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The Petrochemical Boom
How America Is Taking the Wind Out of Saudi Aramco’s IPO

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.

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  • CaliforniaStark

    Still waiting for the Democrats to push the investigation of the Russians providing funds to U.S. green groups to oppose fracking. Where is the outrage from Shumer and Pelosi? For that matter, shouldn’t we also be investigating the Middle East money used to fund groups opposed to the U.S. developing its shale oil industry? Appears a lot of Hollywood actors who opposed fracking were tricked into taking Mideast money. An Al Gore, you realize that all that money you got in your sale of your television network to Al Jazeeera, the Qatar–owned media outlet, came from natural gas — quite an inconvenient truth.

    http://dailysignal.com/2017/07/10/lawmakers-cite-evidence-russia-colluded-with-u-s-green-groups-to-block-frackin/

    One of the amazing things about the U.S. shale industry is it was able to prosper despite the games foreign competitors where playing to stop it.

  • Jacksonian_Libertarian

    The fact is that Saudi Arabia wouldn’t be trying to sell a piece of their Oil Monopoly if Fracking hadn’t crashed OPEC. I wouldn’t trust them to pay your dividends when things get tight (and they will get tight), they can simply tax the profits away, and leave you with worthless stock.

    • Ellen

      The Saudis are doomed. They should have diversified out of oil 30 years ago. It’s way too late for them to solve their oil addiction/rentier state problem now. Same for Qatar and Kuwait. They are all going down the drain, and faster than people imagine. The real reason the Saudis are bringing Qatar to its knees is because their economic reform plan is failing and the Aramco IPO may also fail next year. They are focusing everyone’s attention on wicked Qatar to distract from the impending collapse of the Saudi state and Royal Family. Stay tuned for those episodes, and pay attention to the Eastern province of Arabia where the oil is; the Shiites are restless and have already started a guerilla war against the House of Saud.

      As for Qatar, all the Western journalists and diplomats and governments receiving money from the Al-Thani family can’t cover up the fact that Qatar is an unviable state with precisely no friends. No one will save them from the vengeance of the Saudi Crown Prince. However, their real Achilles heel is not that they will run out of cash anytime soon. They won’t, because they are starting with a pile of $340 billion. Their fatal weakness is that the entire productive labor force are exploited guest workers, mostly from Asia. As Qatar becomes unviable, the guest workers will flee (they already are) and then the whole country will collapse. The 300,000 rich Qataris will flee to Europe and take their personal wealth with them, the 2 million guest workers will return to their original countries, and who will be left all alone as prisoners of their palace? The al-Thanis. Boo hoo hoo.

      • Kevin

        Cheap hydrocarbons will still be valuable, but not nearly enough to make the populations of these countries so rich without having to work

  • So they value Aramco at a cool $100t? Some eight years of the total US economy? Ah, no. Not even if they had only just discovered their deposits, rather than been tapping them for fifty years.

    • Kevin

      No, total is $2 trillion, not $2 trillion for just 5%.

  • John Tyler

    The Saudi’s are putting up for sale only 5% of Aramco; the Saudis will hold the other 95% of the company .
    You would have to be a real moron to buy into ANY Saudi -Wahabi Royal Family owned/controlled enterprise.

    The Saudis gave the world 9-11 and have financed the construction of mosques all over the world. These mosques preach the radical Wahabi / Sharia ideology.

    Do NOT be surprised if the Saudis have a large part in funding and supporting the anti-fracking enviro wackos here in the USA.

    Also note that Trump from the first day of his run for president, announced he was for drill, drill, drill, drill (basically an anti-Saudi and anti-Russian energy policy) whilst Hillary was a proponent of the Obama energy policy (i.e., make America as dependent on foreign oil/gas as possible and discourage the production of US oil/gas; that is, a PRO Saudi, PRO Russian energy policy).

    So tell me folks, if you were Putin AND the Saudi Royal Family, who would YOU help become the US President; Trump or Hillary??

    The answer is plain to see.

    • Ellen

      Correct on your first point. Why would anyone buy a 5% share in an oil company that is used as a ATM machine for 15,000 princes of this metastasizing royal family? In 1973, when they engineered the oil embargo and doubled the price of oil overnight, the House of Saud had 3000 princes. Today it has 15,000, only a handful of whom are competent enough to hold a real job. Beyond that, the revenue of ARAMCO underpins the welfare state which allows the Sauds to buy off a potentially hostile population. How many Saudi citizens are enamored of their royal family?

      The fact that MbS had to retract all the salary and benefit cuts imposed last September (which are vital to balancing the budget, so they don’t burn through $100 billion this year) tells me that they are worried about a citizen’s revolt. Not the Shiites, mind you. They are already revolting for other reasons. They are worried about the Wahabi citizens revolting because they don’t know how to survive without free cash.

      This story cannot end well, and won’t.

  • john mcginnis

    Oil is worthless without transport. The Russians are for a rentier strategy to control not the oil, but the flow of the oil. It is why they have intervened in Ukraine, Syria and have cut a deal with Libya for a pipeline/oil deal. They have been in discussions with the Greeks for management of the pipelines thru their country.

    Britannia may have ruled the waves once, but Russia intends to rule the flow of oil.

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