Saudi Arabia’s state-owned oil company, Saudi Aramco, is going public next year. The company’s spokespeople believe this public offering will be record breaking, and expect the five percent of the company expected to be on offer will be sold at a price high enough to value the firm at $2 trillion. If that’s true (a big if, according to most outside observers), it would make Saudi Aramco the most valuable publicly traded company on the planet. Unfortunately for Riyadh, weak oil prices aren’t the only thing working against this landmark IPO. As the WSJ reports, a boom in the U.S. petrochemicals industry—one of the offshoots of the shale boom—is blunting Saudi Aramco’s efforts to move down the oil supply chain:
The shale revolution means the U.S. is already much less reliant on Saudi Arabia for its oil needs. Less appreciated is the threat it also poses to Saudi Aramco’s plan to diversify downstream into chemicals and plastics production, likely a central pillar of the energy giant’s pitch to investors ahead of its probable initial public offering next year.
By the time Aramco has ramped up its downstream capacity—it plans to nearly triple petrochemical output by 2030—if may find it has diversified from one oversupplied market—crude—into another—petrochemicals.
Fracking’s effect on American oil and gas production is common knowledge at this point, but some of its impact on the petrochemical industry remains underreported. Oil and gas drilling also produces liquid hydrocarbons that can be used as feedstock for companies like Dow Chemical, and the shale revolution has kicked off a mini-boom in that industry, with $185 billion in new projects currently in the works.
That’s been a big boon for American manufacturing, but increasingly it’s looking to shake up the global petrochemicals market. According to IHS Markit (h/t the WSJ), net U.S. petrochemical exports are expected to grow by an order of magnitude over the next ten years.
And as welcome as that news is to the United States, it’s going to be poorly received by Saudi Arabia, which has pinned much of its hopes for next year’s IPO on its plan to expand into a market that America is already moving into.