Iran is planning to attract $70 billion in petrochemical investments.
Oil Minister Bijan Namdar Zanganeh made the announcement at the 12th Iran Petrochemical Forum (IPF 2015) on Sunday in a marquee event to introduce petrochemical projects to major international companies in Tehran.
"Plans call for raising [the value of] petrochemical products to $70 billion, considering the 2013 price levels," he said. "But it requires a steady supply of feedstock to petrochemical complexes and expansion of infrastructure for petrochemical production."
Wood Mackenzie, a global leader in commercial intelligence for energy, had predicted that Iran can raise $70 billion in foreign investment in petrochemical projects, but “only over a prolonged period that confirms it is an attractive investment opportunity”.
"Iran is fast-tracking the development of olefin and gas-to-propylene production plants," Zanganeh said, adding that the Persian Gulf country will become a propylene exporter when output reaches 3 million tons a year.
The oil minister said the production of liquefied petroleum gas will reach 12 million tons a year upon the completion of all South Pars Gas Field phases by 2017, with methanol, ethane and naphtha production capacities expected to rise to 15 million tons, 4.5 million tons and 13 million tons per annum, respectively.
"Petrochemical projects will be developed via both domestic and foreign investments," he said, urging internationals to register their company in Tehran or choose Iranian partners to facilitate operations.
Zanganeh also stressed that companies making investment in downstream petrochemical sector, particularly in GTP projects, will benefit from up to 30% discount on feedstock prices.
Prominent Iranian officials, including Foreign Minister Mohammad Javad Zarif, First Vice President Es'haq Jahangiri, Managing Director of National Petrochemical Company Abbas Sheri-Moqaddam and his deputy Mohammad Hassan Peyvandi, also addressed the representatives of 368 domestic and 97 foreign companies on the opening day of the event.
The Iranian foreign minister said the end to sanctions is a special opportunity to introduce petrochemical projects to international investors.
"The IPF will boost relations between Iranian and foreign companies and the transfer of knowhow," he said.
"The petrochemical sector was hit hard by sanctions … but Iran can become a major exporter of petrochemicals in the near future due to its advantages," Zarif added.
The Persian Gulf nation is the second biggest petrochemical producer in the region, holding 25% of total output, and should play a bigger role in the global petrochemical markets, according to the top Iranian diplomat.
He added that Tehran is "on the verge entering the post-sanctions era" and the easing of banking, financial and transportation restrictions would help ramp up petrochemical exports and attract foreign investment.
Zarif also said the country's economic stability and geostrategic position, including easy access to the international waters, and attraction of foreign finance would lower investment risks in post-sanctions Iran.
Boosting Production Capacity
The NPC chief said petrochemical production capacity will reach 70 million tons, worth an estimated $27 billion by March 19, 2016. Officials had earlier put the country’s nominal petrochemical production capacity at 60 million tons a year.
“Negotiations have been made with Asian and European delegations over the past few months … They are ready to rekindle ties once sanctions are lifted,” the NPC chief said.
Sheri-Moqaddam said the relatively inexpensive energy prices, tax exemptions in energy zones and a 75-million-people market are incentives that will woo multinationals to invest in Iran’s petrochemical projects.
Iran sits on the world’s largest oil and natural gas reserves, holding 158 billion barrels of proven oil reserves and 34 trillion cubic meters of gas reserves.
Peyvandi said the development of petrochemical sector depends on making significant investments in infrastructure, underlining Mahshahr and Asalouyeh as the driving force behind the country's petrochemical growth over the past few years.
"Petrochemical projects in the post-sanctions period will have low investment risks and high rate of return on investment," he added.
Meanwhile, in a thinly-veiled barb against OPEC kingpin Saudi Arabia, Jahangiri said Tehran is facing a “political conspiracy” to keep oil prices low.
Didier Hussin, chairman and chief executive director of IFP, a French research and training center in the fields of energy and environment, said profitability in the petrochemical sector is "cyclical" and the sector is "heading toward a low point”.
He added that Iran's plan to raise petrochemical production capacity by 180 million tons a year in 10 years is ambitious but comes with certain challenges.
Officials say nominal production capacity currently stands at 60 million tons a year, but plans call for doubling the volume by 2021 and raising the output to an ambitious 180 million tons a year by 2025. According to reports, petrochemical exports reached 16 million tons worth $10 billion last year.
"Iran should adopt different types of feedstock and technologies to reach its ambitious goal," he said.
Calling for clarifying finance and investment in Iran “as quickly as possible, he said there is a huge potential for revamp in the country's petrochemical industry and that German companies can start with small projects and move on to bigger opportunities".
Christian Bruch, member of the executive board of German oil and gas major Linde AG, said the removal of sanctions will help bolster Iran-Germany relations.
Bruch said the petrochemical sector should be "at the forefront of investment in post-sanctions Iran".
According to the official, the global petrochemical sector has undergone huge changes over the past several years, in what he described as a volatile market, but it "does not mean that German [petrochemical] companies will stop investment in Iran".
Observant and Cautious
Per K. Bakkerud, a senior official from the Danish catalysis company Haldor Topsoe who also addressed the event on Sunday, said Iran holds some of the world's biggest oil and gas reserves and it is "obviously a huge prospect for investment".
Describing IPF as an opportunity to "learn more and expand contacts" in the Iranian petrochemical sector, he said his company is awaiting the removal of sanctions to embark on more serious negotiations on supplying technology and catalysts.
On whether Haldor Topsoe would sign a contract with its Iranian counterparts in the near future, he said, "Everything depends on [the removal of] sanctions. We are under some financial restrictions … but we hope the sanctions will be lifted as soon as possible" to start cooperation.
Tobias Saumweber, deputy sales director of Uhde Inventa-Fischer, a leading German engineering company in design and construction of industrial plants for polyester and polyamide polymers, told Financial Tribune that the company could undertake projects in Iran over the next 3-4 years.
"Iran's 5-10-year-old chemical plants are in the middle of the road and may continue production for five more years, but we can jump in when the demand grows," he said.
He added that Uhde Inventa-Fischer is a "downstream sector company" and once the sanctions are removed, Iran's upstream projects will be in priority for development ahead of downstream projects.
Global oil dynamics drive the marginal production cost and price-setting mechanisms for many petrochemicals, and Tehran’s push for foreign investment in petrochemical projects comes as crude prices have nosedived from a $110-per-barrel high in mid-2014 to less than $50 a barrel in the past few months, fueling concerns and uncertainties for long-term investment in this key sector.
In addition, crude prices are only expected to go from bad to worse as OPEC members pledged in a Dec. 4 meeting to ramp up production, effectively ignoring the organization’s 30-million-barrels-per-day ceiling.
Iran says it will regain the market share it lost to rival producers such as Saudi Arabia and Iraq, and match its pre-sanctions output levels by raising production by 500,000 bpd within a week after the lifting of sanctions and by 1 million barrels within the following six months. The group pumped 31.7 million bpd in November.
Price of feedstock for petrochemical units is another point of concern for potential investors, as volatility in tariffs would deter investments in the long run. Natural gas as feedstock was officially priced at 13 cents per cubic meter for August-September 2015, which met with the opposition of domestic petrochemical complexes.
The government is yet to announce the official feedstock tariff for the second half of the current Iranian year ending March 19, 2016. To make up for the delay, officials said last week the IPF would go underway “presuming that feedstock prices are the same”.