Saudi Aramco: IPO threatens to aggravate world plastics’ overload

Planet Tracker Aramco

Saudi Arabia’s anticipated Aramco initial public offering – valued at $1.5 trillion – is fully subscribed thanks to domestic demand, which has been fuelled by increased lending lines from Saudi banks to Saudi citizens, so they can increase share purchases. But Aramco’s forecast oil production may turn out to be over-optimistic, as demand for fossil fuels comes under increasing global scrutiny and negative reaction to plastic pollution drives down demand.

Saudi produces about 10% of the world’s oil. While it holds the largest crude reserves globally with a low carbon extraction footprint, the problem is what happens once the oil is out of the ground where it then fuels plastic pollution and GHG emissions.

Betting on Plastics Growth

Aramco’s IPO with its Saudi Basic Industries Corporation (SABIC) purchase means that Aramco is betting on an expanding plastics’ future to grow its revenue and maintain its dominant market position from oil production to plastics manufacturing.

Aramco’s petrochemical business has a large exposure to the production of chemicals fundamental to plastics production. Earlier this year, Aramco agreed to purchase a 70% stake in SABIC from the Kingdom’s sovereign wealth fund for $69.1 billion. SABIC is the largest public company in the Middle East. It is a diversified manufacturing company, active in petrochemicals, chemicals, industrial polymers, fertilizers, and metals.

With the SABIC acquisition, Aramco would operate a vertically integrated plastics business active in over 50 countries. Aramco would then have the largest ethylene company – a key plastics feedstock – and a top four global polyethylene company – which uses ethylene to produce single-use plastics – (Aramco prospectus, p. xxxvi).

But Aramco is facing problems on two fronts. Plastics competition is stiff. In the U.S. alone, there is at least $179 billion invested in 294 projects involved in polyethylene plastics production. At the beginning of 2019, 41% of these projects were in the planning or early construction phase.

At the same time, global plastics demand is facing strong headwinds. More than 200 corporations globally have made commitments to reduce single-use plastics. For example, Unilever has pledged to reduce its virgin plastics use 50% by 2025.

So the question is, can the world really absorb another boost to plastics production and if not, what effect will that have on Aramco’s IPO investment?

 

 

Related Posts

Sleeve labelling provides a short-term solution to boost recycling rates, Planet Tracker says

Currently less than nine per cent of plastic waste is recycled and attention is too often focused on the container’s material to the neglect of the type of label used. However, the availability of recycled plastics is not currently able to meet this rising demand. Consumer brands should adopt a self-help approach which ensures that labels are of the same material as the container.

Textiles industry neglecting E and S of ESG, new research finds

Textile industry shareholder meetings need increased focus on Environmental proposals. Of the 1,198 ESG proposals submitted to the annual shareholder meetings of retailers in the Planet Tracker universe since 2015, only 2% were environmental proposals. Key industry issues, such as fibre mix are not raised in shareholder meetings.

About Us

Planet Tracker is a non-profit financial think tank aligning capital markets with planetary boundaries. It was created in 2018 to investigate the risk of market failure related to environmental limits, focusing on oceans, food & land use and materials such as textiles and plastics.

Let’s Socialize

Popular Post