Adopting a floating pricing mechanism for feedstock delivered to the petrochemical sector is necessary to help sustain production and guarantee long-term profit, the head of Masjed Soleyman Petrochemical Company in the southern Khuzestan Province said.
“Using a floating pricing system can help firms adjust the prices of their products based on a set percentage of any changes in the feedstock prices,” Mehdi Mohammadi was also quoted as saying by ILNA.
Because the tariffs of petrochemical goods experience wild fluctuations, supplying the plants with feedstock at a fixed price does not make economic sense and is likely to incur losses, he added.
The official noted that the implementation of a floating pricing system can help companies increase their profit margin, but the sale of natural gas as feedstock to petrochemical companies at exorbitant prices will push most of them over the edge.
Costly feedstock prices have encouraged investors to stop their business in Iran and instead fund petrochem projects in Qatar where feedstock tariffs are half as much as Iran’s.
According to Mohammadi, efforts to attract investment (either foreign or domestic) will be in vain unless the National Petrochemical Company does not adopt a coherent and long-term policy regarding feedstock.
Masjed Soleyman Petrochemical Company’s main products are ammonium and urea for the domestic market and export.
The plant gets 861 million cubic meters of natural gas as feedstock to produce 660,000 tons of ammonium and 1 million tons of urea per annum.
According to Ahmad Mahdavi-Abhari, secretary-general of the Association of Petrochemical Employers Unions, Iranian petrochem plants have to buy natural gas for 20 cents per cubic meters, which increases day by day, whereas the same volume of gas in Qatar costs less than 10 cents that will not change for at least 25 years.
Fully Operational
The government has encouraged the private sector to invest in urea and methanol projects over the last two decades, but now that they are fully operational, they either lack feedstock or have to buy it at very high prices, he said.
Criticizing the unreasonably high prices of domestic natural gas as petrochem feedstock, the official said, “These prices are as expensive as those of European firms that import natural gas. Why should we be paying the same price, given the fact that Iran is exporting the commodity?”
Comparing the prices of gas supplied to petrochem units, cement factories and power plants, Mahdavi-Abhari noted that petrochemical firms have to purchase each cubic meters of gas for 20 cents, while the cement plant pays 1.3 cents for the same volume and power plants get the feedstock for free.
The 55 petrochemical companies in Iran use 35 million tons of natural and liquefied gas as feedstock annually to produce 31 million tons of products, he added.
According to Sajjad Khalili, deputy oil minister for planning and supervision of hydrocarbon resources, refineries and petrochemical plants across Iran are operating at half their capacity due to the lack of feedstock.
Iran holds 33 trillion cubic meters of the world’s natural gas resources.
Regretfully, most petrochem firms and gas processing facilities, including the Persian Gulf Bidboland Gas Refinery in Khuzestan Province, are facing problems in completing the value chain of their products because there is no feedstock,” he added.
About 40 million cubic meters per day are being flared in Iran mainly from the oilfields of Khuzestan Province, as the National Iranian Oil Company needs massive investments to collect associated petroleum gas.
“The biggest money-making industry in the country has long been suffering from lack of feedstock, while 15 billion cubic meters of gas are flared annually,” he said.
Attracting Investment
Highlighting the importance of attracting investment to collect APG, Khalili noted that as long as the feedstock issue is not tackled efficiently, the value-added chain in petrochemical and gas industries cannot be completed, nor can the key sectors be expanded.
To help raise annual feedstock supply by 14 million tons, seven projects costing $8.5 billion came on stream in 2021, but a lot more needs to be done to supply the petrochem sector with as much feedstock as it requires.
The Parsian Sepehr Refinery, with a plant each in Fars and Bushehr provinces, and three natural gas liquid projects, namely Dehloran Gas Refinery in Ilam Province, Kharg NGL Plant on Kharg Island off the Persian Gulf and the NGL 3200 project in Khuzestan, were completed last year.
NGL, or natural gas liquids, are components of natural gas that are separated in the form of liquids. Natural gas liquids are valuable as separate products. Ethane, propane, butane, isobutane and pentane are all NGLs used for a variety of purposes like inputs for petrochemical plants, burned for household heating and cooking, and blended into vehicle fuel.
According to NPC, NGL 3100, a gas venture to collect and process associated petroleum gas from the oilfields of Ilam and Dezful, is expected to receive 6 million cubic meters of gas per day from Dehloran, Paydar, West Paydar and Cheshmeh oilfields (all in Ilam Province).
