make up just under half the feedstock, will come from the nearby Satorp, Sasref and Ras Tanura refineries. The project was to have been the first of a new generation of Saudi petrochemical projects set under a new national gas price – Saudi Aramco currently sells both methane and ethane to Saudi utilities and industry at $0.75/mn BTU (MEES, 3/10 January). But, MEES understands that Sadara, certainly for the first few years of its life, will continue to benefit from current ultra-low prices. All new Saudi petrochemical projects being considered will have a five-seven year moratorium before any new gas price is applied, MEES understands (MEES, 1 August).

With its own production costs rising steeply as a result of new projects from non-associated and offshore gas fields, Saudi Aramco has pushed for a new price of over $2/mn BTU for methane and somewhere in the $3‐4/mn BTU range for ethane, MEES understands. But with something like 70% of the Saudi stock market based on petrochemical firms and current regional turbulence, any sharp rise would be politically sensitive. The kingdom has seen demonstrations from its Shi'ite minority in Eastern province in recent weeks and is keen to avoid adding economic grievances to demands for greater political participation. 

“These academics, these theorists argue gas and oil should be more expensive in the kingdom, so local demand would go down and we can export more. But this is a ridiculous argument,” a Saudi industrialist tells MEES. “More expensive petrol, water, electricity! The people cannot handle all of these going up at the same time. We have the lowest salaries in the GCC. If it happens then people will be poorer and unhappy and we will have another Arab Spring. And we don’t want that to happen,” he argued. “We have wise rulers. What they need to do to cut local demand is what they are doing. Yesterday they announced they would build the Jiddah-Dammam railway. This is 980km and this will cut down on domestic demand.”

The industrialist adds: “Only Saudi Aramco could do this project. Such a big project and in this global economic environment. This is no joke,” he said, estimating Sadara alone will add 30% to Saudi non-oil export revenues.

The financing process for Sadara kicked off with the approach to export credit agencies (ECAs) just after the final investment decision was announced on 25 July. Those approached for the Sadara financing include Saudi institutional lender, the Public Investment Fund (PIF), the Export-Import Bank of the US (Exim), the UK’s Export Credits Guarantee Department (ECGD), France’s Coface, Germany’s Euler-Hermes Japanese ECAs  (Japanese  Bank  for  International  Cooperation – JBIC – and NEXI) and Korean ECAs (Kexim  and   K-Sure), MEES understands (MEES, 8 August).

This group had their first meeting two weeks ago. US Exim and ECGD are expected to play a significant role, given that much of the engineering work took place in the US and UK. While the project will maximize use of ECAs, its size will necessitate use of multiple funding sources, and in addition to approaching commercial and Islamic banks, the sponsors are considering issuing both conventional bonds and sukuk (see page 4).

Copyright MEES 2011.