Saudis fight to defend fledgling petrochemical industry from European tariffs

When Saudi Arabia built this petrochemical industrial city, it looked like an easy way to convert unused oil byproducts into extra revenues. Success was assured, the Saudis boasted at the outset. Industrial nations would be coerced into buying set amounts of Saudi petrochemicals if they wanted to continue to receive Saudi crude oil.

But the demand for oil has softened. And the European Community isn't following the Saudi game plan.

The EC is leveling excessive tariffs on the petrochemical products, Saudi Arabia charges. The Saudis are insisting the EC lower import taxes for their chemicals to compensate them for the low tariffs the kingdom imposes on European products. But Western Europe, with its chemical industry already depressed, is not happy with the thought of an invasion of Saudi chemicals. Some observers talk of the danger of a trade war.

''Forty-seven percent of the European commodities are entering the kingdom free and the rest with 3 to 4 percent tax, and we think it is not fair to pay customs between 13 and 19 percent in exchange,'' Abdel Aziz al-Zamil, vice-chairman and managing director of the Saudi Basic Industries Corporation (Sabic), said recently.

In addition, Mr. Zamil pointed out that Europe now enjoys a $4 billion trade surplus with Saudi Arabia, which allows the kingdom to retaliate if Saudi products are subjected to what they consider unfair treatment.

Saudi Arabia's petrochemical industry is just coming on line after seven years of construction and billions of dollars for infrastructure and plants. During the oil boom, the oil producers decided they could increase the value of oil exports by adding refining, petrochemicals, and transport operations to their crude oil production.

Saudi Arabia undertook the construction of two complete industrial cities, Jubayl and Yanbu, to take advantage of the byproducts of the kingdom's oil production. For feedstock (the raw material for the chemicals), the plants use natural gas that would otherwise be burned off at the wellhead. At a cost of 50 cents per million British thermal units of energy, feedstock can be produced at what amounts to $3-a-barrel oil, making the Saudis competitive in international markets.

Some of the petrochemical industries started exporting last April. Methanol and urea (used in making fertilizer) had netted the kingdom $66 million in income by the end of September, according to Sabic, with exports going to Japan, Europe, Australia, China, and Spain. By 1985 the Jubayl plants, in addition to methanol and urea, will be producing sodium hydroxide, raw ethanol, ethylene, ethyl chloride, polyethylene, and ethylene glycol. The cost of the plants is in excess of $6 billion.

Not only are the Saudis eager to recover their investment, they are growing increasingly concerned about their income needs. Although oil production is up to an estimated 5.5 million barrels a day from 2.9 m.b.d. a few months ago, it takes about 750,000 barrels a day for domestic consumption and an estimated 800, 000 barrels a day to fund Iraq's war with Iran.

Petrochemicals as a means of diversifying Saudi Arabia's economy are looking more and more like a necessity, instead of the bonus many considered them to be at their inception.