Page 9 - DMEA Week 18 2020

DMEA COMMENTARY DMEA
capex for safe and reliable operations and late stage projects,” Benyan said.
As was the case in the fourth quarter, SABIC booked hefty impairments in the three months ending March 31, amounting to SAR1.07bn. The charges mainly relate to its decision to halt pro- duction of plastic material ULTEM at its plant in Cartagena, Spain.
Benyan said he was not concerned about the impact of Saudi oil production cuts on its feed- stock supplies, which remain at full capacity. Aramco is obliged to make an unprecedented cut to production to 8.5mn barrels per day this month, from a 11mn bpd baseline, under the OPEC+ agreement.
SABIC recently raised its stake in Swiss chem- icals company Clariant from 25% to 31.5%, but Benyan said it was not considering a full takeo- ver of the firm.
Aramco takeover
Aramco agreed to buy a 70% stake in SABIC last year from the sovereign Public Investment Fund for $69.1bn. The national oil company (NOC) is eager to build up its petrochemicals operations
as a hedge against oil market volatility. SABIC can produce up to 62mn tonnes per year of pet- rochemicals, dwarfing Aramco’s own capacity of only 17mn tpy.
By bringing the two companies closer together, Riyadh wants to cut costs and create synergies, helping its petrochemical exports compete better on international markets. The pair already work closely, with Aramco suppling SABIC’s domestic plants with subsidised gas feedstock.
The purchase has now secured all neces- sary regulatory approvals in countries where SABIC operates, and is due to be closed at some point before the end of June. The transac- tion is unlikely to encounter problems because of market uncertainty, given that it is between two companies closely managed by the Saudi government.
Even so, concluding the deal could take longer than anticipated, given the practical and logistical problems arising as a result of Saudi Arabia’s COVID-19 lockdown. Benyan said he did not see any reason to doubt that the end-June target would be reached.™
TRANSPORT
Qatar’s QP to axe jobs, cut costs
QATAR
The cuts have little bearing on QP’s ambitious growth plans.
STATE-OWNED Qatar Petroleum (QP) plans to axe jobs and cut spending in response to the collapse in oil and gas demand, sources told Reu- ters on April 30.
In an internal memo, QP CEO Saad al-Kaabi told company employees that the planned staff cuts would be finalised after the Eid-al-Fitr reli- gious holiday for Muslims in late May.
“Like all oil and gas companies, QP is look- ing at reducing expenditure due to the market downturn which ... will be weak for some time,” a source told Reuters, noting that the cuts would not affect the company’s ambitious energy devel- opment plans.
Qatar, already one of the world’s biggest LNG producers, plans to ramp up its liquefaction capacity to 126mn tonnes per year by 2027, up from 77mn tpy at present. It has postponed the launch of the first phase of its North Field LNG expansion until 2025, Reuters reported in early April, but has no plans to downsize the project’s scope.
The first phase, estimated by Rystad Energy to cost $35bn, will add four more trains to the offshore North field, raising Qatar’s capacity to 110mn tpy. QP began production drilling last month. The second phase, costing $15bn, will comprise a further two trains.
QP is yet to sanction either stage officially. But bearish market conditions are unlikely to deter the company from moving ahead with the
project, which boasts the lowest breakeven costs out of all the major LNG plants due to come on stream in the next decade, Rystad estimates.
The first phase of North Field’s expansion will need a gas price of only $4.50 per mmBtu to break even, according to the Norwegian consul- tancy, whereas its second will require only $4.10. LNG spot prices are currently at less than half this level, but are expected to pick up from record lows as coronavirus (COVID-19) lockdowns are eased.
QP recently signed a contract with a Chinese shipyard potentially worth over $3bn for con- struction of a new fleet of LNG carriers for the expansion.
The latest spending cuts planned at QP will mark the third wave of restructuring by QP in the last six years. In 2015 the company slashed spending and reduced its workforce in response to the previous market downturn. In 2018 it also merged state-owned LNG producers Qatargas and RasGas to cut costs further.™
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