Saudi Sipchem Mulls First U.S. Petrochemicals Investment

(Bloomberg) -- Saudi Arabia’s Sipchem is considering investing in petrochemical production in the U.S. based on shale gas in what would be the company’s first foreign venture, as it faces higher costs and a shortage of feedstock at home in Saudi Arabia.

Saudi International Petrochemical Co., may seek a U.S. partner in its effort to tap into the booming shale industry, Chief Executive Officer Ahmad Al Ohali said in a Bloomberg television interview. Sipchem would initially use cash to pay for the project instead of borrowing money, he said.

“Our really big potential is more into the basics in the United States based on shale gas, and we are looking into this area,” Al Ohali said. “It’s not going to be easy because we don’t know the business landscape in the U.S., but definitely we are targeting hopefully to do something this year.”

The surge in U.S. shale oil and gas output in recent years has slashed America’s reliance on imported energy, threatening the market share of the Organization of Petroleum Exporting Countries and the group’s biggest member, Saudi Arabia. OPEC’s Saudi-led drive to squeeze rival producers by opening the taps on supply led prices to plummet from more than $115 a barrel in 2014. The effort failed to stop shale drillers. While OPEC and allied producers changed course and began cutting supply last year, prices haven’t risen much past $70.

‘Limited’ Growth

Sipchem is seeking international opportunities amid “very limited” growth prospects in the kingdom due to a lack of feedstock for basic products, Al Ohali said. The Saudi government’s increase in feedstock prices two years ago was “a wakeup call for our industry,” he said.

The company, which has a market value of 6.9 billion riyals ($1.84 billion), reported a fourth quarter profit of 164.4 million riyals on revenue of 1.28 billion riyals, beating estimates. Its shares have gained 7.3 percent this month, compared with a 4.9 percent rise in the Tadawul benchmark All Share Index, and were little changed at 18.72 riyals in Riyadh at 11:55 a.m. local time.

Sipchem should benefit from a shortage of methanol in China, he said. “That’s going to make some imbalance in supply and demand globally despite the new capacity that came in the United States.”

--With assistance from Hussein Slim

To contact the reporters on this story: Abbas Al Lawati in Dubai at aallawati6@bloomberg.net, Yousef Gamal El-Din in Dubai at ygamaleldin@bloomberg.net.

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley

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