Saudi Aramco intends to become a top global refiner and a leading chemicals enterprise over the coming decades, said its President and CEO Khalid A. Al-Falih.

“This will allow us to capture commercial opportunities and profitable growth while diversifying our business portfolio, and over the next decade we will invest tens of billions of dollars around the world and all along the value chain,” he said.

“As the global leader in petroleum, our region should be among the foremost players in petrochemicals and specialty chemicals as well,” said the CEO.

“We’re already engaged in integrated manufacturing complexes through a series of joint ventures at home and abroad, all of which utilize liquid feedstocks and produce a diverse set of value added derivatives,” said Al-Falih.

He made these remarks during his keynote address, titled ‘The Future Middle East Petrochemical Industry: A Vision for the Entire Value Chain’, at the 9th Annual Gulf Petrochemicals and Chemicals Association (GPCA) Forum in Dubai on Monday.

Al-Falih said: “Our industrial value parks at PetroRabigh, Jazan Economic City, SADARA in Jubail (our joint venture with Dow Chemical) and SATORP, our JV with Total, demonstrate our commitment to integrated downstream conversion, value addition, and the use of petrochemicals to spur new industries, and create investment opportunities for our customers.”

The CEO said: “Four years on from my last appearance at GPCA, I remain convinced that this is a pivotal decade — indeed a golden decade — for the Gulf and its chemicals sector, and that we are in the midst of a once-in-a-generation opportunity for a true transformation.”

He said: “So let us seize that opportunity and make the most of our enviable competitive position of considerable resources and our wealth of young talent.”

Al-Falih also said that Saudi Aramco is also providing start-up SMEs, including companies devoted to cutting edge research and innovative products, with both capital and corporate sponsorship, through its entrepreneurship center (Wa’ed) and Saudi Aramco Energy Ventures (SAEV) initiatives.

“And we’re expanding our R&D spending and research manpower, while employing an Open Network model to make the most of in-house R&D centers, satellite research centers in the Kingdom and around the world, and strategic alliances with leading universities and research institutions, like King Abdullah University of Science and Technology (KAUST) and the Dhahran Techno Valley,” he said.

Together, these investments, initiatives and programs are transforming Saudi Aramco, said the CEO. “But that transformation is taking place alongside a major demographic shift in the region, and we’re also embracing that shift at Saudi Aramco and the tremendous opportunities it presents,” he added.

“At Saudi Aramco, our actions reflect our belief in the continued importance of the downstream, and we want to be as strong a downstream player as we are in the upstream,” said Al-Falih.

The following are excerpts from his speech:

“It’s a pleasure to be here four years after my last address to GPCA. At that time I called this a ‘golden decade’ for our region, and called for both greater integration and diversification, and more intensive efforts in research and development. Since then, we had a number of achievements in which you can take genuine pride.

“That said, overall regional development has focused on the manufacturing of commodities for export by leveraging our strong feedstock advantage, our economies of scale and extensive industrial infrastructure.

We have tended to grow horizontally rather than through vertical integration, and while primary petrochemical capacity has grown admirably, the strengthening of functional capabilities has tended to lag.

“To date, our advantages have carried us through— but the existing model will not realize our full potential because the global industry landscape is changing rapidly and creating stronger competition around the world,” he said.

A changing landscape

“On the back of growing volumes of unconventional oil and gas, North American chemicals and plastics production will virtually double over the next decade, with a substantial increase in exports to markets that we have, over the years, assumed were ours for the taking.

The European petrochemical industry is closing less efficient plants, integrating assets into cross-regional networks, and altering its product portfolio.

Things are changing in Asia as well, as Japan rationalizes its petrochemical sector, while China undergoes a relative economic slowdown, places an intensified emphasis on the environment, and struggles with existing overcapacity while also pursuing opportunities for coal to chemicals.

Closer to home, we see constrained gas-based feedstocks, while recent crude oil price volatility underscores yet again the value of vertical integration and greater diversification which provide greater resilience and adaptability.

While our efforts are commendable and are already proving their worth, I want to outline four major opportunities where we can do much, much more.

Four steps forward: First, supplies of ethane are becoming tighter in our region — but supplies of alternative feedstocks such as naphtha and other liquids are plentiful. I believe that we shouldn’t think of these feedstocks as mutually exclusive choices but rather view them as a mixed pool of feedstock that can be used to leverage each other. Liquids are more versatile than pure ethane and when used in mixed feed crackers, offer a broader product slate, including opportunities to produce specialty chemicals, which in turn can help spawn new industries and consequently many new jobs. Collectively, we need to keep in mind that demand for chemicals is growing at a faster rate than nominal economic growth (GDP), and that not all that new demand can be met with gas light feedstocks. Longer term, I foresee the creation of new, groundbreaking technologies to enhance the competitive position of liquids, such as the direct conversion of oil to chemicals.

This brings me to the second opportunity: Enhancing our region’s existing chemicals facilities, since applying the mixed feedstock cracker strategy and other enhancements only to future projects will certainly limit their full impact and potential. Considering the massive scale of the region’s petrochemical asset base built in the 1970s and 1980s, it would generate enormous additional value if we pursued opportunities to restructure and upgrade these legacy assets, some of which are fully depreciated and offer limited added value to local economic development and profitability of companies in the future. This retrofit would include changes to the feedstock mix, deployment of more energy efficient technologies and the addition of high value specialty products. But to succeed in specialties, we will need to leapfrog in knowledge intensity and accelerate our innovation engines.

The third opportunity is to multiply the number of industry participants and jobs. Many of our past efforts have focused on large-scale commodity petrochemical projects, which offered the benefits of scale economies, allowed meaningful penetration into export markets and gained for us a prominent position on the global industrial landscape. But there are tremendous advantages in combining the scale of mega-facilities with the high value addition and job creation potential of small and medium-sized enterprises, including the strengthening of an entrepreneurial ecosystem here in the region.

So, rather than being content with just a handful of major players, we ought to have thousands of small and mid-size chemicals companies in the Gulf, just like we find in the US, Europe, Japan or South Korea. For example, in Europe alone the chemical industry directly employs more than a million people in about 30,000 companies, more than 95 percent of which are classified as SMEs.

All of this will be more easily accomplished if we can grab our fourth opportunity: Greater regional integration. As I argued back in 2010, we should think of the entire Gulf as a unified whole rather than as a collection of individual chemical industries walled off from one another. The picture I have in mind of the future GCC is a booming, cross-connected region, buzzing with chemicals-related activity, and while we need to maintain a healthy dose of competition, we should also creatively collaborate at the regional level to create potential synergy and the essential qualitative edge in terms of innovation, education and technical excellence.

The youth dimension

As the region experiences a ‘youth bulge’ of unprecedented proportions, an entirely new generation of men and women is sweeping through Saudi Aramco as well.

As a result, by the end of the decade some 60 percent of our work force will be 35 years or younger. So I would like to share with you some thoughts on this incredible transformation, which many other firms across the Gulf are either undergoing or will eventually experience.

First of all, our approach begins with the realization that these young people are a different breed than previous generations of Aramcons. Most of my colleagues and I started our careers content with a narrowly defined job working a shift at a plant or in a cubicle at the office,” he said.

But today young people have what I call a ‘positive rebelliousness’ hardwired into their worldview: They think less along the lines of organizational hierarchies and more in entrepreneurial terms, and see creative disruption as a way to produce something new and better. They have an appetite for risk; they thrive on rapid change and constant mobility; and many are simultaneously more skeptical and more hopeful than my generation was at their age.

And while they are driven to better themselves, they are equally convinced they can do that while making a difference for their community and their company. They think laterally and multi-dimensionally, and want to tackle challenges and explore the possibilities for improvement in whatever they do.

It’s also a generation that grew up with a baby bottle in one hand and an electronic device in the other, ” he said.

“They are therefore a hyper-connected generation whose lives are lived on social media and not just in their own social circles, so for many of them, a cubicle in an office isn’t just small or impersonal, it’s irrelevant — somewhere to recharge your smartphone or iPad rather than a place to start your career.

But that different worldview is one reason we view their potential contributions to our company as our most prized future opportunity, and why we take connecting with this new generation and directing their energies so seriously.

We at Saudi Aramco enjoy a proud heritage, but we also recognize that our corporate culture must evolve with the times, and we have a number of initiatives to reinvigorate our corporate systems and streamline our processes while engaging this generation of young talent.

First of all we invest heavily in skill development through our college and advanced degree programs; apprenticeships; the three-year, on-the-job Professional Development Program; and other development and onboarding initiatives. Our veterans have embraced the mentorship of this new generation with enthusiasm, because they see their enormous potential. Our younger employees on the other hand are stretching themselves and at times their organizations as they want to set higher benchmarks and goals than their predecessors and supervisors.

We also want our newest Aramcons to be fully engaged in that evolving corporate ecosystem we are developing, so that even as we get these young people ready for the company, we are also getting the company ready for them.

We are allowing their perspectives to shape Saudi Aramco, and to make our company better, stronger and more agile.

For example, we want to leverage their entrepreneurial spirit, encourage them to employ their creativity toward organizational effectiveness, and utilize their love of technology to better connect across organizational and functional lines transcending professional disciplines.

In my view, because they have grown up multi-tasking and want their organizations to do the same, they are best qualified to make a large corporation be just as agile and entrepreneurial as a start-up.

To maximize these benefits, we have created systems and structures to channel the inputs and harness the incredible energy of these young people.

Individual company organizations have their own, specially tailored programs, but at a corporate level the best example is our Youth Leadership Advisory Board (YLAB).

This is a group of 16 young employees who during their 18-month term conduct studies on topics of significant importance both to the company and to young people; they provide advice to management, ideas and insights to senior management; and engage other young employees in the changes taking place throughout Saudi Aramco.

We are now on our third YLAB cycle, and it has become a self-sustaining program that is both highly competitive and highly respected within the company. “Mini-YLABs” are taking root at various levels and locations within company organizations and professional societies— in fact, we’ve seen young people create their own self-directed “youth-only” groups to tackle issues of importance to them.

The participants gain a good deal of insight, experience, and maturity during their time in YLAB, but we as leaders also gain even greater insights from listening to these young men and women throughout Saudi Aramco. Likewise, I see youth as one of the Gulf chemical industry’s biggest sources of competitive advantage, and many of the traits we see in these young people— a flair for entrepreneurship, a passion for technology, a desire to connect and collaborate, and a daring drive for growth and development— are the characteristics we need in our regional business.

That’s because, just like in our incredibly talented youth, I see substantial untapped potential in the Gulf chemicals space.

We have multiple advantages such as a large and diversified pool of gas and liquids feedstocks; world-scale assets; modern infrastructure; a globally competitive workforce, an ideal geographic location for exports to both East and West; and supportive government policies.

This will be further bolstered by a growing degree of both vertical and regional integration as well as enormous opportunities to advance in innovation.

As the global leader in petroleum, our region should be among the foremost players in petrochemicals and specialty chemicals as well,” said Al-Falih.

 
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