TEHRAN (Shana) -- The attractiveness of Iran's petroleum industry, particularly petrochemical sector, is such that even US threats and pressures have failed to dissuade international companies from continuing to do business with Iran. European companies recently embarked on a fresh round of negotiations with a view to developing cooperation with Iran. Even after the United States announced its withdrawal from the 2015 Iran nuclear deal with six world powers, a number of foreign petrochemical delegations, mainly from Europe, have held talks with Iranian petrochemical officials.

Thanks to unique potentialities such as low-cost feedstock for petrochemical production and facilitating access to regional markets, Iran can supply domestic markets and become an attractive destination for foreign investors. In coming years, Iran is expected to play a pivotal role in investment plans designed by international petrochemical companies.

Iran's petrochemical industry offers significant interests to potential investors who will brave political and economic risks and decide to invest in Iran's petrochemical sector.

In addition to low-cost feedstock and access to important markets, Iran sits atop the world's fourth largest proven oil and first largest proven gas reserves. Furthermore, Iran's natural gas is rich in ethane, which is key feedstock for petrochemical plants.

Given chemical feedstock supply restrictions in such countries as Saudi Arabia, Kuwait and Oman, feedstock sufficiency in Iran is a significant factor.

Michael Smith, deputy head of IHS Chemical for Europe, Middle East and Africa Affairs, says: "If you own an international petrochemical company you may forget about political and business risks associated with investment in Iran for a moment. That would provide you with an attractive opportunity."

Although major chemical and petrochemical companies are eagerly waiting for proposals from Iran, would-be investors will definitely test the waters before taking any action for investment in Iran.

Foreign companies are accustomed to investing in high-risk projects because risks are associated with any business. However, an investment project would sound reasonable when associated interests could eclipse possible risks. Therefore, companies would first and foremost assess potential challenges lying ahead.

100 Petchem Products

Iran's current petrochemical production capacity is more than 60 million tonnes. A wide spectrum of petrochemicals (totaling 100), varying from acetic acid to mixed xylenes, are being manufactured in Iran. The bulk of these products are used to supply the economic needs of Iran's 80-million-strong population. Only a meager share is destined for exports. Iran mainly exports ethylene, polyethylene (PE), methanol and monoethylene glycol (MEG).

In addition to huge oil reserves and natural gas-derived ethane, an advantage in Iran is that the price of ethane has been kept low by the government. Generally speaking, ethylene production costs based on ethane feedstock in Iran may be compared with ethylene produced in Saudi Arabia and North America where costs are at their lowest.

Ethylene and propylene constitute Iran's major export products. According to IHS forecasts, Iran is largely expected to enhance its production capacity and add one million tonnes to its ethylene and propylene exports over two years.

Although trading companies are largely interested in access to such volumes of ethylene and polyethylene produced in Iran, it is unlikely to significantly affect the global operating rates. According to estimates, the impact will be less than one percent lower than previous forecasts. However, in case Iran converts its extra ethylene to polyethylene, the market will be significantly affected through 2017-2018, the period where the global operations rate is expected to stand low. Higher supply by Iran is likely to push prices down.

Analysts say investment in Iran is high-risk, but profitable. Iran currently has access to all necessary raw materials, required young and educated manpower, as well as laws protecting foreign investment.

Iran's laws have facilitated the transfer of capital and its interests. A clause in Iran's foreign investment law holds that no property or assets of foreign investors would be attached and seized. The law bars the Iranian government from attaching any assets and property of foreign investors. That is the most significant guarantee for foreign investors. Advantages of foreign investment in Iran include increased competitiveness in production sector, upgrade in the quality of products, upgrade in the production chain, entry of cutting edge technology to Iran and domestic manufacturing of high-quality products to rival foreign-made ones with a view to safeguarding the market. Iran's foreign investment act has made it clear that foreign companies are not authorized to invest individually more than 25% in any sector. For instance, they can contribute to 25% of petrochemical industry whose remaining 75% will remain in the hands of domestic manufacturers.

Petchem Sector in Iran-Europe Talks

After US President Donald Trump pulled his country out of the nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), nations and companies did not make any hasty decision. European companies have since then discussed investment in petrochemical projects in Iran. French, German and Italian companies that moved to invest in Iran following the January 2016 implementation of the JCPOA have expressed satisfaction with their oil, gas and petrochemical projects in Iran.

In this regard, petrochemical actors believe that the eight points agreed upon by Iran's Foreign Minister Mohammad Javad Zarif and Europe's big three in Sofia could partly resolve problems pertaining to petrochemical exports.

During the Sofia meeting, which was attended by Zarif, his French, German and British peers and the European Union's foreign policy chief Federica Mogherini, eight key decisions were adopted, covering the bulk of threats posed to Iran's petrochemical sector. According to Clause 2 of the Iran-EU agreement, oil, gas and petrochemical exports will continue normally, allaying a major cause of concern created following Trump's JCPOA withdrawal.

Noting that the US is likely to impose embargoes on Iran's petrochemical sales, analysts maintained that Europe is required to provide necessary guarantees for the continued sales of these products. It's done now.

Participants in the Sofia meeting, discussed common efforts with a view to practical solutions concerning the following issues: maintaining and deepening economic relations with Iran; the continued sales of Iran's oil and gas condensate petroleum products and petrochemicals and related transfers; effective banking transactions with Iran; continued sea, land, air and rail transportation relations with Iran; the further provision of export credit and development of special purpose vehicles in financial banking, insurance and trade areas, with the aim of facilitating economic and financial cooperation, including offering practical support for trade and investment; the further development and implementation of Memoranda of Understanding and contracts between third-countries companies and Iranian counterparts; further investments in Iran; the protection of economic operators and ensuring legal certainty; the further development of a transparent, rules-based business environment in Iran.

It may be said that Europe has worked out necessary mechanisms for the continuation of petrochemical projects in Iran. Even after the US re-imposes its unilateral sanctions on Iran, no serious change is expected in the investments. Some recent visits by European companies to Iran were confidential and the companies would not like to be named. However, Swiss Casale SA and Italy's Saipem openly held talks in Iran.

Casale to Stay in Iran

Switzerland Casale and Iran's National Petrochemical Company (NPC) recently discussed grounds for joint cooperation regardless of Washington's withdrawal from JCPOA and the US's warning to international companies to leave their business in Iran.

Reza Norouzzadeh, CEO of NPC, and Casale's senior managers discussed the Swiss company's activities with regard to technical knowhow and licenses needed by Iran's petrochemical industry. Casale agreed to provide a full list of its proposed new licenses which are technically and economically suitable for Iran's petrochemical projects. Casale was also requested to push ahead with providing technical, engineering and logistic services to projects that use the Swiss firm's license and techno-engineering services.

Since Casale has been cooperative with Iranian firms under special conditions, it was requested to expand its cooperation to include technical savvy and transfer of technology.

Casale, whose head office is located in Lugano of Switzerland, has in recent years served as licensor for ammoniac production units in Iran. Despite international sanctions, it has provided technical knowhow to ammoniac production projects in Golestan, Lordegan and Zanjan provinces, not to mention its cooperation with Iran's private sector.

Italy for Broader Petchem Ties

Norouzzadeh also held talks with Saipem's senior managers about grounds for petrochemical cooperation. Optimization and improving production, cooperation in Tabriz Petchem Plant, Kermanshah Petchem Plant, Pars Petchem's styrene unit and urea units were among issues the NPC and Saipem discussed in the meeting.

Environmental projects including associated gas gathering in Assaluyeh, as well as hydrogen and nitrogen were other topics of discussion. The Italian side expressed its readiness for cooperation.

The two sides also exchanged views on refinery projects and licenses and said they would like to cooperate in new refining projects in the cities of Shiraz and Tabriz.

Saipem is an Italian oil and gas industry contractor. It was a subsidiary of Italian energy company Eni, which owned approximately 30% of Saipem's shares until 2016. Saipem has been contracted for designing and constructing several pipelines, including Blue Stream, Green stream, Nord Stream and South Stream.     

Courtesy of Iran Petroleum