Aramco deepens Asian partnerships

(10/12/2017 7:02:00 PM)

Saudi Aramco extended its downstream involvement in Malaysia in early October through the acquisition of a stake in one of the planned projects on the southern Jurong Peninsula.

The development is led by a unit of the local NOC Petronas at its new Pengerang Integrated Complex (PIC) under development in Jurong.

The deal fulfilled pledges made earlier in the year when the Saudi company agreed to partner the parent company on the overall scheme – at which stage the precise nature and size of the investment was left undefined.

Meanwhile, Aramco’s long-harboured ambitions to expand along the oil value chain in India took a step forward with the launch of a local subsidiary.

Aramco and Petronas announced on October 2 the signature of a share purchase agreement (SPA) under which the Saudi firm’s Aramco Overseas Holding Cooperatif subsidiary will acquire a 50% stake in PRPC Polymers, a subsidiary of the Malaysian conglomerate’s Petronas Chemicals Group (PetChem).

PRPC Polymers is the project company for a polymers plant being built as part of the PIC.

Aramco signed an SPA in February to take a 50% share in “selected ventures and assets” of Petronas’ Refinery & Petrochemical Integrated Development (RAPID) project. This comprises a 300,000 bpd refinery, a 3 million tpy steam cracker and derivatives units producing around 3.5 million tpy of products including ethylene, propylene and C4-6 olefins, which will in turn provide feedstock for additional chemicals projects within the PIC.

The entire complex is said to be aimed at yielding around 7.7 million tpy of petrochemicals.

The Saudi firm will supply up to 70% of the crude – a key driver of downstream expansion by major upstream producers across Asia at a time of ample global supply and fierce competition in the region’s core markets.

However, Malaysia is a relatively minor customer and the attraction for Aramco is presumed to be primarily in Penerang’s strategic location between the Malacca Strait and the South China Sea – on major shipping lanes for the supply of crude to countries further east.

Aramco placed the latest investment in the context of the company’s worldwide strategy of maximum downstream integration. “Through this venture, we will also achieve a high degree of integration between refining and petrochemicals, with petrochemicals production greater than 10% of crude intake,” noted Said al-Hadrami, vice president for international operations.

PetChem, meanwhile, explained the sale as a means of sharing project risk during the construction phase – scheduled to end in 2019 – and of allowing the company the financial flexibility to pursue other ventures.

PetChem acquired PRPC Polymers from sister subsidiary Petronas Refinery and Petrochemical Corp. (PRPC) – RAPID’s developer – in November 2015 at the same time as glycols and elastomers projects also planned at PIC, the latter of which was subsequently cancelled.

The three plants were said to be envisaged having combined capacity of around 2.7 million tpy. Aramco will assume an equal share of shareholder loans raised thus far for the polymers venture, with the value of the transaction said to be around US$900 million.

Announcement of the original RAPID deal did not reveal the size of Aramco’s ultimate proposed equity contribution – but a figure of US$7 billion was frequently quoted. Completion of the PIC had reached roughly 75% by August, according to PetChem CEO Datuk Sazali Hamzah.

February’s deal with Petronas was the latest in a series of major Asian collaborations firmed up by Aramco over the past two years – often after years of inconclusive talks.

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