Chemical producer aims to diversify feedstock supply

Petrochemical producer Saudi Basic Industries Corp said on Friday that it will probably invest about $3 billion-$4 billion in a coal-based complex jointly with Shenhua Ningxia Coal Industry Group, because it was diversifying its feedstock supply options.

"It is a turning point for the company, because it is the first time we will attempt to use coal as a feedstock and we will continue to look into other feedstock possibilities to make our products," said Yousef Abdullah Al-Benyan, CEO of the Saudi Arabian company.

SABIC, the largest listed-company in the Middle East, usually processes natural gas into chemicals, which are then used to make plastics and other products.

The new chemical plant in China's northwestern Ningxia Hui autonomous region, a coal-rich region, will produce about 700,000 metric tons of chemical products, such as ethylene and propylene, to be used in the downstream businesses, said the SABIC chief.

But he said it is too early to reveal the total investment of the project, because it was still in the feasibility study phase.

"This is a strategy that we applied to some important markets like China and North America," he said.

The Saudi company is moving to expand its feedstock portfolio to fuel its growth, as gas supplies are not able to meet its demand. It is also planning to build a jointly-owned petrochemicals complex with an affiliate of US Exxon Mobil, using shale gas as a feedstock. The plant will be built on the US Gulf Coast, possibly in Texas or Louisiana.

At the same time, it is planning to process refined oil products into petrochemicals, as the decline in oil prices has also led to lower petrochemical prices and higher demand for petrochemical derivatives.

Gao Jian, an analyst at Sublime China Information Co Ltd, said that it was a smart move for the company especially, as petrochemicals producers in Saudi Arabia were constrained by gas supplies shortages.

"Despite falling oil prices, oil as a feedstock is still more expensive than gas, while using coal is an economical choice from the perspective of production, but the company has to deal with the problem of pollution," he said.

While some industries suffered as a result of overcapacity during the past few years, China's petrochemical industry has played a leading role in driving the global market.