Aramco Reassesses $20 Billion Chemicals Plant Amid Cost Cuts

Saudi Aramco and Saudi Basic Industries Corp. will re-evaluate a planned $20 billion crude-to-chemicals plant as they seek to cut spending and as the oil company tries to preserve its dividend. The two firms intend to incorporate existing facilities into the Yanbu project on Saudi Arabia’s Red Sea coast instead of building an entirely new one, Sabic said in a statement Sunday.

Aramco, which bought most of Sabic earlier this year, was looking to shelve the huge project or integrate it with existing refineries, Bloomberg reported last month, after oil and petrochemical prices crashed with the spread of the coronavirus.

“In the long-term, this is an indication of a weaker outlook for growth,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer, a research firm specializing in emerging markets.

Converting crude directly into high-value chemicals instead of transportation fuels is part of Aramco’s plan to diversify from selling oil and earn more profit from each barrel it pumps. The world’s biggest oil company aims to roughly double refining capacity to boost its unprofitable downstream unit. Its $69 billion acquisition of 70% of Sabic from Saudi Arabia’s sovereign wealth fund is key to that goal.

Aramco and Sabic are still committed to “advancing crude to chemicals technologies through existing development programs with the goal to increase cost efficiency,” Sabic said. Aramco declined to comment further.

Lower oil prices led to a 73% drop in Aramco’s second-quarter profit and a sharp increase in debt, though it maintained a commitment to pay a dividend for 2020 of $75 billion, which will likely be the world’s biggest. Almost all of it will go to the Saudi government, which owns 98% of Aramco.

“Signals that capex is being trimmed should be welcomed by debt and equity holders in the short-term because it frees up cash for debt servicing and dividends,” Tellimer’s Malik said.

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