Market and product

Saudi Arabian Oil Co. and Saudi Basic Industries Corp. are one step closer to building their first plant to process crude directly into chemicals, cutting out a link in the production chain from hydrocarbons to the finished products that go into plastics and other consumer goods.

The state-owned companies will sign an agreement Tuesday to study such a project to be located in Saudi Arabia, Sabic, as the chemical maker is known, said in a stock exchange statement. Sabic said it entered the agreement after its own study of oil-to-chemicals projects. Oil companies normally refine crude into transportation fuels including gasoline and diesel and leave byproducts such as naphtha to be processed separately into chemicals.

Saudi Arabia, the world’s largest oil exporter, is pursuing a plan to modernize its economy by expanding industry and reducing the kingdom’s reliance on crude sales for government revenue. Part of that plan involves using oil-based chemicals to produce materials like plastics that can go into consumer products and form the basis for a larger manufacturing industry in the country.

Saudi Aramco would also be partly listed on the stock exchange under the plan outlined by Deputy Crown Prince Mohammed Bin Salman, the king’s son. The prince’s strategy calls for both Aramco and Sabic to be owned by the state’s Public Investment Fund, which currently holds 70 percent of the chemical company’s stock, according to date compiled by Bloomberg. The government owns Saudi Aramco directly.

Saudi Aramco and Sabic, the third-biggest petrochemical maker in the world by sales, are planning to build the refinery in Yanbu on the Red Sea coast, two people with knowledge of the plans said in April, asking not to be identified because the project was confidential. Saudi Aramco and Sabic had been working separately on projects to produce chemicals straight from oil without the need to operate separate facilities, the people said. Former Saudi Arabia Oil Minister Ali al-Naimi had announced in 2013 that the ministry was working with Sabic for the construction of an oil-to-chemical refinery in Yanbu.