Planet-9 Porsche Forum banner

1 - 2 of 2 Posts

·
Registered
Joined
·
23,161 Posts
Discussion Starter #1
With potential relief in sight from economic sanctions, Iran’s petrochemical industry may provide valuable investment opportunities—for those who can tolerate relatively high levels of risk.
German Economy Minister Sigmar Gabriel’s mid-July visit to Iran to meet with Iranian leaders signified the potential bonanza awaiting foreign investors once sanctions are lifted. His visit came days after the landmark nuclear deal to restrict Iran from developing nuclear weapons was reached with China, France, Germany, Russia, the United Kingdom, and the United States.
Accompanying Gabriel was a select group of representatives from businesses, including high-ranking officials from global chemical producer BASF and Linde, a multinational industrial gases company. These firms understand that a rekindling of direct foreign investment in Iran’s already vast energy and petrochemical sector could deliver large returns for nimble investors—albeit, those that can stomach substantial political and economic risk.
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 uncertain environments and managing significant risk. Yet the reward must significantly outweigh the risk, a calculation that investors will be assessing carefully and deliberately in the coming months.
According to IHS, Iran holds the world's fourth-largest proven oil reserves and the second-largest conventional natural gas reserves. Considering the increasingly limited availability of chemical feedstock in countries such as Saudi Arabia, Kuwait, and Oman, Iran’s bounty is significant. However, development of the Iranian energy sector has been impeded by international sanctions that stifled the influx of essential foreign investment and technology.
From 2012 to mid-2013, Iran's crude oil output dropped from 3.0 million to 2.7 million barrels per day. Progression on new gas development awards—especially the massive South Pars field—has slowed since 2007. Domestic supply projects are also suffering large delays due to Iran's struggle to secure technology and expertise. Lifting sanctions on the industry and on Iranian finances will not only fuel foreign investment but will also put the country on a fast track to growth in the petrochemicals market. How should investors respond to this opportunity?
Calculating Iran’s investment advantages
Iran’s success in the global energy sector has long been a matter of market potential versus operational realities. In the early 2000s, Iran embarked on an ambitious petrochemical expansion program based on the country’s abundance of natural gas. The original plan was to expand production capacity from 9 million metric tons (MMT) in 2001 to 100 MMT by 2015. As a result of tightening restrictions on the flow of capital and goods and the limited access to technology, parts, and materials, this lofty goal was missed by a long shot. Reliable capacity and production data from Iran is difficult to ascertain, but IHS data indicates that current capacity is just less than 60 MMT. Iran’s current plans are to double petrochemical capacity within the next five years. However, this ambitious target should be taken with a grain of salt as delays are inevitable.
Despite its difficulties, Iran does offer several important feedstock-related advantages to potential investors. In addition to Iran’s vast reserves of oil and natural gas, much of the country’s gas is rich in ethane. The price of ethane gas in Iran is fixed at a low level by government mandate. As a result, ethane-based ethylene production costs in Iran are comparable to those in Saudi Arabia or North America, which are among the lowest in the world.
In Iran, methanol producers also enjoy advantageous production costs. Higher oil prices forecast for 2019 will further enhance Iran’s position on the curve. Besides these feedstock cost advantages, Iran offers other positive characteristics, including a favorable geographical location at the crossroads between Europe and Asia, adjacency to India, and an already highly developed infrastructure.

Weighing sanctions and other investment concerns
Investors must also consider several downsides. The most important of these are the high degree of political risk, legal uncertainties, and a troublesome collection of administrative and bureaucratic obstacles. Many of these disadvantages are directly related to the economic sanctions.
Before 2013, the United States had not directly targeted the Iranian petrochemical industry for sanctions. In the years following the 2006 resolution by the United Nations Security Council, which implemented sanctions on energy exports, Iranian oil sales steeply declined. In response, Iran ramped up production of petrochemicals. Today Iran produces a wide range of petrochemicals, including roughly 100 products ranging from acetic acid to mixed xylenes. The vast majority of these chemicals serve Iran’s comparatively advanced economy and large population of close to 80 million. However, a few products—such as ethylene, polyethylene, methanol, and to a lesser extent, mono ethylene glycol (MEG) —are produced in large volumes for export markets.
Recognizing that petrochemicals were becoming an increasingly important source of Iran’s revenue stream, the United States identified several petrochemical companies, all controlled by the Iranian government, and subjected them to sanctions. Before this time Iran was a major supplier of petrochemicals to Europe, but trade dwindled rapidly after 2012. Nevertheless, Iran’s total petrochemical export volumes did not suffer significantly as a direct result of the sanctions. When business with European countries virtually disappeared, exports were simply redirected to Asian, African, and some South American countries, principally China and India.
Limited impact of sanctions on Iranian exports
However, sanctions created a far more negative impact on Iran’s oil, gas, and petrochemical feedstock and export infrastructure. An inability to maintain and invest sufficiently in this infrastructure, combined with periodic shortages in the ethane feedstock, led to chronically low capacity utilization rates.

Although the Iranian petrochemical industry is quite diverse, it focuses primarily on exploiting the country’s vast, ethane-rich natural gas resources. The country converts methane from natural gas to methanol and urea. But Iran also “cracks” ethane and other natural gas liquids. The country uses plants called steam crackers to heat and break hydrocarbons in ethane into lighter fuels such as ethylene, which is then polymerized to polyethylene or processed to mono ethylene glycol. Yet Iran’s progress in steam cracker investment has been slow since the startup of the Kavyan 1 unit in late 2012. Progress on the Kavyan 2 unit has been delayed by sanctions that limit gas shipments.
Sanctions have also restricted development of the gas processing capabilities necessary to extract the ethane that feeds the steam cracker. Even the existing crackers at Bandar Assaluyeh are short of ethane feedstock. For this reason, adding further steam cracker capacity will be of little use until natural gas and feedstock availability increases.
Even so, Iran continues to pursue new cracker projects. The Ilam cracker project is under construction, although it is not expected to be available until 2018. Startup will be well behind the already operating polyethylene unit at the site, which is being fed by the West Ethylene Pipeline. In addition, there is an ethane cracker under construction at Gachsaran, which will also be connected to the West Ethylene Pipeline and is expected to supply a number of derivative assets inland from the cracker.

Cracker construction may well accelerate if sanctions are lifted. Developments downstream of the crackers, however, have already been seen, with several polymer units already operational on the West Ethylene Pipeline. The resulting increase in polymer capacity will probably reduce the volume of any future ethylene exports.
Anticipating outcomes in Iran
The lifting of sanctions will undoubtedly provide both a short- and long-term boost to the Iranian petrochemical industry. In the next 12 to 24 months, Iran will rapidly start to take advantage of easier access to foreign capital markets, trade financing, oil markets, and technology providers.
IHS projects that 100,000 to 200,000 additional barrels per day of crude oil could hit the market in the first few months after sanctions are removed. Given the current market oversupply, this volume of oil could prove difficult to absorb. A total of 500,000 to 600,000 barrels per day of additional crude oil could hit the market within 12 to 18 months of sanctions relief.
Driven by necessity, Iran has become quite self-sufficient in its ability to develop petrochemical technology and engineering processes. Yet the lifting of sanctions will nevertheless be a real game-changer in the mid to long term. For example, the pace of development will accelerate. Increased oil production of up to 1 million barrels per day will create more ethane-rich gas to be processed. Gas processing capacities will expand. Access to state-of-the-art petrochemical technology will support a broader portfolio of existing products, such as polyethylene. It will also facilitate the use of alternative feedstock routes, such as propane dehydrogenation, methanol-to-olefins (MTO), and gas-to-olefins (GTO). It will also further expand ethylene oxide/MEG production.
Exporting higher volumes of crude oil will lead to the production of more ethane-rich associated gas. This shift will enable Iran to expand its petrochemical industry, assuming the country develops a productive focus on the petrochemical feedstock infrastructure. We project that within 12 to 24 months, Iran will be able to run its existing production units, primarily ethylene and polyethylene, at higher utilization rates. IHS Chemical forecasts production of an additional 1 MMT of ethylene/polyethylene. Since Iran will have easier access to shipping, this product will likely be directed to export markets, primarily Southeast Asia.
Iran’s ability to target additional markets should improve export netbacks—the net profit after royalties, production costs, and transportation expenses. Some ethylene and polyethylene will probably make its way to Europe, depending on arbitrage opportunities. Trading companies will be eager to access these volumes. However, the impact on global operating rates for ethylene plants is expected to be small, less than 1% 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 2017-18, which would exert some downward pressure on prices.
Longer term—within the next 10 years—IHS expects Iran to build one or two more world-scale steam cracker facilities in addition to existing projects. In the next 10 to 20 years, the market could easily expect another two or three world-class ethane or mixed-feed steam crackers in Iran.
The impact of sanctions relief on methanol, Iran’s other big export commodity, is also significant. Iran is already a major methanol producer with 5 MMT of capacity, which represents almost 5% of global methanol capacity. In the long term, permanent sanction relief will accelerate Iran’s plans for methanol capacity expansion. IHS is aware of 14 proposed methanol projects totaling more than 20 MMT of new Iranian capacity. IHS anticipates some are unrealistic, with limited or no progress likely.

Nevertheless, IHS Chemical believes that about 10 MMT of new capacity could be added in Iran by 2025. Some of this new capacity is likely to arrive on global markets within the next five years. For example, the Kaveh methanol plant in the city of Bandar Dayyer—which is reportedly 70% complete—is designed to produce 2 MMT per year of methanol. The plant is expected to be commissioned in two phases, with initial startup targeted for 2016. Because of its cost advantages, Iran will have no problem exporting this additional methanol, primarily to China for MTO or fuels use. Other impacts include a 1 to 2 percentage-point reduction in global operating rates over currently projected 2017-19 rates. Investors should also anticipate additional plant closures in high-cost production regions.
Meeting opportunity with action
Lifting the current economic sanctions and reintegrating Iran into the global business community will significantly revitalize the country's petrochemical business, allowing Iran to get back on a fast track to growth. Foreign trade partners and investors will benefit from a multitude of opportunities in Iran, as it reopens the doors for business.
In the mid to long term, Iran is expected to play an important role in supplying global markets with petrochemical products. As a consequence, the Iranian people are likely to benefit from increased industrial development and higher standards of living.
Michael D. Smith is vice president, Business Development EMEA, IHS Chemical




More...
 

·
Registered
Joined
·
1 Posts
Investing in the shares of petrochemical companies will be one of the good solutions as they acquire large shares in the market today. There are many leading <a href="https://thingsinindia.in/petrochemical-companies/>petrochemical industries in India</a> which are worth investing for it.
 
1 - 2 of 2 Posts
Top