Iran offers low-cost feedstocks and access to large domestic and
major foreign markets, but needs infrastructure and technology
investments to grow
A rekindling of direct foreign investment in Iran’s huge
petrochemical sector -- if and when sanctions are lifted -- could
reap large rewards for nimble investors with the significant
intestinal fortitude necessary to assume relatively high levels of
economic and political risks, says new analysis from IHS (NYSE:
IHS), the leading global source of critical information and
insight.
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According to the IHS Chemical analysis, Iran’s many risks
include an extremely high degree of political risk, legal
uncertainty, and bothersome levels of administrative and
bureaucratic obstacles. Yet despite these risks, Iran has a number
of important advantages to potential petrochemical investors,
including low-cost feedstocks and access to major markets. Iran has
the world’s fourth-largest supply of proven oil reserves and the
second-largest supply of conventional natural gas reserves, much of
which is rich in ethane, a petrochemical feedstock. This is
significant given that chemical feedstock availability in other
countries such as Saudi Arabia, Kuwait and Oman, has become more
limited.
“If you are a global petrochemical producer looking at Iran for
its investment and growth opportunity, and you can forget for a
minute about the major business and political risks involved, it
presents an attractive opportunity,” said Michael Smith, vice
president of Europe, Middle East and Africa at IHS Chemical. “Major
chemical players are champing at the bit to explore the potential
that Iran offers, but they will not be doing so haphazardly. These
companies are used to operating in risky environments and managing
significant risk—it’s the nature of the business, but the reward
has to significantly outweigh the risk, which is something they
will be assessing very carefully and deliberately.”
IHS estimates that Iran’s current petrochemical production
capacity is just below 60 million metric tons (MMT). The country
produces a wide range of petrochemicals, roughly 100 different
products, ranging from acetic acid to mixed xylenes. While the vast
majority of these products are produced in order to serve Iran’s
comparatively advanced economy and a large population of nearly 80
million, a few products are aimed at export markets. These are
primarily ethylene, polyethylene (PE), methanol, and mono-ethylene
glycol (MEG).
The Iranian petrochemical industry, while quite diverse, is
primarily focused on exploiting the country’s vast resources of
ethane-rich natural gas. On the one hand, the country converts
methane from natural gas to methanol and urea. But Iran also cracks
ethane and other natural gas liquids to produce ethylene, which is
then polymerized to PE or processed to MEG.
Aside from the lure of oil reserves and abundant ethane
feedstocks, the price of ethane gas in Iran is kept low by
government mandate. In general, ethylene production costs in Iran,
based on ethane, are comparable to those in Saudi Arabia or North
America; i.e. the lowest in the world. Both ethylene and
polyethylene are key products for Iranian export, and lifting of
sanctions would enable the Iranians to expand production and export
an additional 1 MMT of ethylene/polyethylene within 12 months to
two years, according to IHS Chemical estimates.
Said Smith, “Trading companies will be eager to access these
volumes of Iranian ethylene and PE, but the impact on global
operating rates, according to our IHS Chemical analysis, is not
expected to be dramatic—less than 1 percent lower than currently
projected. Nevertheless, additional Iranian ethylene in the form of
polyethylene could hit the market just when global operating rates
are at a low point in the years 2017-2018, which would exert some
downward pressure on prices.”
Another key export commodity for Iran is methanol. Iran is a
major methanol producer and exporter, with 5 MMT of capacity, and
methanol producers in Iran also enjoy very advantageous production
costs. Lifting of sanctions would accelerate Iran’s methanol
production plans and drive progress on many proposed projects.
While Iran has proposed projects totaling more than 20 MMT of new
methanol capacity, IHS Chemical believes a more realistic figure of
approximately 10 MMT could be added by 2025.
Impact of sanctions on Iran’s petrochemical industry
In the early 2000s, Iran embarked on an ambitious petrochemical
expansion plan based on the country’s huge abundance of natural
gas. The original plan was to expand petrochemical production
capacity from 9 MMT in 2001, to 100 MMT annually by 2015. However,
as a result of tightening restrictions on the flow of capital and
goods, as well as limited access to necessary technology, parts and
materials, Iran missed this goal by a long shot, IHS said.
Before the sanctions were implemented, Iran was a major supplier
of petrochemicals to Europe; primarily ethylene, PE and methanol.
However, total petrochemical export volumes from Iran did not
suffer significantly as a direct result of the sanctions. Under the
sanctions, these products were simply redirected to Asian, African
and some South American countries, principally China and India.
Business with Europe, however, virtually disappeared.
The much larger impact resulted from the inability of Iran to
maintain and invest sufficiently in its oil/gas and petrochemical
feedstock and export infrastructure, which has led to chronically
low capacity utilization rates, not the least due to periodic
shortages in ethane feedstock. Development of the Iranian energy
sector has been impeded by international sanctions that have
stifled the influx of essential foreign investment and
technology.
Progress in the country’s steam-cracker investments has been
slow since the start-up of the Kavyan 1 unit in late 2012, and
feedstock is in short supply, IHS said. Progress on the Kavyan 2
unit has been delayed by the sanctions limiting gas shipping.
Sanctions have also restricted developments of the gas processing
necessary to extract ethane for feedstock. Even the existing
crackers at Bandar Assaluyeh are short of feedstock, so adding
further steam-cracker capacity will be of little use until natural
gas and feedstock availability increases.
“Lifting of sanctions on the industry and on Iranian finances
will re-kindle foreign investment and allow Iran’s petrochemical
industry to get back on a fast track to growth,” Smith said. “In
the short-term of 12 of 24 months after sanctions are lifted, Iran
will rapidly start taking advantage of easier access to foreign
capital markets, trade financing, oil markets and technology
providers.”
The re-integration of Iran into the global business community,
Smith said, “will revitalize the country’s petrochemical business
in a major way. Iran will take steps toward resuming its important
role in supplying global markets with much needed petrochemical
products. As a consequence, the Iranian people are likely to
benefit from increased industrial development and higher standards
of living.”
To speak with Michael Smith, please contact Melissa Manning at
melissa.manning@ihs.com.
About IHS
(www.ihs.com)
IHS (NYSE: IHS) is the leading source of insight, analytics and
expertise in critical areas that shape today’s business landscape.
Businesses and governments in more than 150 countries around the
globe rely on the comprehensive content, expert independent
analysis and flexible delivery methods of IHS to make high-impact
decisions and develop strategies with speed and confidence. IHS has
been in business since 1959 and became a publicly traded company on
the New York Stock Exchange in 2005. Headquartered in Englewood,
Colorado, USA, IHS is committed to sustainable, profitable growth
and employs about 8,800 people in 32 countries around the
world.
IHS is a registered trademark of IHS Inc. All other company and
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IHS Inc. All rights reserved.
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IHS Inc.Melissa Manning, +1
832-458-3840melissa.manning@ihs.comorPress Team, +1
303-305-8021press@ihs.com
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