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Dow, Saudi Aramco Approve $20 Billion Petrochemical Project

Dow Chemical Co. (DOW) and Saudi Arabian Oil Co. said they will proceed with a $20 billion petrochemical plant at the Saudi port of Jubail as the world’s largest crude- oil exporter tries to diversify its economy.

The joint venture, Sadara Chemical Co., will have capacity to make more than 3 million metric tons of chemicals a year, the companies said today in a statement. Sales of advanced chemicals used in applications such as cable coatings, packaging, carbon- fiber composites and water treatment will be $10 billion a year, Dow said. Earnings before interest, taxes, depreciation and amortization will be about $1 billion.

Saudi Arabia will be able to boost the value of its heavy crude by developing many types of derivatives such as advanced plastics that very few other plants can do,” John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh, said by telephone. “Dow is bringing the expertise and knowledge which is important to help develop cluster industries.”

Saudi Arabia, the largest Arab economy, is seeking foreign investors to help it build clusters of manufacturing industries around refineries and chemical plants that would create jobs for a population that’s increasing by 2 percent a year, according to an HSBC Holdings Plc report released last month.

Low Energy Costs

Dow, the largest U.S. chemical maker, will gain access to low-cost raw materials for making petrochemicals and products such as food packaging for export to fast-growing economies in Asia. Saudi Arabia has historically charged local petrochemical makers an ethane price of 75 cents per million British thermal units. That’s about a sixth of U.S. spot prices, according to data compiled by Bloomberg.

Sadara, which has been discussed publicly since 2007, will be based around a single cracker than can use raw materials derived from oil and natural gas, said Dow and Saudi Aramco, as the state oil company is known. A cracker breaks hydrocarbons such as naphtha and ethane into ethylene and propylene, the building blocks for petrochemicals.

The venture has long-term agreements with the Saudi government to supply raw materials at a price that will make ethylene production costs among the lowest 25 percent in the world, Midland, Michigan-based Dow’s Chief Executive Officer Andrew Liveris said today on a conference call. He declined to be more specific on feedstock arrangements. Natural-gas liquids are becoming “scarce” in the kingdom, Liveris said.

Saudi IPO

The venture will issue about $13 billion of debt and the remaining $7 billion of funding will come from the two partners and an initial public offering in Saudi Arabia, Dow Chief Financial Officer William Weideman said on the call. Dow will have a “modest” cash commitment starting in 2014 because it already has paid for pre-engineering and is contributing technology, he said.

Bulldozers will arrive on the site in two weeks to begin construction, Liveris said. Sadara’s first production unit will start operating in the second half of 2015 and the facility will be complete by 2016, the companies said.

About 45 percent of sales will be to the Asia Pacific region, 25 percent to the Middle East and 10 percent to Europe, Liveris said. The venture will make polyurethanes, propylene oxide, propylene glycol, elastomers and polyethylene.

Sadara will market its output in eight countries in the Middle East and Dow will sell the products outside the region, the companies said.

‘Thousands’ of Jobs

Saudi Aramco Chief Executive Officer Khalid Al-Falih said the venture will help generate “thousands” of jobs.

Saudi Aramco plans to invest about $40 billion in three domestic refining and petrochemical projects that would add more than 8 million tons of production capacity, Al-Falih said at a Dubai conference in December. In addition to the Dow plant, they include a $12 billion facility that Aramco is building with Total SA (FP), also at the Gulf port of Jubail, and an $8 billion facility with Sumitomo Chemical Co. planned for the Saudi Red Sea coast.

To contact the reporters on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net; Jack Kaskey in Houston at jkaskey@bloomberg.net.

To contact the editors responsible for this story: Stephen Voss on sev@bloomberg.net; Simon Casey at scasey4@bloomberg.net.

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