would let Iran’s petrochemical sector make up for losses it has incurred during years of sanctions. New petrochemical projects, worth $75 billion, have been envisaged in Iran. Most of them must be financed by foreign countries, particularly China.
Wood Mackenzie, a global leader in commercial intelligence for energy, predicts Iran can attract $70 billion for petrochemical projects under some conditions.
Afsar Hussain, an expert in Wood Mackenzie's EMEARC Refining and Chemicals research team specializing in olefins and polyolefins, has said Iran has ambitious plans to expand its petrochemical industry, including a large number of projects in planning and construction phases.
"We believe Iran can attract $70billion worth of investments, but only over a prolonged period that confirms it is an attractive investment opportunity. By comparison, the US shale gas revolution attracted over 200 projects worth over $130 billion within a decade of its emergence," Hussain said.
European investors are eying Iran but still acting cautiously as the imposed sanctions removal is yet to occur. Nonetheless, there has been news of Chinese and Indian investors looking at a number of these projects. Hussain said Iran is clearly another viable location in terms of low cost gas-based feedstock in the world other than the Middle East players which, except for Qatar, have limited supplies of low-cost ethane available, as well as the US with their shale gas-based developments.
Asked about the prospects of Iran's petrochemical exports, the Wood Mackenzie expert said Iran is taking steps to boost exports but their first priority is to increase production.
"As a result of sanctions, assets have lower than Middle East average production rates because of limited access to international technology/catalysts, difficulty in delivering feedstock and trade embargos limiting potential markets. We expect Iran to increase its production slowly. Hence, it will provide a boost to exports, but the process will be slow at first and is heavily reliant on sanctions removal," he said.
Iran exported about $15 billion worth of petrochemicals in 2011, before western sanctions were imposed. It has revived the export volume since 2014 due to elimination of petrochemical-related sanctions in November 2013. According to a report by Iran Customs Administration last week, Iran exported $10 billion worth of petrochemicals during the first eight months of the current year, unchanged in value, but increased almost 40% in volume.
Given the fall in the value of petrochemical products, Hussain said, "Petrochemical prices generally plummet due to lower oil prices. However, we didn't witness the sharp falls in petrochemical prices the same way as oil, as demand for petrochemicals remained strong and supply outages supported prices."
Downstream Sector Rivaling Upstream Industry
The advantages of development of downstream petrochemical industries are no secret to anyone. These advantages push investors towards these industries. The rate of return on investment is around 10 to 15% in the upstream sector and around 35% in the downstream sector. One million tons of raw petrochemicals is valued at $300 million. But if these raw products are converted into artificial products the country would be earning $670 million in revenues.
After petrochemical feedstock prices increased in 2014 many operating petrochemical plants in Iran expressed their interest in developing value chain around their complexes and they started negotiations with foreign developing companies.
Many agreements have so far been signed. One of them is the EPCF-type contract between a consortium comprising an Iranian entity and South Korea’s Pields for a pentane project in Assaluyeh. It seems that Iranian negotiators have realized the significance of value-added in the downstream petrochemical industries more than ever.
Foreign investors seeking cooperation with Iran are active in a variety of sectors. For instance, the Japanese are willing to invest in centralized utility, olefin and ammoniac projects, the Indians seek investment in urea units, South Koreans favor investment in fuel and aromatic units, while Europeans prefer GTTP and basic units.
Due to political overture in Iran in the aftermath of the country’s historic nuclear accord with the West in 2015, major European firms are interested in basic and downstream petrochemical sectors in Iran. That proves the significance of this industry for European companies.
At present, the competitive advantage of petrochemical products particularly in the downstream sector in return for the sale of oil and gas has pushed this group of industries into the focal point. Given the significant role of these industries in social and economic development and given the country’s potentialities, the petrochemical industry must be taken into consideration more than ever as it serves domestic and foreign industries.
Marzieh Shahdaei, CEO of NPC, has said that the presence of foreign companies in Iran’s petrochemical industries hinges upon the completion of petrochemical chain, noting that downstream petrochemical industries are welcomed both in Iran and abroad.
With the development of upstream and mid-stream petrochemical industries in recent years, important steps have been taken for the completion of the value chain of this industry; however, selling raw materials continues to be the main advantage of this industry. Official estimates indicate that 70% of the value-added of petrochemical industry materializes in downstream industries, while it has not been developed along with upstream industries.