WORK has kicked off on a new $20-billion petrochemical plant being built at the Saudi port of Jubail as the world’s largest crude-oil exporter tries to diversify its economy.

The plant is being built under a joint venture between Dow Chemical and state oil giant Saudi Aramco.

Called the Sadara Chemical Company, it will have capacity to make more than 3 million tonnes of chemicals a year.

Sales of advanced chemicals used in applications such as cable coatings, packaging, carbon-fibre composites and water treatment will be $10 billion a year, Dow said. Earnings before interest, taxes, depreciation and amortisation will be about $1 billion.

Sadara, which has been discussed publicly since 2007, will be based around a single cracker than can use raw materials derived from oil and natural gas.

A cracker breaks hydrocarbons such as naphtha and ethane into ethylene and propylene, the building blocks for petrochemicals.

The venture has long-term agreements with the Saudi government to supply raw materials at a price that will make ethylene production costs among the lowest 25 per cent in the world, US-based Dow’s chief executive officer Andrew Liveris said.

The venture will issue about $13 billion of debt and the remaining $7 billion of funding will come from the two partners and an initial public offering in Saudi Arabia.

Dow will have a “modest” cash commitment starting in 2014 because it already has paid for pre-engineering and is contributing technology.

 Sadara’s first production unit will start operating in the second half of 2015 and the facility will be complete by 2016. About 45 per cent of sales will be to the Asia Pacific region, 25 per cent to the Middle East and 10 per cent to Europe. The venture will make polyurethanes, propylene oxide, propylene glycol, elastomers and polyethylene.

Sadara will market its output in eight countries in the Middle East and Dow will sell the products outside the region.

Saudi Aramco plans to invest about $40 billion in three domestic refining and petrochemical projects that would add more than 8 million tonnes of production capacity. In addition to the Dow plant, they include a $12-billion facility that Aramco is building with Total (FP), also at the Gulf port of Jubail, and a $8-billion facility with Sumitomo Chemical planned for the Saudi Red Sea coast.