Dow Chemical Co. has made another blockbuster move, this time announcing plans to build a massive plastics and chemicals complex in Jubail, Saudi Arabia, in a partnership with Saudi Arabian Oil Co.
The complex will include 26 units and will have annual capacity of almost 7 billion pounds of plastics and chemicals products, including low and linear low density polyethylene, elastomers and polyurethanes, officials with both companies said in a July 25 news release.
The joint venture between Midland, Mich.-based Dow and state-owned Saudi Aramco of Riyadh, Saudi Arabia, will operate as Sadara Chemical Co. Construction of the complex will begin this year, with the first production units expected to come on line in the second half of 2015.
Full production is scheduled for 2016 at the site, which is expected to generate annual revenues of about $10 billion. Total investment in the project — which will create thousands of new jobs — is estimated at $20 billion.
Dow Chairman and CEO Andrew Liveris said the partnership “is the right economic ownership model with the right partner.”
Saudi Aramco President and CEO Khalid Al-Falih added that the project “will play a key role in [Saudi Arabia's] industrial and economic diversification.”
The announce- ment comes a week after Dow announced a massive bioplastics project in Brazil in conjunction with Tokyo conglomerate Mitsui & Co. Ltd. Dow ranks as one of the world's largest plastics and chemicals maker. Saudi Aramco is one of the world's largest suppliers of oil and natural gas.
Liveris and Bill Weideman, Dow executive vice president and chief financial officer, provided more details surrounding Sadara during a July 25 conference call with stock analysts. A major point of the call was that Sadara will offer a stake of about 30 percent of the company in a Saudi Arabia-based initial public offering in late 2013.
The planned IPO “already has drawn significant interest from funding sources, such as multinational commercial banks and local resources,” Weideman said.
Dow officials also said the company has done much of its upfront spending on design work and engineering for the complex. This ties the project in with a Dow-Aramco complex that was announced in 2007 and that was originally intended for the Ras Tanura area of Saudi Arabia.
Officials added that the new project will be cash-flow-positive within five years of starting, and that it will average equity earnings of $500 million for each partner in its first 10 years of operation.
About 45 percent of the complex's output is expected to be sold in the Asia-Pacific region, including China. That region's share of key global end markets such as automotive and packaging was less than 30 percent in 2005, but is around 40 percent today, Dow officials said.
An ethylene cracker that can run on both light, natural gas-based feeds and heavy, crude oil-based feeds should open at the complex in mid-2015. PE production at the site should launch at that same time.
The complex also could house numerous downstream businesses. Dow officials confirmed that a water-processing unit will be part of the complex, which also could be home for businesses making thermoplastic elastomer compounds, wire and cable compounds, polyurethane systems, thermoset systems, auto parts and household products.
A Dow spokesman said the Dow- Aramco project won't affect Dow's joint ventures making PE and other products in Kuwait through Equate Petrochemical Co. and similar businesses in which the Kuwaiti government is involved as an investor.
The two “are two distinct and unrelated partnerships,” the spokesman said in a July 27 email.
Industry consultants J.N. Swamy and Roger Young each said that teaming with Aramco on the massive project should be a good thing for Dow.
“Growth rates will justify a project of this size,” said Swamy, who's with Chemical Market Resources Inc. in Houston. “It should provide an overall benefit both for Dow and for the people of Saudi Arabia.”
Swamy added that although both Aramco and Dow competitor Saudi Basic Industries Inc. are majority-owned by the Saudi government, that fact shouldn't hinder the project.
“Everything has to be in competition” in Saudi Arabia, he said. “This type of relationship isn't uncommon.”
Young — who spent 18 years of his career with Dow — said the deal moves Aramco into petrochemicals in a big way, allowing it to further its rivalry with Sabic.
And future demand for materials made at the complex should not be much of a concern, added Young, who's now with Robert Eller Associates LLC of Akron, Ohio.
“China is still short on material,” he said. “And their middle class is becoming more empowered, so there's more demand being generated there.
“The target today is Asia and that's only going to become more so.”
Young also said that, with the deal, Dow “is trying to ensure that they get something back from what they've invested in [research and development] and feedstocks.”
Dow also released its second-quarter and first-half financial results July 27. The firm's first-half sales grew 14 percent to $30.8 billion, while first-half profit soared by 50 percent to almost $1.8 billion.
