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Saudi Arabia’s Sabic Considering Shale Gas Investments in U.S.

Saudi Arabia’s Sabic Considering Shale Gas Investments in U.S. thumbnail

Saudi Basic Industries Corp., the world’s second-biggest chemicals manufacturer, plans to expand investment in U.S. shale gas projects through joint ventures, according to acting Chief Executive Officer Yousef al Benyan.

Sabic, as the company is known, signed an agreement with Houston, Texas-based Enterprise Products Partners L.P. to get shale gas, al-Benyan said in an interview in Riyadh. The company may use the feedstock in the U.S. or export it to other countries such as the U.K., he said. Sabic has converted crackers at U.K. plants to use shale gas as feedstock to produce olefins and their derivatives more competitively.

“The main areas in the U.S. we are looking to invest in are the northeast and the south as they fit our overall expectations including government support, labor laws and unions,” al-Benyan said. “At this point we are not looking to acquire any U.S. companies.”

Sabic, which in 2007 bought General Electric Co.’s plastics unit for $11.6 billion, said in April it plans to expand in China and the U.S. because it’s difficult for the company to grow in Saudi Arabia due to a shortage of gas. The Marcellus shale formation spread across Pennsylvania, West Virginia and Ohio is America’s biggest natural gas producer, with output rising more than 14-fold since January 2007.

Sabic won’t be directly involved in Saudi Arabia’s shale production, he said. The discovery of shale gas in the country will “open up some opportunities for indirect investments for Sabic,” al-Benyan said.

BASF SE is the largest chemicals manufacturer, based on market capitalization.

 – Bloomberg Business



6 Comments on "Saudi Arabia’s Sabic Considering Shale Gas Investments in U.S."

  1. joe on Mon, 27th Jul 2015 1:41 am 

    If you can’t control it, you better partner up. I guess Saudi has had enough of trying to beat em, so they will ….
    Since there’s not enough oil to drive world growth, getting into the gas business when you have none is a smart enough move. But Saudi is no US. Will be interesting to see how their influence plays out.
    Expect to see Saudi admit defeat soon and cut oil supplies as they know Iran is being given chips to play with.

  2. rockman on Mon, 27th Jul 2015 6:21 am 

    Just good business sense. With almost $12 billion invested in an industry that is completely dependent upon a long term supply of NG this is rather standard approach down by hundreds of companies for decades. We’ll never see the details but a typical clause in such trades includes a “call” on ALL the production generated by the JV. A plastics manufacturer in doesn’t matter so much how much NG is produced in the US but how much they have access to in the long term. KSA investment in any US NG JV is critical to the future of their GE investment. Remember that despite the huge growth in US NG production the country is still a net NG importer.

  3. simonr on Mon, 27th Jul 2015 7:28 am 

    I would imagine buying now is cheap, and if KSA eventually stops pumping, then they will be left controlling the Shale industry, win win situation.

    Or I could be a cynic

  4. rockman on Mon, 27th Jul 2015 10:47 am 

    No one can control shale development in the US. No one company, the KSA or ExxonMobil, has enough resources to command a position much larger then a few %. I’m not even sure what the term “control” even implies in this situation. No one can lock up but a tiny amount of the total potential shale acreage in the US. No one can control a monopoly position in the service industry that’s used to develop the shales. And no one owns more than an insignificant amount of the shale mineral rights in the US. This is the USA…not the KSA. LOL.

    And besides: the shales still aren’t cheap to play…they are just CHEAPER. Which also doesn’t make it any more economical then it was when oil was $90+/bbl.

  5. Nony on Mon, 27th Jul 2015 3:35 pm 

    Maybe this is a way to start learning about shale gas. Are they sitting on any? Running a refinery on NG is much cheaper than running it on FO and SA is becoming more and more of a refiner and petrochem player.

  6. simonr on Tue, 28th Jul 2015 7:28 am 

    Hi Rockman, sorry about that, to clarify, it does seem that with shale producers in financial trouble this is an opportunity for KSA to buy up a few, as a hedge, then when they tail off there production, the shale producers they just bought will make a nice profit

    Simon

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