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What's going on?
Dow Chemicals, the US-based industrial giant, announced plans on Tuesday to buy a bigger stake in a huge chemical production plant in Saudi Arabia. Its all part of Saudi Arabias plans to transform its economy
What does this mean?
Dow currently owns 35% of Sadara Chemical, the owner of a huge production facility in Saudi Arabia that uses crude oil to make chemicals for use in everything from chewing gum to golf balls and plasma TVs. The plan is for Dow to buy an additional 15% from Saudis state-owned oil company Saudi Aramco (who will continue to own the rest).
By allowing Dow to own more of Sadara Chemical, Saudi Aramco will receive the proceeds from the sale and further encourage Dow to develop the relatively complex business (chemicals is a complicated industry and Dows expertise helps Aramco develop its own know-how).
Why should I care?
The bigger picture: Sadara Chemical is part of Saudi Arabias efforts to diversify its economy.
Saudi Arabia is in the throes of a plan to shift the foundations of its economy away from its reliance on selling crude oil. The huge petrochemical complex is meant not only to help diversify Saudi Arabias economy from simple oil production to related activities (a.k.a. downstream activities), but also to support the creation of new industries in Saudi Arabia that can use chemicals produced by Sadara Chemical to manufacture products for export.
For markets: Chemicals may be the future of the oil business.
As the oil price has fallen dramatically over the past three years, simply selling crude oil has become less profitable. Meanwhile, its become relatively more attractive to produce chemicals that use crude oil as an input because the cost of that input has declined. Also, as electric cars become more commonplace (and, consequently, the worlds demand for oil grows more slowly), its likely that future demand for crude oil will increasingly come from chemical producers. As such, oil giants like Exxon and Saudi Aramco are investing more and more in their downstream petrochemical business.
Originally posted as part of the Finimize daily email.
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