The Ras Tanura plastics and chemicals complex will be one of the biggest of its kind built from scratch, the two companies said in a joint statement.

“When fully operational, the new complex will be one of the largest grassroots plastics and chemicals production facilities in the world and will be ideally positioned to serve major world markets,” they said.

Earlier this week, industry sources said the plant would have an investment cost of at least $20bn. Costs have risen with soaring inflation in the energy industry from an Aramco estimate last year of around $15bn.

The joint statement gave no details on cost or how the companies would finance the project.

The two companies signed a memorandum of understanding and will now enter a final negotiation phase for the formation of a joint company to build, own and operate the plant, the statement said.

The investment is Dow’s largest in the region and its biggest joint venture, said chief executive Andrew Liveris in a speech.

“(It is) the largest proposed joint venture in our 110-year history,” Liveris said. “It rises to the top of an ever-growing list of regional investments... and will give us access to globally competitive feedstocks.”

Dow is the largest US 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 world’s largest oil exporter Aramco chose Dow last July to discuss the plant, which Aramco will supply from the nearby 550,000 bpd Ras Tanura oil refinery and Ju’aymah gas processing plant.

State-owned Aramco said last year it aimed to raise debt of more than $10bn for the project, in which it plans to float 30% to the public. The plant was scheduled for startup in the second quarter of 2012.

Like its Gulf Arab neighbours, Saudi Arabia is making major investments to diversify its economy away from oil.

Oil Minister Ali al-Naimi said last week that a $70bn investment programme would make the kingdom the world’s third largest petrochemical producer by 2015, up from its current ranking of tenth.

Saudi Arabia’s petrochemical output would rise to 100mn tonnes in 2015 from 60mn tonnes, and it would double the number of petrochemical products produced, Naimi said.

The core units of the Ras Tanura project are an ethane and naphtha cracker, a catalytic cracking unit and an aromatics unit.

PIN/REUTERS