Industry sources say deal will be largest single foreign investment in Kingdom's energy sector.
State oil giant Saudi Aramco and U.S. Dow Chemical Co. are to sign an agreement for a petrochemical plant that would mark the largest single foreign investment in the kingdom's energy sector, industry sources said on Wednesday.
"Aramco and Dow are about to sign a major deal," said one.
The joint venture Ras Tanura plant to make plastics and chemicals will have an investment cost of at least $20 billion, industry sources said. The plant will be the largest of its kind in the world to be built from scratch.
Costs have risen due to soaring inflation in the energy industry from an earlier estimate of around $15 billion.
"We are hearing costs have escalated, they've risen above $20 billion," one source said.
Aramco said in a statement on Wednesday it would make a major business announcement on Saturday with a business partner but did not give further details. Aramco and Dow officials declined to comment.
Saudi Aramco chose Dow last July to discuss a partnership to set up, own and operate the plant for chemicals and plastics near the 550,000 barrels per day Ras Tanura oil refinery.
Aramco said last year it aimed to raise debt of upwards of $10 billion for the project, in which it plans to float 30 percent to the public. The plant was slated for startup in the second quarter of 2012.
Saudi Arabia is the world's largest crude oil exporter and like its Gulf Arab neighbours is looking to diversify its economy away from oil.
Oil Minister Ali al-Naimi said last week that Saudi Arabia had started a $70 billion investment programme to make it the world's third largest petrochemical producer by 2015 from tenth.
The kingdom's petrochemical output would rise to 100 million tonnes in 2015 from 60 million tonnes and the kinds of petrochemicals produced would double, he said.
Dow is the largest U.S. chemical maker by sales and has faced tough competition from Middle East chemical producers such as Saudi Arabia's SABIC that have access to cheap crude and natural gas. SABIC is the world's largest chemicals company by market value.
Last month, Dow announced a joint venture with the Libyan National Oil Co. to expand and operate the plastics facilities at Libya's Ras Lanuf complex.
The core units of the Ras Tanura project are an ethane and naphtha cracker, a catalytic cracking unit and an aromatics unit. The units will help convert Saudi Arabia's heavy sour crude to high value plastics.
The project also involves around 30 downstream process units producing more than 300 different products.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.