Joint Venture Season Between Saudi Arabia and North America - Pathfinders in Both Directions

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Joint ventures (JV) featuring Saudi Arabia's oil and petrochem industries and North American companies are in the air at the end of April, and its joint ventures both ways - Saudi Arabia into the U.S. with oil refineries and Canada's Acetex Corporation (TSX: ATX) (Vancouver, British Columbia) as a partner in $1 billion investments in petrochem plants in Al-Jubail Industrial City with the National Petrochemical Industrialization Corp (NPIC) of Saudi Arabia.

Acetex has signed a JV to build acetic acid, vinyl acetate monomer (VAM), and methanol projects in Saudi Arabia with NPIC. Annual production coming out of the projects will be 500,000 tons of acetic acid, 275,000 tons of VAM, and 1.8 million tons of Methanol, Acetex announced. Production, which is expected to begin in 2007 will almost double the acetic acid and VAM capacity of the company.

Saudi Aramco has allocated the natural gas required for the facility, which will create about 800 jobs. Acetex will own 50% of the acetic acid and VAM company and 25% of the methanol company. The projects will benefit from the favorable natural gas supply and from Acetex's proprietary integration technology for the co-production of acetic acid and methanol. It is anticipated that this technology will reduce investment by more than $100 million as well as reducing the operating costs. It will also make the company the low cost producer in both Europe and the Far East.

On the same day in late April that Qatari oil minister Abdullah al-Attiyah was quoted as saying that there was no need for OPEC to raise oil production now, as it was the lack of domestic U.S. refining capacity, which was causing tight gasoline supplies and forcing high prices, the Saudi oil minister Ali Al Nuaimi announced with some flourish, at a New York conference, that Saudi Arabia is planning to build two refineries in the U.S. as soon as permission is given.

According to ChevronTexaco (NYSE:CVX) (San Ramon, California), Vice-Chairman Peter Robertson, who was speaking at the same conference as the minister, said that the regulatory process of obtaining a permit to build a new refinery in the U.S. could prove to be a challenge for Saudi Arabia. No Greenfield refineries have been built in the U.S. for the past three decades.

Al Nuaimi said that he saw a shortage of 1 -1.5 million bpd in U.S. refinery capacity and the Saudi plans saw two 500,000 bpd refineries being built and that they were open to various business plans ranging from 100% JV to 100% financing by Saudi sources. Al Nuaimi also put two Saudi Arabian phosphate and bauxite deposits on the table for development bids during the conference.

There is obviously a strong industry/political dimension to the new 'outgoing' attitude of the Saudis and the broader approach to joint ventures at home and abroad. It also provides something of a pathfinder to medium term oil prices. By doing an Ali Shuffle and offering to de-bottleneck the U.S. gasoline supply chain at a time when OPEC members have carefully been breaking their own output rules (what's new?) would indicate that the middle eastern producers are becoming less retentive and overtly manipulative and are now willing to go with the needs of a global economic and energy surge. Some may also wish to protect the position of Western oil refining capacity relative to the capacity of new gas processing terminals and plant. This would be a belt and suspender approach for Qatar and/or Saudi Arabia.

The prospect of investment movements both ways holds great interest for the majors and industry project managers and technology suppliers. Ali Al Nuaimi has certainly caused some 'out-of-the-box' project scenario planning.