Saudi Aramco and Dow Chemical Co. plan to build a $26 billion petrochemicals complex in Saudi Arabia to take advantage of the world's biggest oil reserves and meet rising demand for plastics used in consumer goods, said a banker with knowledge of the deal. Aramco and Dow, the biggest US chemical producer, aim to raise about $18 billion from loans and bonds starting next year to finance the project, said the banker, who declined to be identified because the plan is private. Royal Bank of Scotland Group Plc and Riyad Bank will help raise 70 percent of the project's cost, said Abdulaziz Al-Judaimi, Aramco's vice president for new business, declining to provide an amount. “It is a very aggressive target,'' Al-Judaimi said in an interview with Bloomberg in Madrid on Thursday. “It will be challenging to get debt, but if we have a project that will get good returns, it will be successful.'' The chemical plant, using low-cost oil supplies, will open up cheaper raw materials to Dow and help the Kingdom to diversify from petroleum into higher-value products. Saudi Basic Industries Corp., the world's biggest chemicals maker by market value, said last year it's expanding into specialty products in a bid to compete with companies such as Europe's BASF SE. “The Middle East has a major cost advantage,'' Utpal Sheth, director of polyolefins at research consultants Chemical Markets Associates Inc. in Dubai, said in a phone interview. Prices have remained constant in the region while in Europe and Asia they have “more than doubled with oil in the last year,'' he said. Aramco and Midland, Michigan-based Dow last year formed an equal venture to build factories at Ras Tanura on Saudi Arabia's Gulf coast. The plants will have the capacity to produce as much as 8 million tons of chemicals and plastics a year, using raw materials from nearby oil and natural gas plants. The Kingdom plans to spend $250 billion on oil, gas, power and water production through 2012. Dow is raising prices as much as 25 percent this month to recoup surging energy and raw-material costs as the cost of crude oil rose to a record above $145 a barrel. It has said the Ras Tanura complex will make products including ethylene and polyethylene, used to make food packaging, chlorine, caustic soda, epoxy resins and polyurethane once production begins in the second quarter of 2012. Hani Wassim, Dow's spokesman in the Middle East, and Michael Crosland, head of energy advisory at Royal Bank of Scotland in London, declined to comment on the Ras Tanura project. No one could be reached for comment at Riyad Bank. Middle Eastern companies raised $38 billion of loans so far this year, compared with $45 billion in the same period in 2007, data compiled by Bloomberg show. Twelve international and Gulf lenders bid to advise on the Ras Tanura financing, according to the banker. The banks included Citigroup Inc., HSBC Holdings Plc, BNP Paribas SA, Calyon, Societe Generale SA, Samba Financial Group and Gulf International Bank BSC, he said. Dow and Aramco will also seek export credit agency funding once project manager KBR Inc., the Houston-based engineering firm that split from Halliburton Co. last year, has chosen all the plant's suppliers, the banker said.
