Two of Saudi Arabia's biggest petrochemical firms said on Saturday they have agreed to cooperate on the execution of projects to create synergies after the global economic slowdown hit their profitability. Under a memorandum of understanding, Saudi Basic Industries Corp (SABIC) will crack ethane feedstock to provide Saudi International Petrochemical Co (Sipchem) with ethylene olefin and in exchange Sipchem will provide SABIC with carbon monoxide, the two firms said in a statement. “We will crack ethane to get ethylene to capitalize on synergies between the two companies ... This is being done for the (ethane) gas allocation,” SABIC's Chief Financial Officer Mutlaq Al-Morished told Reuters. Asked on the potential implications of the agreement in terms of further rapprochement between the two firms, Morished said: “Let's not read too much into this.” The two firms said they would use the existing surplus production capacities “to utilize Ministry of Petroleum and Mineral Resources allocated raw materials to produce a number of specialty petrochemical products.” The ministry provides petrochemical firms with feedstock such as ethane. The launch over the past four years of billions of dollars worth of petrochemical projects in the kingdom has raised concern among both industry executives and analysts over the availability of enough ethane to meet the resulting increase in demand for the industry's preferred feedstock. The fact that most of Saudi gas is produced in association with oil output, making volumes fluctuate with oil production, accentuates these concerns, especially since Saudi oil output is at its lowest in over six years after the kingdom and OPEC curbed output to match rapidly falling demand. Aramco's announcement of plans to venture into the petrochemicals industry, as it did with Japan's Sumitomo Chemical or as it plans to do with US Dow Chemical, has heightened these concerns. The plans would technically lead to lower availability of ethane to its rivals, which include state-controlled SABIC. The Middle East Economic Survey reported in March that Saudi Arabia would expedite work on two offshore gas fields in the kingdom to meet growing domestic energy demand. Development of the Arabiyah and Hisbah gas fields, which are not associated with oil production, would supply around 1.8 billion cubic feet per day (cfd), MEES reported. Petrochemical firms could resort to alternative sources of feedstock but these will cause a surge in costs. SABIC is currently executing projects within the kingdom worth 12 billion riyals ($3.2 billion) that would add 623,000 tons per year to its overall capacity, while Sipchem has $810 million worth of projects in the country to add 325,000 tons. The projects are expected to start production by mid-2013. “The two companies will move forward on these projects after the completion of economic studies and legal procedures. Studies on the appropriate technology required for these projects are currently under way,” they said.
