Why Has Aramco Halted Its $20 Billion Petrochemical Plant?

The COVID-19 pandemic has sent shockwaves through the energy industry and Saudi Aramco hasn’t escaped the wrath. Following the global oil price crash, the multinational petroleum and natural gas company has shelved plans to launch a series of petrochemical and gas projects worth a cool US$20 billion.

Cutting back on major investments is a key part of the company’s plans to safeguard its dividend. Over the coming years Saudi Aramco has pledged to continue paying its US$$75 billion dividend, despite the turbulent state of the energy industry. While the multi-billion dollar projects would have significantly boosted capacity to transform crude into chemicals, paying out stakeholders and protecting the company from future oil price crashes has been deemed more important.

All Saudi Aramco investments under review

In addition to abandoning the major project set to be constructed on the Red Sea coast, Saudi Aramco is reviewing the purchase of a 25% share in a Texas liquefied natural gas terminal owned by Sempra Energy. Inside sources reveal the company has already withdrawn several staff, with warnings additional cuts could be on the way. Other suspended projects include a refining and petrochemicals complex in China worth an estimated US$10 billion.

“There is excess supply in the oil market, and full recovery may not happen until 2022,” says Mazen Al Sudairi, head of research at financial services company, Al Rajhi Capital. “It makes sense to cut capital expenditure.”

Postponing the petrochemical and gas projects will be a major setback for the company, which planned to double refining capacity and heavily invest in its downstream unit. “It was part of their future plan to protect oil demand and their downstream business,” explains Robin Mills, founder of energy consulting and advisory service, Qamar Energy.

Saudi Aramco commits to protecting dividend

The decision to slash investment and commit to the US$75 billion dividend is a stark contrast to action taken by rivals such as Royal Dutch Shell and BP. In response to COVID-19 both oil majors have drastically reduced shareholder payouts.

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