Prices of natural and liquefied gas feedstock delivered to the petrochemical sector will be calculated on the basis of rates in the Integrated Forex Deal System, locally known as Nima, a platform where exporters sell currency earnings at prices lower than open market rates, the secretary-general of the Association of Petrochemical Employers Unions said.
“Because petrochem firms are allowed to sell their commodities in Iran Mercantile Exchange at the Nima rates, where $1 is sold for 285,000 rials, they can buy feedstock at the same price, which is almost half the price in the open market,” IRNA also quoted Ahmad Mahdavi-Abhari as saying.
Petrochem goods account for 40% of Iran’s non-oil exports and formulating a pricing mechanism for feedstock is of great importance, he added.
The official noted that the petrochem industry comprises 60% of Iran's capital market and any changes in feedstock prices could give rise to wild fluctuations in the market.
IME is a commodities exchange in Tehran founded in 2006 to sell farm, industrial and petrochemical products in the spot and futures markets.
According to Mahdavi-Abhari, as long as the National Petrochemical Company does not adopt a coherent and long-term policy regarding feedstock prices, efforts to attract investment (either foreign or domestic) will be in vain.
Criticizing the unreasonably high prices of domestic natural gas as petrochem feedstock, the official said, “There prices are as expensive as those of European importers of natural gas. Why should we be paying the same price, given the fact that Iran is exporting the commodity?”
Comparing gas prices for petrochemical units, cement factories and power plants, Mahdavi-Abhari said 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.
Floating Pricing Mechanism
Providing a floating pricing mechanism for feedstock delivered to the petrochemical sector is necessary to help sustain production and guarantee long-term profit, Mehdi Mohammadi, the head of Masjed Soleyman Petrochemical Company in the southern Khuzestan Province, said.
Using a floating pricing system could help firms adjust the prices of their products based on a set percentage of any changes in the feedstock prices, he added.
Mohammadi explained that as 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 inflict losses.
The official noted that the implementation of a floating pricing system could 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 compelled investors to stop their business in Iran and instead fund petrochem projects in Qatar where feedstock tariffs are half as much as Iran’s.
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 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. However, 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 said.
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.
Khalili said 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.
