Feedstock, Iran Petchem Advantage
Managing director of Iran's National Petrochemical Company (NPC) recently said that the country's petrochemical industry would need $55 billion in investment over the coming decade. Marzieh Shahdaei, who is also deputy minister of petroleum for petrochemical affairs, mentioned that $20 billion was needed over the coming five years in order to complete incomplete petrochemical projects. The projects have had between 2% and 30% progress and their operation would need foreign investment. Since 2008 no foreign investment has been made in Iran's petrochemical industry; therefore, completion of incomplete projects would be attractive for foreigners.
Providing the necessary investment for the completion of so many petrochemical projects by merely relying on domestic resources is impossible; therefore, foreign investment needs to be given a share therein.
Senior officials at NPC have underlined the point that domestic banks could not provide this amount of investment for the petrochemical industry in Iran. While welcoming the involvement of banks and financial institutes in this value-generating industry, they believe that Iran's petrochemical industry is ready to work with leading countries in this sector in the wake of the removal of sanctions on Iran owing to the implementation of the country's landmark nuclear deal with six world powers. Preliminary talks have been held to that effect. Several European countries that were present in Iran previously have voiced readiness to return to Iran.
In case long-term prices are set for petrochemical feedstock, investors would be able to have a more realistic assessment of projects for future cooperation. Setting long-term prices for gas and liquid feedstock consumed by petrochemical plants would help investors, producers and other groups involved in the petrochemical sector find a clear price horizon in coming years. In that case, they would have nothing to worry about with regard to the impact of market fluctuations on the price formula.
If Iran intends to motivate investors to envisage presence in the country it has to respect the following three principles: first, any formula devised for feedstock price must be for long-term and competitive with other countries; second, the government must provide infrastructure; third, rules and regulations must be stable.
Iran's petrochemical industry has currently a trans-regional role in Iran's economy owing to the abundance of gas and liquid feedstock, young and educated manpower, unique geographical position with access to high seas and proximity to target markets, government support as well as big investment made in this sector. Despite various political and trade restrictions, Iran's petrochemical sector has maintained its unique position in international markets.
Long-Term Feedstock Price
At present a new formula has been finalized for feedstock used in petrochemical plants in Iran. According to this formula, Iran's Ministry of Petroleum needs to set the price for liquid and gas feedstock for petrochemical plants in compliance with criteria worked out for the weight average of revenue from gas sales, the price of gas or liquid delivered for other instances of domestic consumption, the average price of imported gas or liquid fuel, the value of product, maintenance of competitiveness of products in international markets and improvement of economic macro-variables, creation of motivation and the possibility of attracting domestic and foreign investment. Furthermore, it was decided that a gradual discount of up to 30% be applied under long-term agreements to units that would be able to supply raw materials for petrochemical plants in the country and boost the value-added chain. Under these agreements, the enterprises that are launched in underdeveloped areas would benefit from higher discounts.
By setting long-term price of gas as feedstock for petrochemical plants, Iran has given green light to domestic and foreign investors that are willing to finance projects in Iran. This green light would be on for ten years. Up to that time, 21% of Iran's 1.4-bcm gas output would have been converted to petrochemicals.
Undoubtedly, the most important advantage for investment in and development of petrochemical industry in Iran is access to feedstock, i.e. natural gas, ethane, naphtha and gas condensate in any volume and at competitive prices. At present, the capacity of gas refining and transmission facilities in Iran stands at 800 mcm/d, which will soon reach 1 bcm/d. Furthermore, easy access to ethane as petrochemical feedstock would help Iran strengthen its competitive position regarding petrochemical production.
After completion of development phases of South Pars gas field, i.e. start-up of development phases of 12-27, 650,000 b/d of gas condensate and 6.7 million tons a year of liquefied petroleum gas (propane and butane) ,as well as 4 million tons a year of ethane would be recoverable. This amount of ethane would be fully spent in petrochemical plants, while other products would be used when needed.
Ethane, Key to Investment
Iran, which sits atop the world's largest gas reserves, is a major source of feedstock for petrochemical plants in the world. Separation and production of ethane to supply feedstock to petrochemical plants have always been a priority for petrochemical industry officials.