Long-term competition

Has Saudi Arabia’s competitive advantage of cheap extraction costs been eroded as oil prices have been lower?
It depends on what you compare it with. If you compare it with 2010, people would say that the competitive advantage has shrunk. If you compare it with where we were 20 years ago, it’s the opposite. The price of crude oil versus the price of gas is one factor; the feedstock you process, be it ethane, propane or naphtha, is another. Today, we can effectively compete regionally and in Asia.
Looking forward, one question is going to be how well positioned we are to compete with new sources of ethane. What we are seeing is more of a renaissance of North American steam cracking and polyethylene from shale gas, which is plentiful and cost competitive. There are all sorts of cost advantages that exist in the US that don’t exist here and drive investors towards the US.
ExxonMobil is investing heavily in the US. We have one new world-scale facility which is nearing completion in Baytown, Texas. We are also evaluating jointly with SABIC another major integrated petrochemical investment on the Gulf Coast near Corpus Christi, Texas. This illustrates what competition may look like in the future.

How competitive is the industry in Saudi Arabia?
The presence of major international oil companies and the size of the industry in Saudi Arabia demonstrate its current competitiveness. Looking forward, the question is whether the investment opportunities in the kingdom match our portfolio and business needs and how they compare with other opportunities around the world. ExxonMobil has been in Saudi Arabia for 90 years and is still investing. Our joint ventures with SABIC and Aramco represent some of the best and most successful partnerships that we have formed anywhere in the world.
Saudi Arabia is a place where liquid resources are plentiful. The kingdom is really trying to make investment opportunities more attractive and Vision 2030 is a key enabler. That brings us back to what the source of competitive advantage for investing in the kingdom will be versus elsewhere and whether we can be competitive in the long term.
In some industries, investors can get their money back in 18 months and move on. That’s not the case for oil and gas or petrochemicals. Our investments have a 40- to 50-year outlook and cost billions of dollars. It’s a long-term commitment, which is why we always look at the business environment and the structural competitive advantages that make a project attractive under a range of different scenarios.
What’s very important, and I don’t think we stress it enough, is that we are a long-term industry that values stability. In other words, we need to work together to encourage stable policies that promote free trade, the rule of law and sanctity of contracts so that when we sign a 20- or 40-year contract, we know that all parties will abide by it. Saudi Arabia understands this very well, which allows long-term project planning and effective risk mitigation.

How much demand is there for clean fuels in Saudi Arabia?
In Saudi Arabia, ultra-low-sulphur products are currently mainly produced for export markets.
In 2014, the ExxonMobil-Saudi Aramco SAMREF joint venture successfully completed a multi-billion-dollar Clean Fuels Project to reduce sulphur levels in gasoline and diesel by more than 98%, meeting stringent global quality standards. We currently sell the products to export markets where low sulphur is important.

What are ExxonMobil’s areas of focus in Saudi Arabia?
While it has evolved over time, today we primarily focus on petrochemicals and refining, which dates back to the late 1970s and early 1980s when SABIC was created and Aramco started to invest in downstream joint venture refineries.
Over the past 30-plus years, we have enhanced and improved upon our three plants through expansions and strategic investments – including the aforementioned Clean Fuels Project at SAMREF.
On the chemical side, the biggest investment we made was completed last year. This was an elastomers plant at our Kemya site, which expanded our portfolio of products and added something new to the kingdom and to the region as a whole. That was also a multi-billion-dollar investment by the ExxonMobil-SABIC joint venture. Those are the kinds of substantial investments we have made recently to grow and remain competitive in the long term.

How successful has the elastomers project at the Kemya plant been?
We have several units which started up in sequence and we are currently ramping up commercialisation. Customer qualification is progressing well and according to plan.
Most products are exported right now because there is little local industry that can utilise them, but we have been actively supporting the Ministry of Energy, the National Industrial Clusters Development Program (NICDP) and the Royal Commission of Yanbu (RCY) in trying to attract rubber conversion industries to the kingdom. Several companies have signed memoranda of understanding with either the NICDP or the RCY to evaluate investment opportunities. So the next step is to make sure the products stay in Saudi Arabia and don’t have to be exported.
We are also very proud of our safety record at Kemya. In fact, the elastomers project at Kemya completed 92 million safe work hours without a lost-time injury, which is among the best performances in the industry.

How do you align your strategy for output and feedstock with Aramco?
Our feedstock for SAMREF is all Saudi crude, which is generally how all joint ventures work here. As for output, the joint venture partners work together to optimise profitability which also includes continuous improvement of operations, ensuring our success over the past 35 years. We have excellent partners who, like us, are focused on getting the best out of these joint ventures.

Do you expect there will be a greater focus on using ethylene and polyethylene in Saudi Arabia for manufacturing and plastics in the future?
The country’s strategy is to develop these downstream value chains and develop the conversion industries. The question is how much can be developed. What is the source of the competitive advantage? Is this going to be designed to meet domestic needs or to be exported and what does it mean in terms of competitiveness?
We knew that our elastomers plant would have to be competitive in the export market because the domestic market, at least today, is not large enough to absorb the production of a world-scale plant.
Supporting downstream industries as they emerge is important because domestic consumption is always better than having to ship all over the world. That’s why we have been working with the Ministry of Energy, NICDP and the Royal Commission to try to attract converters.
The genesis of our elastomers facilities is to ultimately enable a tyre manufacturer to come here. There is a big objective of building an automotive industry in the kingdom and rubber parts are needed for that industry. We’re producing those raw materials that this industry will need in the future. It is part of a deliberate and clear vision of the Ministry of Energy to provide the raw materials that will be needed to introduce this new industry. For us, the elastomers project is a great example of bringing a new industry to the kingdom and making high-value specialised polymers that can be used by that industry further down the chain.

What do you want to see for ExxonMobil in the next 3-5 years?
First, we need to solidify what we already have. We have made significant investments over the past years, on the refining and the petrochemical side. We need to complete the ramp-up and full commercialisation of these facilities and make sure they are and continue to be competitive.
We are also always looking for what could be next. I would say it is too early to comment on what that opportunity might be.
The genesis of this industry was affordable feedstocks. The main source of competitive advantage continues to be affordable energy and competitive feedstocks. This needs to continue, and at the same time, we need to do everything we can to adjust to changes. We are working to adjust to the 2016 ethane price increase, for instance, as we look for offsets elsewhere.
We believe that Vision 2030 considers our industries as a building block of the future economic success of the kingdom and there has been a lot of communication from the government on future plans. The more information we get the better. As we in the industry invest for 40 years, it is hard for us to adjust plans based on measures put in place with very short notice. While we can fine-tune here and there, substantial changes need long-term planning, long-term implementation and synchronising with our planned shutdowns for maintenance.
To conclude, ExxonMobil is one of the largest foreign investors in Saudi Arabia and has been a trusted partner for more than 90 years. We are proud of our many successes and are looking forward to continued expansion of our partnerships in and outside the kingdom.

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