Value Chain, Petchem Missing Link
Javad Asghari
Iran’s petrochemical industry is 55 years old now. It has seen its production capacity grow 21%, the number of petrochemical plants increase nine-fold, its output grow 33.5 times and petrochemical exports rise 37 times. Whereas downstream chain has not developed as expected, there is still a long way ahead for more profitability. Powerful countries are buying raw materials like methanol, ethylene or urea to convert them into final products and sell them back to us at higher prices.
Many experts believe that what is going on in the petrochemical sector is the result of implementation of Article 44 of the Constitution and privatization of petrochemical plants.
Propylene, Missing Link
Iran’s petrochemical industry has experienced significant jumps in its upstream sector over recent decades. Iran’s non-oil exports to world markets mainly comprise products derived from petrochemicals. However, market actors have long been concerned with propylene and polypropylene shortages as they constitute the main material in the development of petrochemical value chain.
Iran’s minister of petroleum, Bijan Zangeneh, recently said increased propylene production is in favor of developing the petrochemical value chain.
Zangeneh touched on the packages of investment for leading industries of downstream petrochemical sector, saying they would be soon submitted to government.
He said: “We can work in the benzene, ethylene, methanol and propylene sections. The methanol and propylene units overlap largely and due to propylene shortages in the country we can create a major propylene chain by extending one propylene line from northern Iran to Alborz and one from Assaluyeh to Fars Province.
Behzad Mohammadi, CEO of National Petrochemical Company, said the top priority of the petrochemical industry was to implement packages of projects pertaining to methanol, propylene, ethylene and benzene.
Iran would see methanol surplus after new project would come online and therefore the extra methanol could be used for propylene production.
By 2025, propylene would have a 4% share in Iran’s petrochemical production, far below the world’s 18%, China’s 21%, the US’s 17% and Saudi Arabia’s 16% share.
Two propylene production lines are envisaged for the production of 3-3.5 million tonnes of propylene in the country. The first pipeline extends from Assaluyeh to Marvdasht, which would be operated by NPC. Propylene would be produced from methanol surplus in Assaluyeh to be injected into a 430km pipeline. It would then be transported to a storage hub in Marvdasht to be used in the development of a propylene chain in Fars and Isfahan provinces, as well as some cities in other provinces.
The second pipeline would extend from Neka to Damghan. The propylene produced from natural gas would be stored in Damghan to be used for the development of downstream industries in North Khorasan, Khorasan Razavi, South Khorasan and Semnan provinces.
These projects are such important that First Vice President Es’haq Jahangiri, during a recent visit to the Petroleum Ministry, said a propylene line, once operational, would mark the history.
Over recent years, ethanol conversion level in Iran has jumped significantly. Across the world, 60-70% of ethylene is converted into varieties of polyethylene and glycol as well as to non-polyethylene polymers. Therefore, polyethylene-dependent industries have been developed in the country, while propylene-dependent chemical industries have not been developed. That is while propylene products are raw materials for a big chain of downstream industries. The downstream products of propylene and polypropylene go beyond polyethylene and ethylene. That is why Iranian and foreign experts believe that propylene shortages are to blame for the non-development of downstream industries related to propylene.
Propylene is like caviar for the petrochemical industry. It is the second basic material for the petrochemical industry in terms of consumption in the world, just behind ethylene. More than 92 million tonnes of propylene is supplied on the market annually.
Propylene is another key petrochemical product, which is used as the feedstock for various polymers and middle products. The main derivatives of propylene are polypropylene, acrylonitrile, propylene oxide, phenol, oxo alcohols, acrylic acid, isopropyl alcohol, oligomers and other various products. They are used in electronics, car manufacturing, construction and packaging industry. Propylene comes next to ethylene in terms of wide consumption in the world.
Iran would see its methanol production grow 25 million tonnes over five years. Kaveh methanol, Marjan methanol and Bushehr methanol projects are in their final stage with 97%, 80% and 60% progress, respectively. Completion of these three projects would add 5.61 million tonnes to the current methanol production capacity over two years to 10 million tonnes.
Iran Eyes PVM
Iran’s petrochemical industry is set to become propylene-oriented. That is why no new permits are issued for building methanol units in Iran unless new grades are to be launched.
The increased methanol production comes at a time while Iran would be supplying 25 million tonnes of methanol on global markets over five years, far more than the 16 million tonnes the market can absorb.
Concerns are growing about the future methanol market while converting gas to methanol, methanol to propylene and subsequently propylene to polypropylene would generate a high value-added.
In Iran, it is now possible to convert natural gas to methanol. At Petrochemical Research and Technology Company (PRTC), a pilot project with an annual capacity of 120,000 tonnes a year has been successfully implemented for transforming methanol to propylene.
The Arak division of PRTC also plans to convert propylene to polypropylene. PRTC managers and experts hope to launch a 130,000-tonne polypropylene unit that is currently in the pre-commissioning phase.
PRTC has in its propylene-via-methanol (PVM) demo developed a polymer-grade propylene with purity over 99.6% at the Mahshahr research center. It is the most used polymer grade in the petrochemical chain.
Oil and gas draws its highest value-added from the petrochemical industry. Iran is currently producing over 60 million tonnes of petrochemicals, the bulk of which is exported to earn Iran hard currency revenue.
Ammonia and urea have been largely produced over recent years. Petrochemical plants have converted ethane to ethylene to finally supply polyethylene polymers. Once the petrochemical chain is completed, this industry could be brought into the mainland to allow for sustainable job creation.
Article 44 of the Constitution does not envisage any possibility for direct investment in the petrochemical sector. Therefore, investment must be directed towards completing the value chain and developing the existing technologies. More engineering companies should be established in the country for the generation of more value-added.
Downstream Sector to Double Iran Income
The head of the Iran Export Confederation has said that completing the petrochemical sector’s value chain would double the current $20 billion revenue from petrochemical exports. Of course, when it comes to exports, financial estimates are not the only things to be taken into consideration. Transfer of knowhow and technology should be the priority for development and export projects so that Iran’s energy advantages would be used while new export markets would be created. Export-oriented production has to be taken into account in the talks with foreign companies and move in a direction for new investments to facilitate exploration of new markets.
Iran is drawing up its petrochemical industry development plan. In this plan, in addition to concentration on the implementation of projects, feedstock receipt, production and export, special attention is paid to diversification in the value chain and supply of products for which Iran depends on imports.
Iran has always focused on diversification in petrochemical production, as well as completing the value chain in the petrochemical industry. However, systematic complications have prevented achievement of favorable results. On one hand, there is no accurate system to explain requirements for the expansion and completion of the value chain while on the other, inclination for exports due to higher income has prioritized exports over value chain expansion by petrochemical companies. That along with the privatization of the petrochemical industry in Iran has further overshadowed the value chain.
Value chain completion would boost the value of petrochemical products’ mix. Under the 5th Five-Year Economic Development Plan, Iran’s petrochemical industry would focus on the production of basic chemicals or polymers, but petrochemical development would require projects to complete the value chain and supply products of higher value-added to feed downstream petrochemical industries.
Therefore, completing the production chain, more diversity in the production and upgrading the value of petrochemicals’ mix would help this goal materialize, which would help improve Iran’s exports level both quantitatively and qualitatively in addition to supplying domestic needs. One objective of Iran’s petrochemical industry by 2025 is to become the region’s top petrochemical power.