Background

The initial step towards development of the Iranian petrochemical industry dates back to 1963 when a fertilizer plant was installed in Shiraz (Southern Iran).

In 1965, NIPC was established to undertake the operation and development of the petrochemical industry. Since then, through joint investments with internationally recognized companies, NIPC has established several petrochemical plants, which are operated by subsidiary companies that produce various chemicals for both domestic and foreign markets.

The National Petrochemical Company’s major activities focus on manufacture, production, sale, distribution and export of commodities derived from hydrocarbons and related materials, both organic and inorganic.

In order to reduce imports and promote exports, NIPC has conducted various projects within the Five-Year Development Plans.

In keeping with Iran’s policy of achieving more active presence in world markets and deviating from a single-export economy based on crude oil export, the industry has received significant attention in development plans.

NIPC is determined to fortify international credit and keep pace with rapid developments in foreign markets.

Overview

Petrochemicals are chemical products made from crude oil. Although certain chemical compounds found in gasoline can be derived from other sources like coal or natural gas, petroleum is the major source.

Crude oil substances are divided into two main categories of olefins (including ethylene and propylene) and aromatics (including benzene and xylene isomers), both of which are produced in extensive quantities.

Recently, the environment surrounding the petrochemical industry in the Middle East has been changing rapidly. In particular, the Middle East oil-producing countries, including Iran, have in recent years promoted a policy of reducing their dependency on oil revenue and are actively tackling the industry as a pillar to foster domestic industry.

With their superiority in supplying feedstock, they are proceeding with extensive plans for their petrochemical industries, in some cases unrelated to world’s supply/demand balance of petrochemicals.

As of April 1999, prices of petrochemical feedstock have soared. Ethane-based price competitiveness of oil producing countries has rapidly recovered, posing a threat to the world’s petrochemical companies in consequence.

The trend in the Middle Eastern petrochemical industry, which directly and greatly affects the world’s petrochemical industry, should thus be monitored by all companies and organizations, which are directly or indirectly involved in the industry.

Investment

Investing in Iran’s petrochemical industry has competitive advantages of indisputable and exceptional commercial attractions.

Iran’s gas reserves, which provide huge resources for industrial activities and the petrochemical feedstock, are added advantages.

The industry also provides other benefits including, a vast local market, diversifying petrochemical chains, availability of skilled and cost-competitive workforce, infrastructural developments especially those which link Iran to its neighboring countries, introduction of appropriate laws, protection of investment, an evident growth in the downstream petrochemical sector but chiefly, sustainable economic stability and adoption of d"tente policies.

The positive impact of these factors will eventually bring to the forefront, the comparative and competitive advantages that the industry has for attracting local and foreign investments.

The Ministry of Petroleum and its subsidiaries have resolved to

unabatedly meet the petrochemical industry feedstock requirements and other essential inputs related to the organization, for an extensive period with competitive prices to enable it to secure a suitable share of the global market.

A precise look at the government’s policies for developing the sector demonstrates that plans are formulated with long-term prospects in mind.

With steady use of these policies the industry, in tandem with other major industries can delineate a bright prospect for Iran’s economy at an international level.

Based on these policies, NIPC should develop and diversify the petrochemical chain by attracting local and foreign investors and increase its annual output capacity of saleable products during the Fourth Five-Year Development Plan (2005-2010).

NIPC’s current plans hinge upon the priority to use ethane, LNG and condensate and will manufacture wide-ranging products including polymers, chemicals, fertilizers and fuel which will be supplied for export and to domestic markets during execution of the Fourth Plan.

Future Projects

Some petrochemical complexes for construction this year include Lordgan and Boroujen in Chaharmahal-Bakhtiari province and the petrochemical companies of Golestan and Rajal as the first private companies in Mahshahr Special Economic and Petrochemical Zone.

According to the latest report of NIPC, 13 development projects of this company have till date have well over 90 percent of physical progress.

The company has also inked an agreement to complete the project of Phase Three in Shiraz Petrochemical Complex as well as another unit in Kermanshah Polymer Company.

This is while some delays were witnessed by the industry last year which included non-implementation of development projects of Barzouyeh, the world’s biggest olefin (Jam Petrochemical) and Ghadir Petrochemical.

A two-year setback was also seen in implementing the petrochemical development projects of Polymer AriaSasol, Fajr and Laleh.

Exports

In a recent report released by the Customs Administration, Iran exported over 12.5 million tons of petrochemical products valued over $5.3 billion during the first eleven months of the last Iranian year.

The figures show 11- and 131 percent increases in terms of weight and value respectively when compared to those in the corresponding period a year earlier.

During the stated period, petrochemical products constituted 42.4- and 38.8 percent of total non-oil exports as far as weight and value are concerned respectively.

The report also reveals that gas condensates, propane and butane took a lion’s share of the value of petrochemical exports, followed by polyethylene, methanol, benzene and tar.

Meanwhile, NIPC exported 5.9 million tons of its products valued over $3.6 billion during the same period. Price of petrochemical exports represents 26.5 percent of total non-oil exports, NIPC reported.

Furthermore, the company produced 18 million tons of basic, intermediate and finished products in the same period.

NIPC took a 1.3-percent share in gross domestic product (GDP) of the country.

It also reported that several petrochemical projects went on stream last year which included an ethane production project at the Pars Petrochemical Complex and the 4th Methanol Project at the Zagros plant, all in southern Iran.

Utility services at the Mobin Petrochemical Complex and a carbon monoxide unit at Fanavaran are other projects that became operational in the said period. Ground was broken for construction of four more petrochemical complexes.

It is expected that petrochemical products worth $4 billion will be exported but experts say the figure might reach just $3 billion.

Experts doubt whether the industry will be able to export petrochemical derivatives worth $6.1 billion due to setback in implementation of projects, but argue that the total amount of petrochemical products sold within and outside the country would be around $4.3 billion this year.

Relaxing Prices

Liberalization of petrochemical products has been discussed among lawmakers, officials and experts for years. The good news is that the industry has slackened its prices.

According to a recent Majlis ratification, the government has been obliged to eliminate rationing of petrochemical products and their subsidized prices and also reduce prices.

Undoubtedly, fixed prices have had devastating impacts on petrochemical products that they have been chiefly blamed for the ongoing crisis in the polymer industry.

President Mahmoud Ahmadinejad has also maintained that elimination of subsidies would tantamount to creating more investment opportunities in this particular sector.

The fact is that only one-sixth of such subsidies went into the pocket of producers! However, certain producers have warned that elimination of subsidies and limitations in supply with relaxed prices could ultimately increase prices of petrochemical products.

Conclusion

Under the 20-Year Vision, Iran will hold 34 percent of the petrochemical market share in the Middle East and 6.2 percent of the world’s by the final year of the plan. However, the market share of Iran’s NIPC is currently 12 percent of petrochemical production in the Middle East and 0.9 percent in the world.

Investment needed to achieve the objectives set for the sector will be around $50 billion. This means during every five-year development plan some $12.5 billion will have to be invested in the sector, the total amount of which would be $50 billion by end of the 20-Year Vision.

The company is holding talks with several foreign companies over a petrochemical project valued $9.4 billion. Several agreements have been reached to this end and the project will soon become operational.

This report was carried by Isna and reproduced by Iran Daily.