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Aramco Is Not Just Oil

Aramco Is Not Just Oil

Monday, 23 July, 2018 - 08:15
Salman Al-dossary
Salman Aldosary is the former editor-in-chief of Asharq Al-Awsat newspaper
Regardless of whether the oil giant Aramco will acquire a strategic stake in the world’s fourth-largest petrochemical company (SABIC) or not, as negotiations for this major deal are still in their preliminary stages, the announcement indicates that Saudi Arabia’s Vision 2030 - which is based on the diversification of the Saudi economy – is a reality that is moving fast on the right track, and that the sole dependence on the export of crude oil, without benefiting from the conversion of part of it to other products, will soon end.

Aramco is determined to create a global network of refineries and petrochemicals that will allow the Kingdom to transform one of its most important resources, crude oil, to hundreds of the most valuable products needed for modern life, from the needle to aircraft parts.

Over the next few years, as Aramco turns from being a giant energy company to a giant energy and petrochemical company, it is natural that the Saudi economy will not be subject to oil price fluctuations as it has been, with the petrochemical sector growing at around 3 percent, which is faster than the growth rate of the global economy or the overall demand for fuel.

The expansion of oil conversion into petrochemicals is the real future for the growth of world demand for oil, especially with predictions of a gloomy global future for the use of oil and its derivatives as fuel for electricity generation. That comes in addition to the introduction of electric cars as a strong competitor, which will reach its peak in 2030, and the announcement by China and many European countries that diesel will be soon abandoned in the transport sector.

Thus, the basis for the success equation is the diversity of crude oil exploitation, which will certainly remain a commodity that the world will not live without. But the success of major international companies, such as BP, Shell and ExxonMobil, lies in the diversity of their activities, from exploration, oil extraction, petrochemical industry to refining and others. This enables those companies to maintain the profit margin without significant change regardless of the decline of oil prices.

Although Aramco’s plans to become a giant in the petrochemical sector, as it is a giant in the energy sector, started three years ago as part of a long-term strategy to diversify sources of income in the Saudi economy, led by Crown Prince Mohammed bin Salman, who wants to turn the Kingdom into what is more than just an oil-dependent country, the expected quality deal between Aramco and SABIC opens up huge prospects for the entire structure of the Saudi oil industry.

Aramco will increase its stake in the petrochemical industry by acquiring a strategic stake in a profitable subsidiary. The Saudi Public Investment Fund will receive cash flows from selling a part of SABIC, which has a market value of $100 billion. In the end, all parties will win in the process of the major transformation awaiting the Saudi economy.

Although Aramco has about 261 billion barrels of oil to produce, almost 20 times the amount ExxonMobil owns, experts predict that oil use in the petrochemical sector will become a major source of growth in oil demand in the next decade, as the added value of each barrel will increase and the sources of income will be diversified.

This is the most important strategic objective sought by the Kingdom, without the Saudi economy remaining captive of the oil industry and the effects of low prices on state revenues.

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