Saudi
Arabian Oil Co. and Dow Chemical Co. on Monday outlined plans to build one of
the world's largest chemicals plants in the Gulf kingdom and float the $20
billion joint venture ahead of its planned start-up in 2015.
The partners will spend around $12 billion building the plant, located
at Jubail on Saudi Arabia's Persian Gulf coast, producing high-margin chemicals
and plastics for fast-growing Asian and Middle East markets, with another $8
billion earmarked for third-party investors and contingencies.
Andrew Liveris, Dow's chairman and chief executive, said in an interview that
the complex would boost the sales contribution of emerging markets from 28% to
the "mid-30s" and continue its diversification from lower-margin
commodity products.
Liveris described the project as "unique" in combining Saudi Arabia's
plentiful gas feedstocks with high-margin manufacturing of products for sectors
such as personal care, autos and packaging.
Dow and Saudi Aramco,
as the world's largest energy company is better known, expect to split annual
earnings of $1 billion from sales of $10 billion after their ownership is
reduced to around 40% each following a stockmarket listing in Saudi Arabia
slated for 2013 or 2014.
Construction on the 26 plants in the project--known as Sadara Chemical Co.--is
scheduled to begin immediately, with first output due to come on line in the
second half of 2015, with full operation the following year.
Dow officials said the financing structure was key to a project first outlined
in 2007, with export credit agencies expected to play a key role in funding the
balance of what Liveris called an "equity-lite" development.
Saudi Arabia, the Middle East's biggest economy, has one of the world's largest
petrochemical industries, based on the ready availability of low-priced ethane
feedstock derived from natural gas.
State-owned Aramco
has the capacity to produce 12.5 million barrels a day of crude oil. The Sadara project represents Aramco's second major investment in a
large-scale petrochemical complex in the kingdom, where it is already involved
in a joint venture with Sumitomo Chemical Co. at Rabigh on the Red Sea.
Aramco
Chief Executive Khaled Al Falih said the joint venture with Dow would
"enable significant development in the country's conversion industry,
thereby supporting Saudi Arabia's ambition to be a magnet for downstream
manufacturing investments that add significant value to the kingdom's
hydrocarbon resources."
Sadara will produce polyeurethanes, propylene oxide, propylene glycol,
elastomers, linear low-density polyethylene, low density polyethylene, glycol
ethers and amines.
Dow, the largest U.S. chemical producer by revenue, has been placing greater
emphasis on specialty chemicals and materials. The company, which reports its
second-quarter results later this week, has shown an improvement in earnings
lately due to stronger demand and price increases.
Dow shares were recently up 1%, at $35.93.