Oil slide not to deter Aramco from its expansion strategy

25/11/2014 05:48 AST

Saudi Arabian Oil Co will push ahead with plans to expand and integrate its refining and chemicals businesses even amid the decline in oil prices, chief executive officer Khalid al-Falih said.

The state-run oil company, known as Saudi Aramco, has a target of producing petrochemicals from 10% of all crude processed at its refineries, he said at an industry conference in Dubai. Oil producers in the Gulf can withstand a period of low crude prices because countries in the region are fiscally strong, al-Falih said. Brent crude, a global benchmark, has tumbled 30% this year.

“For a refiner to be profitable, integration with petrochemicals is very essential,” he said yesterday.

Middle Eastern oil and natural gas producers are expanding petrochemical and refining operations to make fuel and other products that fetch higher prices than crude. Boosting petrochemical output is a long-term strategy for them to create jobs and build new industries in plastics and consumer goods.

Brent oil has tumbled 30% from its high this year on June 19.

Petrochemical producers in the Gulf should use more naphtha and other liquids as feedstocks because supplies of gas aren’t sufficient to support their expansion, al-Falih said. Petrochemical makers should upgrade older plants so they can operate using both gas and liquids as fuel, he said.

Saudi Basic Industries Corp will gradually use more liquid feedstock instead of gas, the company’s chief executive officer Mohammed al-Mady said at the same conference. The decline in oil prices hurts Sabic because its profit margins on finished products are already squeezed, al-Mady said. Sabic pays a fixed price for gas feedstock and isn’t benefiting from the drop in crude, he said.

Global economies have had a disappointing year, and lower oil prices may stimulate growth in 2015, Aramco’s al-Falih said. The drop in crude will lead to beneficial economic reforms for producer in the Gulf, he said.

Bloomberg