SABIC’s Decision Impacts Domestic and International Companies Involved in Ras Al Khair Project

According to Bloomberg and other foreign media outlets on Oct. 28, Saudi Aramco’s subsidiary, SABIC, has canceled its plan to construct a 400,000 barrel refinery and chemical plant (COTC) in the Ras Al Khair region. This facility, announced in 2022, was designed to increase the proportion of petrochemical production to 50%, with plans to build a new port for exporting products. The decision has significant implications for domestic and international companies involved in the project.

Saudi Aramco, the state-owned oil giant of Saudi Arabia, is also reconsidering its plan to construct a chemical plant within the country, known as the Liquid to Chemical (LTC) project. This development has put domestic companies preparing for the project in a position where they may need to alter their strategies. Additionally, relocation plans for three chemical facilities initially considered as alternatives in the Jubail and Yanbu regions have been put on hold. These projects are presumed to be part of the LTC project, as Ras Al Khair, Jubail, and Yanbu were the regions where Saudi Arabia announced investments in the refinery and chemical sectors.

Speculations suggest that the decision to reconsider the project was driven by the increasing financial burden due to the expanding fiscal deficit. Kim Seung-jun, a researcher at Hana Securities, commented, “Domestic companies were performing the front-end engineering design (FEED) for this project and expected to transition to EPC (engineering, procurement, and construction) by next year,” adding, “However, the likelihood of transitioning to EPC has decreased due to the project’s reconsideration.”

Notably, Samsung E&A was preparing for Saudi Aramco’s LTC-related orders in the second half of the year. They anticipated EPC orders from the second half of next year, expecting 10 to 11 cracker orders from four chemical complexes. A representative from Samsung E&A stated, “The Saudi Aramco LTC order has not been canceled and is proceeding as planned,” adding, “We are currently in discussions with the project owner after securing the FEED contract, and we are also reviewing the possibility of converting the EPC order to a competitive bid.”

Experts also predict that the cancellation of this project will not significantly impact the immediate order plans of construction companies but emphasize the need to enhance capabilities for securing orders through various methods. Cho Jung-hyun, a researcher at IBK Investment & Securities, stated, “This decision will not affect the plans proposed by major construction companies until the first half of next year,” but added, “However, as the cooperative relationship between Saudi Arabia and China deepens, the domestic construction companies’ ability to secure orders will narrow, necessitating proactive investments to enhance capabilities from a long-term perspective.”

Saudi Aramco’s reconsideration of the LTC project comes at a time when the company is navigating the complexities of global oil markets and economic diversification efforts. As part of Saudi Arabia’s Vision 2030 initiative, the LTC project was aimed at converting crude oil directly into chemicals, bypassing traditional refining processes. This strategic move was intended to increase the production of petrochemicals, which have higher profit margins compared to traditional fuels.

The financial challenges faced by Saudi Arabia, including budget deficits partly due to fluctuating oil prices and the economic impact of the COVID-19 pandemic, have influenced the government’s ability to fund large-scale projects like the LTC. The deepening ties between Saudi Arabia and China also play a significant role in the region’s economic dynamics, potentially affecting the competitive landscape for international and domestic companies seeking contracts in the region.

As the situation develops, the current status of the LTC project remains uncertain. Domestic companies involved in the FEED phase will need to reassess their strategies and prepare for potential shifts in the project’s trajectory. The broader implications for the construction and petrochemical industries will depend on how Saudi Aramco navigates these challenges and the evolving geopolitical landscape.

Source: BusinessKorea