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2014-05-16 19:38:00



Saudi Aramco's CEO, Khalid Al-Falih, outlines the company's four step strategy for building a world scale petrochemicals industry.

The Kingdom of Saudi Arabia's ambitious downstream expansion plans came under the spotlight last month at the 15th International Oil Summit in Paris where president and CEO Khalid A. Al-Falih addressed an audience of industry stakeholders, experts and reporters.

"We are in the process of building a world-leading downstream business that is both vertically integrated across the value chain and horizontally integrated across suitable geographies. Our goal is to add greater value to our hydrocarbon supplies, while building a more robust and resilient portfolio that can better withstand market turbulence," said Al-Falih.

"We're doing that through what I would call 'new platforms' for downstream business success, which I strongly believe represents the new model and way forward for this sector of our industry."

Al-Falih explained that these new platforms will require four key factors to ensure success. The first, he said, is simply "large scale," referring to the massive plants and their mega-capacity that enables them to "capture operational efficiencies and economies of scale."

And it seems that the region has done remarkably well to build a capacity that will be hard to match by any other region around the world. Perhaps one of the most impressive examples of the Kingdom's drive to increase its downstream capacity is the Sadara petrochemical complex.

With 26 processing plants, that will produce 3 million tons of products per year, the project is, according CEO of Sadara, Ziad Al-Labban, in a recent investor conference hosted by Dow Chemicals, "a spring board for future industries to come."

According to Al-Falih, the second factor in Aramco's downstream future, involves integrating the refining, chemicals and lubes for value addition and portfolio diversification. Al-Falih said that this could be achieved in a facility that has a certain critical mass of processing capacity.

But as these mega-facilities are tied to reliable supplies of oil having the right kind of reliable crude slate was essential. Petro Rabigh, which utilises 400,000 barrels per day of crude oil, and 1.2 million tons per year of ethane as primary feedstock to produce a variety of refined petroleum products and petrochemical products, has proven to be a perfect example of integration within the downstream sector.

The third key ingredient, according to the CEO, was building these facilities close to major markets.

"Matching world-scale plants and infrastructure with strong future demand for their output is vital for downstream success, and we will continue to see most of these new platforms being built in high-growth markets such as China, India, developing Asia and the Middle East," he said.

In an interview at the GPCA's Annual Forum in November, Al-Labban pointed out how the Kingdom is perfectly situated to access multi markets across the world. "We have a unique attribute; the Kingdom, as you may know, is within 2500 miles of 40% of the world's population," he said.

"So we have access to many of the growing economies of the world today, including China, India and a potential growing economy on the continent of Africa."

Finally, in his address, Al-Falih underlined technology as the fourth key factor for the success of new platforms, as it would allow plants such as the SATORP complex to produce cleaner products that meet increasingly stringent environmental standards, all while maximising profitability.

Technology, in addition to innovation, has been a growing theme across the industry, particularly as a driver for lowering costs, expressed not only by international oil companies (IOCs) and national oil companies (NOCs) but service companies, as well.

Al-Falih explained how Saudi Aramco was strengthening its R&D programme with a technology agenda that incorporates both the upstream and downstream sectors. He made mention of the company's research into advanced integrated fuel engine systems.

"We believe there are tremendous opportunities to be realised from the synergies that can be harnessed by combining advances in engines and fuels and by looking closely at their interface."

His comments certainly reflected those made by Mohamed Al-Mady, CEO & vice-chairman of Saudi Basic Industries Corporation, at the Gulf Petrochemicals and Chemicals Association's (GPCA) Research and Innovation Forum earlier this year.

"Driving business through research and innovation reflects the competitive relationship between the need to develop innovation capabilities and success in our increasingly competitive marketplace," said Al-Mady.

As other regions around the world begin to develop technologies which enable cheaper production of hydrocarbons, or the diversification of feedstocks and product slates, the Middle East has been pushed to develop technologies that wean it off its reliance on cheap ethane, allowing it to produce new products at competitive prices.

Al-Falih also added that research and development will satisfy several objectives, including radical improvements in mileage efficiency, substantial reduction in emissions and "the economic viability of engines and the fuels that power them."

Satisfying energy demands was emphasised by speakers to be a joint challenge for both IOCs and NOCs, as was the effective management of supply costs. While moderating the IOC/NOC session, Nordine Aït-Laoussine, former Energy minister for Algeria, mentioned how Saudi Aramco, under its current CEO, introduced the notion of the "INOC" — national oil companies who had evolved to include CSR, economic diversification and job creation as part of their remit.

"Despite the challenges we may face, the petroleum industry has weathered the effects of the global economic downturn better than most, and I believe we are in a long stretch of an expansion phase. In fact, if anything, the industry risks being stretched by the boom. For example, oil demand is expected to continue growing," Al-Falih said.

"Most of this growth stems from the combination of a larger global population, higher living standards and rising urbanization, especially in the developing world where billions of new consumers will be demanding the comforts and conveniences that energy can provide."Al-Falih added that there was enough oil to meet growing demands, given the large global resources of both conventional and unconventional supply.

Christophe DeMargerie, CEO of Total, who spoke immediately after Al-Falih, said that technology would be the key to unlocking the potential of unconventional resources, which would "extend the oil and gas horizon." He also said the industry would have to move as one if it wanted to realise its efficiency and profitability targets.

In keeping with the rest of the summit, both CEOs ended with a Q&A session in which Al-Falih stated that Saudi Aramco would maintain a daily crude oil production capacity of 12 million barrels and reiterated its commitment to unconventionals through $3 billion worth of investments.


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