Aramco plans to invest $500 billion as oil giant expands abroad

Saudi Aramco will spend US$500 billion over the next ten years to expand internationally, with a fifth of the total amount earmarked for petrochemical projects and US$160 billion for natural gas projects, chief executive Amin Nasser told Bloomberg in an interview.

The spending would come on top of the company’s planned purchase of a majority stake in Sabic, the Middle East’s largest chemical business, a deal that could be valued at about $70 billion.

Saudi Aramco aims to become a global refiner and chemical maker, seeking to profit from parts of the oil industry where demand is growing the fastest while also underpinning the kingdom’s economic diversification.

Nasser noted that the investment sum was separate from the US$70 billion it is planning to splash on the acquisition of a majority stake in local petrochemical major Sabic.

The funding of the acquisition is yet to be determined, however. Petrochemical use will increase faster than for any other segment of the oil industry, according to the International Energy Agency.

Earlier reports said Aramco would use US$20 billion from its own cash and raise the rest on international bond markets. Later, it turned out the company was unwilling to make the financial disclosures required when tapping international bond markets, so loans became the one remaining option.

“We need a major acquisition for us to be in different markets quickly,” Nasser told Bloomberg referring to the Sabic acquisition. Aramco, which is also planning what would be the world’s largest share sale, plays a central role in efforts to transform the Saudi economy.

“We need a major acquisition for us to be in different markets quickly,” Nasser said.

Petrochemicals demand is seen by many analysts as the primary crude oil demand driver of the future, so it makes sense that a company of the size of Aramco is looking to gain greater exposure to this segment of the industry.

Plans are for Aramco to use almost a third of its daily production rate, or some 3 million bpd of crude oil, to produce chemicals. Also, the company eyes a twofold increase in its refining capacity by 2025.

“You can absorb market volatility when you are balanced between upstream and downstream,” Nasser said. “This is where our strategy is going. A 32% plunge in oil prices since Oct. 3 may complicate the country’s financial plans.

The Sabic deal seems to be instrumental for this growth in petrochemicals, but it would mean the initial public offering of the Saudi energy giant would have to be postponed.

“You can absorb market volatility when you are balanced between upstream and downstream,” the chief executive said. “This is where our strategy is going.” Aramco’s interest in Sabic rests partly on projections that demand for petrochemicals will account for a rising share of global crude output.

Aramco expects to conclude negotiations with the PIF soon, and “all financial instruments are on the table” for funding it, Nasser said.

This is what Crown Prince Mohammed told media last month, although the opinion that Aramco has shelved its listing plans indefinitely is winning more and more supporters as time goes by.

Nasser now tells Bloomberg the IPO was still on the table but, “It is about timing.” Demand for oil is healthy, he said. “Next year it will be also the same in terms of additional demand.”

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