Due to the rich oil and gas reserves, Iran petrochemical industry is considered as one of the forerunner sector and has grown dramatically in the past two decades, yet it has not reached its real status. The industry plays a leading role in non-oil export, economic prosperity, sustainable development, technology localization, downstream industries, employment and so on.
Petrochemical industry along with the completion of value added chain in case of optimal use of capacities, can increase GDP, employment, Iran’s position as a powerful exporting country and create a permanent consumption market for upstream large industries. Given the world limited hydrocarbon reserves and the formulation of macro policies to maximize the use of fossil fuels and create value added, the petrochemical industry is now becoming one of the most strategic industries in the world.
With 33 TCM of conventional natural gas and 158 bn barrels of oil-extracted reserves, Iran has a great advantage in developing the petrochemicals, oil and gas value to prevent crude retailing in order to gain higher value added via petrochemical products export. Iran’s share of the 3,700 bn USD turnover of petrochemicals in the world is less than 1%. With largest gas reserves, Iran has the main sources of feed for petrochemical complexes.
Iran petrochemical industry geographical distribution
• Ethylene West Pipeline
• Ethylene Central Pipeline
• Manufacturing complexes / projects underway
Future regions of petrochemicals
• Tose-e Mahshahr
• Tose-e Assaluyeh
• Nominal capacity production of 82% in the year ended March 2017
• Increase 9% in petrochemical production in the year ended March 2017
• Growth about %16 domestic sales in the year ended March 2017
• Iran’s 2.54% contribution of world production polymeric and chemical products capacity in the year ended March 2017
• Ethylene products have been increased / pipelines have doubled.
• Memorandum of understanding and agreements signed by the National Iranian Petrochemical Company with foreign companies after JCPOA
Nominal capacity & production
The total production of petrochemical complexes amounted to 50.6 mn tons, equivalent to 82% of nominal capacity in the year ended March 2017. Despite production increase in petrochemical sector, the growth was not significant and petrochemicals production increased by 9% in the year ended March 2017, compared to the previous year. With numerous development projects, Iran’s petrochemical industry has been operating at around 62 mn tons in the year ended March 2017 and has grown by more than 6% year-on-year. Iran’s contribution of the capacity polymeric and chemical products reached 2.54% in the year ended March 2017 and after Saudi Arabia produces more than 50.6 mn tons of petrochemicals, ranked 2nd in the Middle East. In total, with the plans of National Iranian Petrochemical Company, Iran’s petrochemical production is expected to reach 56 to 58 mn tons in the year ending March 2018.
Despite the record of more than 50 mn tons of petrochemical production, feed supplies reduction was responsible for half of the decline in Iran’s petrochemical complexes production in the year ended March 2017. In addition to the feed reduction in petrochemicals production 22.4% was due to repairs errors, 14.3 % process errors, 2.8% lack of timely utilities, 2.5% lack of spare parts, chemicals and catalyst in the previous year.
Iran’s petrochemical industry in the world and the Middle East
According to the latest report by National Petrochemical Company, the share of Iran production capacity of major petrochemicals in the Middle East reached about 24% in the year ended March 2017.
126 mn tons per year of petrochemical products and 52 bn USD finished products were predicted in the horizon of the 20-year plan by the year 2025, accounting for Iran’s share of the Middle East from 24 % to 34% and the world from 2.2 % to 3.6%. With the increase in petrochemical capacity, Iran is gaining this capability.
Petrochemicals require basic materials. These products are directly derived from hydrocarbons in crude oil or in natural gas. Most active petrochemical units use natural gas as their feedstock.
A total production of 32% of the year ended March 2017, by petrochemical complexes has been sold on domestic market, with 16.2 mn tons of domestic petrochemicals sales, amounting to 8.8 mn tons of intermodal (intercomplex) sales.
Petrochemical products as one of Iran economical most important export-oriented sectors requires appropriate grounds in financial and production structure. By lifting the sanctions, Iran’s petrochemical export did not increase as expected. Major petrochemicals export growth was 2% in value and 10% in weight, the year ended March 2017. Iran’s total petrochemical product export from April to July 2017 amounted to 7 mn tons value more than 3,496 mn USD. Iran’s petrochemical industry has achieved great success in recent years in producing conventional and basic products. The petrochemical industry accounted for 33% in volume and 37.4% in value of non-oil export in the year ended March 2017.
The main customer of Iran petrochemical products are China and India. The major markets for petrochemicals include India, China, the UAE, Azerbaijan, Turkey, Iraq and in some cases countries such as Egypt, Nigeria and Senegal. Also, Italy, Spain, East Asia, South Asia and the European Union were added to Iran’s markets in 2017.
Trend of petrochemical products import has been decreasing to 1.12 bn USD in the year ended March 2017.
Sanctions & Post-Sanctions
The JCPOA reopened borders and created new export destinations for Iran petrochemical industry thus, Iran’s export had progressive growth and in a short run, generated promising records for petrochemical industry. Although before, Iranian petrochemical products were exported in Asian destinations; However, with JCPOA everything changed and Asian monopoly was removed for Iranian products and also, other borders were opened for Iran. The gates are open to enter Iranian products, from Asia to Africa and Western and Eastern Europe and from Germany, Britain and Hungary to other countries. In transportation, conditions for petrochemical products export are facilitated. If the petrochemical complexes used to tackle export obstacles, now they can improve their production by eliminating this problem.
Production value of the plastic products of Iran is about 12 bn USD, of which 1 bn USD is exported to other countries and the rest is consumed domestically. If for 1 million tons, 100,000 jobs are considered, including direct and indirect employment, headquarters and entities created employment through plastic products and about 700,000 jobs are made through plastic products in various branches such as automobile parts, household appliances, pipes and fittings, disposable utensils, nylon and so on.
The raw materials of plastics produced in Iran include polyethylene (PE), polypropylene (pp), polystyrene, polyvinyl chloride (PVC). The materials are produced in Iran at the Arak Petrochemical Complex, Tabriz, Bandar Imam, Amir Kabir port city. According to statistics, the production of plastics is estimated at more than 247,000 tons per year, which is equivalent to 680 tons per day. It consumes 2.1 mn tons of plastic annually and import into the waste cycle.
Export amount of plastic products was 949 mn USD and weighing 355,000 tons, have been 3.5% in value and 7.3% in weight higher than the same in the year ended March 2016.
- The second largest producer of OPEC oil, which accounts for around 10% of the world’s oil reserves, providing easy and inexpensive access to large amounts of petrochemical
- Huge local market
- Skilled human resource (Labor force)
- The rules for the foreign investment sponsor (the National Petrochemical Company Support)
- As one of the last producers starting petrochemical operations, Iran is at least a decade behind its competitors (e.g. Saudi Arabia. Qatar) in the region.
- The lack of expertise in Iranian National Petrochemical Company to successfully establish and operate new
- Difficult access to overseas technology.
- Establishing South Pars gas field and increasing consumption in other fields will increase access to basic
- Special economic petrochemicals zones development
- Outstanding geographic location
- Export and import incentives in special economic zones, good relations with neighboring countries as key
advantages for Iranian petrochemical industry
- Establishment of new free zones in Arak and development of Jolfa in mega-port level will increase the possibility of trade with neighboring countries, such as Azerbaijan and Armenia.
- Lack of clear vision for gas feed prices
- Reducing global oil prices and consequently, lowering prices for petrochemicals
- No growth of downstream industries in petrochemicals Inadequate feed stock
- Domestic control of prices
- Saturated regional markets
- Restricted access to new technology
- Increase number of domestic competitors
- Buyers bargaining power
- Feed risk (raw material)
- Given that 70% to 90% of the product price is raw material, changes and fluctuations have significant impact on the cost
- Feed supply constraints make the petrochemical units work at around 82% of capacity
- Risk of fluctuating product prices
- Iran is in needs of foreign companies’ technology
- National Petrochemical Company of Iran (NPCI) Support of petrochemical development
- Having the world’s largest hydrocarbon reserves and feed
- Feed prices confirmation based on approved formula
- Discounts for feedstock up to 30% for constructing petrochemical projects in less developed areas and completing downstream products chain
- Long-term tax Exemption in free zones and less developed areas since the production
- Developed infrastructure (airports, railways, ports, piers, etc.) in petrochemical regions
- Access to international free waters (ease of export, reduced shipping costs)
- Growing domestic markets
- Access to engineering companies, domestic suppliers and equipment manufacturers
- Variety of Iranian Petrochemical Chain
- Access to export and import facilities
- Oil and gas fields development as potential opportunities for attracting foreign investment
- The competitive price of gas as one of the factors to encourage investors to participate (FDI)
Development projects & plans
At present, 58 projects are being planned and implemented in the petrochemical industry, with their completion, petrochemical production is expected to reach 120 mn tons. Ongoing studies to create new “petrochemical special economic zones”, express sustainable development in less developed regions.
- GTP (Gas to Propylene)
- GTPP (Gas to Polypropylene)
- Ethylene Oxide
- Ethylene Copolymer & Vinyl Acetate
- Poly Methyl Methacrylate (PMMA)
- Fire Resistant Expandable Poly Styrene (EPS, XPS)
- Vinyl Acetate
- Butyl Rubber
- Ethylene Propylene Diene Monomer (EPDM)
- SBS polymer
- SBR (Styrene Butadiene Rubber)
- Poly Vinyl Alcohol
- Acrylic Monomers
- Aromatic C9 Petroleum Resins
- Aliphatic C5 Petroleum Resins
Laws & Regulations
All manufacturers are required to sell all their petrochemical products domestically to the relevant provisions in the mercantile exchange except for the following:
A. Inter-complex petrochemical products transmitted through the pipeline between two petrochemical complexes.
B. Specific petrochemicals ordered by one or more consumers within a limited time.
C. Petrochemical products that have had only one buyer in the previous year.
D. Petrochemical products that are subject to subsidy by the government and priced or shared by competent legal authority.
Petrochemical industry in Capital Market
In the classifications of the Stock Exchange, there is no separate group known as Petrochemicals; so, petrochemical companies are categorized as subsets of chemical product group. Chemical products group include other companies too, such as dye and detergent companies excluding petrochemical companies. The companies in chemical products group, with a market value of 21,059 mn USD and market share of 20.4% are the largest active industry in Iran capital market. At present, the average P/E ratio of active petrochemical companies in stock market is 6.19.