After years of operating side by side in Saudi Arabia, the kingdom’s oil and petrochemicals giants have finally sown the seeds for greater co-operation.
A recent deal for Saudi Aramco and Saudi Basic Industries Corporation (Sabic) to collaborate in China is in many respects overdue.
With its focus on using Saudi Arabia’s generous deposits of gas feedstock, Sabic has laid the groundwork for the kingdom to become a global petrochemicals hub.
But where other countries such as Qatar and Kuwait have separated oil and petrochemicals production into distinct entities, Riyadh has actively encouraged the state-run Aramco to compete with Sabic in some areas, by diversifying into ethylene and propylene production.
With Sabic’s strong focus on mergers and acquisitions, typified by last year’s $11.6bn purchase of the US’ GE plastics business, potential conflicts between the two have never been far from the surface.
The GE deal means Sabic will be competing directly with Aramco’s planned Rabigh Refining & Petrochemical Company (Petro-Rabigh) and Ras Tanura petrochemicals complexes.
The companies have avoided competing domestically before now, but it is telling that while Sabic has been shortlisted on several of Aramco’s petrochemical ventures, the oil giant has always picked other partners.
The China deal represents a thawing of relations and could trigger more calculated co-ordination. For Riyadh, this ties in well with its aim of developing a standalone downstream plastics industry.
With both companies eager to further their international credentials, there is little to be lost by bringing the two firms together.
But the real test for Riyadh is likely to hinge on domestic co-operation. Aramco and Sabic’s ambitions will lead to some difficulties.