Co-operation is the way forward

11 January 2008
The fact that Saudi Arabia's two largest companies, Saudi Aramco and Saudi Basic Industries Corporation (Sabic), are in talks to collaborate on a multi-billion-dollar project at Yanbu is fresh evidence, if any were needed, that this is an era of increasing resource nationalism.

The news that they may co-operate on one of the kingdom's largest integrated hydrocarbons projects will surprise some. The two companies have never worked together on such a scale before, and their relationship has long been characterised as competitive at best, and at worst fractious. But there are many potential synergies between the two companies.

As the largest oil company in the world, Aramco's strengths are beyond question. It has abundant oil feedstock, a wealth of experience and the expertise to take the lead on the upgrade of the existing refinery.

For Sabic, itself a top-five player in the global petrochemicals market, the project would be a first venture into the refining business and its first involvement in the kingdom's oil-based petrochemicals sector. This would be a natural step following its acquisition of three oil-based foreign businesses since 2003, most recently the purchase of the US' GE Plastics in 2007.

In essence, the firms are following the lead of international oil companies, which have been pursuing integrated projects for years.

However, while the commercial argument is persuasive, it is a political deal at heart.

Despite the tightness of today's contracting market, Aramco's downstream projects are still sufficiently attractive to allow the company to pick and choose its international partners. But, as with the upstream hydrocarbons sector, Riyadh has always been keen to do whatever it can without external assistance. This co-operation between the two state companies could become a template for the future.

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