Although economic diversification and a strengthened private sector are cornerstones of Vision 2030, the blueprint for the transformation and diversification of the country’s economy, corporate consolidation and continued state ownership are features of the planned merger between Saudi Arabia’s most influential corporations. If Saudi Aramco’s acquisition of a 70% stake in publicly listed Saudi Basic Industries Corporation (SABIC) is successful, the combined business will play a dominant role in oil, gas, refining, petrochemicals and a host of other downstream industries. There are 40 manufacturing businesses under the SABIC umbrella, 23 of which are in Saudi Arabia, and the company has offices in 70 countries around the world. The Public Investment Fund, the country’s sovereign wealth fund, owns a $70bn stake in SABIC, and the sale would allow the fund to divert its finances to other investments.

Billion-Dollar Investment

In a speech to the Gulf Petrochemicals and Chemicals Association (GPCA), Amin Nasser, the president and CEO of Saudi Aramco, said the SABIC acquisition was part of a wider company strategy to convert 2m-3m barrels per day (bpd) into chemicals. The focus on petrochemicals is based on projections from the International Energy Agency that the petrochemicals industry will account for one-third of growth in oil demand by 2030 and for half of demand by 2050, by which time it is estimated 20m bpd will be used in petrochemical plants globally. “Saudi Aramco will make the most of those prospects with global investments in the chemicals space of roughly $100bn over the next 10 years, in addition to prospective acquisitions,” Nasser said. Saudi Aramco plans to integrate its global manufacturing and petrochemicals complexes to enable the company to use new technology, create chemicals from crude oil, pursue acquisitions and foster new industries focused on the end-use of chemicals.

The extensive development of Saudi Aramco’s downstream business is being paired with new advances upstream. In addition to the country’s substantial proven reserves of oil, Saudi Arabia is working to develop natural gas with an expansion programme that is set to attract SR150bn ($40bn) in investment over 10 years, boosting production from around 14bn standard cu feet per day (scfd) to 23bn scfd. In addition to conventional gas improvements, Saudi Aramco had 16 drilling rigs concentrated on unconventional gas and more than 70 wells completed in 2018.


In the 1980s the master gas system was built to carry associated gas from the site of oil production to the industrial cities of Yanbu and Jubail, laying the foundations for Saudi Arabia’s petrochemicals industry. The two cities are located on opposite coasts of the country and are the focal points of the petrochemical segment’s expansion. According to Jadwa Investment, Saudi Arabia’s chemical capacity grew by 116% between 2005 and 2015, with the increase driven largely by the abundance of cheap feedstock, record high oil prices and growing demand from China. By 2015 exports of petrochemical and chemical products were valued at SR115bn ($30.7bn), 60% of the value of non-oil exports, while from 2006 to 2014 the net income of listed petrochemical companies grew from SR5bn ($1.3bn) to SR9.5bn ($2.5bn).

When oil prices peaked between 2010 and 2014, so too did the prices of many chemicals. With prices increasing, the low prices charged to Saudi producers for ethane gave them margins of up to $1332 per tonne and a cost advantage of around $987 per tonne compared to Asian producers using naphtha as feedstock. In 2019 the main sources of feedstock for Saudi Arabia’s crackers was ethane, found with methane in associated gas, as well as butane and propane, which are derived from liquefied petroleum gas. Naphtha is a costlier feedstock derived from crude oil refining but it has the ability to produce more complex chemicals.

Naphtha is used as feedstock at the Sadara complex, Saudi Aramco’s joint venture with Dow Chemical, and at the second phase of Petro Rabigh, the company’s joint venture with Japan’s Sumitomo Chemical. Sadara began full commercial operations in 2017 and a year later phase two of Saudi Aramco’s Petro Rabigh refinery and cracker complex became fully operational in August 2018. Saudi Aramco’s share of naphtha production in the Kingdom was 123,000 bpd in 2017.


Although the potential for growth in Saudi Arabia’s petrochemicals segment is substantial, there are notable challenges to expansion both at home and abroad. The cost advantage for petrochemicals producers has been partially eroded by increases in feedstock prices that are the result of subsidy reforms during which ethane prices increased, from $0.75 per million British thermal units (mBtu) to $1.75 per mBtu, at the start of 2016. The government has said feedstock prices for petrochemicals will not increase until after 2020 but petrochemical companies could expect increases beyond that date.

According to Jadwa Investment, Chinese demand for petrochemicals fed much of the segment’s boom in the GCC, with the GPCA estimating that between 2004 and 2014, a decade during which China’s average annual GDP growth was 10%, GCC exports to China grew by an average of 14% per year. However, the IMF predicted a lower Chinese GDP growth of 6% from 2017-21, and in October 2018 it cut its prediction for 2019 from 6.4% to 6.2% in light of the ongoing tariff dispute between China and the US. Over the same period a rapid growth in the global supply of petrochemicals is expected. Already, the shale boom in the US has resulted in the rapid development of petrochemical crackers, with three new petrochemical plants, capable of consuming 210,000 bpd of ethane combined, completed on the coast of Texas in 2017. Six additional petrochemical plants expected to open in 2019 with a collective capacity of approximately 380,000 bpd.

Strategic Markets

Saudi Arabia is also playing a role in developments in the US and other strategic markets in Europe and China. In May 2018 SABIC announced a joint venture with ExxonMobil to build a 1.8m-tonne ethane cracker in San Patricio County, Texas. The plant is expected to come launch in 2021 or 2022. In September 2018 SABIC announced that regulatory approvals had been completed for its acquisition of a 25% stake in Swiss chemical company Clariant for $2.5bn. Additionally, in 2016 SABIC signed an agreement to develop a coal-to-olefins plant in China with Shenhua Group, which was awaiting approval from the National Development and Reform Commission as of March 2019. This project is important as noted by Yousef Al Benyan, CEO of SABIC, who said he expects China to add 21.4m tonnes of ethylene capacity by 2025.

Crude to Chemicals

In November 2018 Saudi Aramco and SABIC announced Yanbu would be the site of the country’s fully integrated $20bn crude oil-to-chemicals complex, which the company said is expected to be the largest of its kind in the world. The new complex is part of Vision 2030 and will strengthen the downstream segment by maximising value from crude oil production and integrating the hydrocarbons chain, enabling the creation of conversion industries to produce semi-finished and finished goods, developing advanced technologies and innovation, and enabling sustainable development.

The site is expected to be in operation by 2025, converting 400,000 bpd to 9m tonnes of chemicals and base oils per year, as well as producing 200,000 bpd of diesel for the Saudi market. It is anticipated the process will convert 45% of each barrel of oil into chemicals and will have a 1.5% impact on the country’s GDP. It is designed to lower the production cost of petrochemicals and diversify the feedstock mix in the Kingdom.

Project Pipeline

Other upcoming projects include developments in Sadara and Petro Rabigh, where manufacturers are setting up adjacent industrial parks to convert specialist chemicals into new products.

Sadara, which at the time of completion was the largest chemicals complex built in a single phase, announced in May 2018 that it would build two special material pipelines to transport ethylene oxide and propylene oxide from Sadara to PlasChem Park. These pipelines will be the first of their kind in the region.