Dow Unveils Largest Project Ever

Dow Chemical and Saudi Aramco have approved a $20 billion petrochemical complex in Al Jubail, Saudi Arabia, that Dow chief executive officer Andrew N. Liveris is heralding as “the world’s largest chemicals project ever undertaken”.

The joint venture, which will be called Sadara Chemical Company, will consist of 26 manufacturing plants and will have more than 3 million tons of total capacity when it is completed. The facility will be centered around a steam cracker that will use ethane and other natural gas liquids from Saudi Aramco as well as locally sourced refinery co-products as feedstocks.

Downstream from the cracker, the partners have slated plants to make linear low-density polyethylene, low-density polyethylene, propylene oxide, elastomers, glycol ethers, amines, toluene diisococyanate, methylene diphenyl diisocyanate, and polyether polyols. Dow expects the cracker and the polyethylene units will start up in 2015, followed by the rest of the units a year later.

The partners have been mulling a massive petrochemical joint venture since 2007, and originally slated the project for Ras Tanura, Saudi Arabia. Last year, the companies switched the location to Al Jubail because of the greater infrastructure of that location.

Nearly half of the joint venture’s output will be marketed by Dow into Asian markets. “Sadara lies at the epicenter of our growth strategy, clearly situated to capture share in fast growing end markets in emerging geographies,” Liveris said in a conference call with financial analysts on Monday.

Additionally, the partners are planning an industrial park on the site. Dow intends to build a plant to make its Filmtec reverse osmosis water treatment membranes there. It is also considering establishing a polyurethanes systems house, a gas treatment chemicals formulation unit, and a wire and cable resin compounding plant at the park.

Dow and Aramco will have equal stakes in Sadara’s equity. In addition, the companies are planning an initial public offering for Sadara on the Saudi stock market by 2014. About 65% of the project will be financed by local and regional banks.

Out of the $20 billion price tag, about $12 billion comes from engineering, procurement, and construction. The balance will come from other expenditures such as startup and financing costs. About two-thirds of Dow’s investment has already been paid into the venture through front-end engineering costs and through the licensing of its technologies to the venture. Additional funding, Dow says, won’t be needed until 2014.

Dow expects the venture will rake in about $10 billion in annual revenues within a few years of its startup. Additionally, the partnership is projected to have before-tax profit margins of 40% and provide equity earnings averaging $500 million annually to each partner.