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Aramco, Sumitomo eye $7b petrochem expansion

TOKYO - Saudi Aramco and Sumitomo Chemical plan to go ahead with a $7 billion expansion of a petrochemical project in the kingdom, the Japanese firm said on Friday, quelling doubts over the future of the delayed development.

Japan’s Sumitomo said it was pressing on with the Rabigh II project, due to start operations in early 2016, as it expects the market to pull out of a recent slump due to long-term economic growth in China and resilient demand in Europe.

The plastics industry is facing slowing demand as car sales ease in large emerging markets such as India, while higher raw material costs on the back of rising oil prices weigh on margins.

“The industry is now at a low point, but we are not worried about its long-term prospects,” Osamu Ishitobi, vice-president of Sumitomo Chemical, told a news conference.

But one analyst said that competition from a possible revival in the US petrochemical industry driven by shale gas could have been a factor in the decision. “If they further delayed making a decision, that would offer the US industry a bigger chance of regaining its competitiveness in the global market,” said Osamu Fujisawa, an independent oil economist based in Japan.

In Saudi Arabia, the price of ethane, a raw material used for building plastics, is lower than international prices, providing cheap fuel for petrochemical plants.

For state-run Saudi Aramco, it is a steady revenue source, and part of its plan to expand its petrochemicals industry and diversify its energy portfolio and boost earnings from downstream activities.

Under Rabigh II, an existing ethane cracker will be expanded and a new aromatics complex will be built using around three million tonnes per year of naphtha to make higher-value petrochemical products.

Saudi Aramco and Sumitomo each own 37.5 per cent of Rabigh Refining & Petrochemical, better known as Petro Rabigh.

The phase I Rabigh project was completed in 2009 at a cost of $10 billion. Aramco and Sumitomo signed an agreement on the plant expansion in that year with contracts for the work due to be announced by 2011.