Sector News

There's a great future in plastics…for oil

January 15, 2018
Chemical Value Chain

Located in the desert northeast of Riyadh, not far from the Persian Gulf, is Sadara Chemical Company. The nearly 5 square mile petrochemical plant is a joint venture of American company Dow Chemical and the Saudi national oil company, Saudi Aramco.

Rami, a mechanical engineer at the plant who was also the tour guide during my visit, introduced Sadara by explaining that it is “the Mercedes of plastics,” but it is not a luxury plant. Its products are specialty items. Eventually, Sadara’s products contribute to regulary household goods with which we are all so familiar: detergent, mattresses, toothpaste, paint, vehicle interiors and food grade plastic wrap.

Sadara (meaning “forefront” in Arabic) has been so successful and so profitable that Dow, which owns only 35% of the operation, is looking to increase its ownership to 50%.

The company explains that automation and integration have been key components of that success. As in any high tech and modern manufacturing system, integration adds value. It means that Sadara does not need to spend money and waste space on massive storage containers for chemical components. Instead, chemicals are funneled directly from one process to the next until they become one of the 15 final products that Sadara exports to manufacturers in other countries or sends directly to manufacturers located next to the plant in an area called PlasChem Park.

Dow is not the only owner pleased with the return on its investment. Sadara’s other owner, Saudi Aramco, sees petrochemicals and plastics as the future of its oil industry. The Saudi national oil company has invested in a number of refining and petrochemical ventures in Saudi Arabia over the past several years as part of a push to diversify beyond crude oil production and sales. In 2014, along with Total , it opened Satorp, a petrochemical plant in the same region as Sadara. This plant processes heavy Arabian crude oil and produces chemicals that are then used to manufacture in a variety of different products like textiles, plastic bottles and solar cells.

Aramco just announced plans to build a massive “oil to chemicals” complex in Saudi Arabia that will process 400,000 barrels per day of crude oil to produce chemicals and base oils. The operation is a joint venture with Sabic, a Saudi petrochemical company that already makes a variety of petroleum-based products that contribute chemicals, plastics and fertilizers.

Saudi Aramco has sole access the world’s second largest oil reserves and the world’s most accessible. It prioritizes its crude oil exploration and production business. However, Aramco is also preparing for a future when crude oil may no longer be the world’s transportation fuel of choice . Instead of relying on exporting crude oil to create value, the company is looking ahead to a time when the primary value of petroleum may be in the plastics, lubricants, films, and gasses.

Forecasts for electric vehicle adoption are notoriously over-enthusiastic, but Aramco wants to be prepared for a future in which they can make more money turning Saudi Arabia’s oil into products. If, as Bloomberg’s 2017 Electric Vehicle Outlook predicts, 54% of new car purchases in 2040 are electric instead of the internal combustion engine, Aramco wants to be the company supplying the smooth plastic interiors, the foam seat cushions, the protective coating covering the windows and every petroleum-derived chemical used in the process.

Ellen R. Wald, Ph.D. is a historian & consultant on geopolitics & energy. She is a Non-Resident Scholar at the Arabia Foundation. Her book, Saudi, Inc., will be published in 2018.

Source: Forbes

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