Saudi Aramco and Saudi Basic Industries Corp. will re-examine their crude-to-chemicals joint venture in Yanbu on Saudi Arabia's west coast, as the two companies trim down operating costs because of falling prices, a statement on the Tadawul stock exchange disclosed.
The project was estimated to cost as much as $20 billion and integrate existing infrastructure instead of constructing an entirely new one, SABIC said in a statement on Sunday. The decision was made as oil producers around the world reevaluate energy projects to save money, with a plunge in demand caused by a global health emergency threatening to keep prices of oil down for a long time.
The crude oil-to-chemicals project was made public in November 2017, before Saudi Aramco said it planned to buy a majority share of SABIC. The COTC project during the time was estimated to generate around 400,000 barrels of crude oil per day, to churn out around 9 million metric tons of chemicals and base oils per year, after being approved for commercial operation in 2025.
Converting crude into chemicals is part of Aramco's strategy to diversify away from merely disposing of oil and earn profit from each barrel the company produces. Aramco, the largest oil conglomerate in the globe, targets to double its refining volume to improve its poor-performing downstream operation.
In June this year, Aramco announced it had finalized the share procurement of a 70% share in SABIC from the Public Investment Fund, the Kingdom's sovereign wealth fund, for almost $70 billion. Aramco and SABIC posted a petrochemicals production capacity of almost 90 million metric tons last year, including agri-nutrient and specialty products.
Two months later, Saudi Aramco saw its profit drop by 73% in the second quarter to $6.6 billion. The company has announced heavy rollbacks in its capital expenditure program, as a result. SABIC, for its part, put on hold new capital spending earlier this year as the company posted losses in the first half.
