$70b in Petrochem Investments Viable

$70b in Petrochem Investments Viable$70b in Petrochem Investments Viable

Wood Mackenzie, a global leader in commercial intelligence for energy, predicts Iran can attract $70 billion for petrochemical projects under some conditions.

Tehran will host Iran Petrochemical Forum on Dec. 13-14, bringing together 137 foreign experts. The two-day forum is aimed at introducing investment opportunities in Iran’s petrochemical industry, Trend reported.

Iran says it is planning to attract $70 billion in investment to develop its petrochemical industry by 2020. Currently, the country has the capacity to produce 60 million tons of petrochemicals per annum, but plans have been made to double and triple this volume by 2020 and 2025 respectively. Afsar Hussain, an expert in Wood Mackenzie's EMEARC Refining and Chemicals research team specializing in olefins and polyolefins, said Iran has ambitious plans to expand its petrochemical industry, including a large number of projects in planning and construction phases.

"We believe Iran can attract $70billion worth of investments, but only over a prolonged period that confirms it is an attractive investment opportunity. By comparison, the US shale gas revolution attracted over 200 projects worth over $130 billion within a decade of its emergence," Hussain said.

European investors are eying Iran but still acting with caution as the imposed sanctions removal is yet to occur. Nonetheless, there has been news of Chinese and Indian investors looking at a number of these projects. Hussain said Iran is clearly another viable location in terms of low cost gas-based feedstock in the world other than the Middle East players which, except for Qatar, have limited supplies of low-cost ethane available, as well as the US with their shale gas-based developments.

Iranian petrochemical plants use 37 million cubic meters of natural gas per day, while Iran managed to deliver only 2.8 million tons of ethane to plants last year. The Persian Gulf country plans to increase this volume to 4.2 million tons by the end of the current Iranian year (March 19, 2016)

  Boosting Exports

Asked about the prospects of Iran's petrochemical exports, the Wood Mackenzie expert said Iran is taking steps to boost exports but their first priority is to increase production.

"As a result of sanctions, assets have lower than Middle East average production rates because of limited access to international technology/catalysts, difficulty in delivering feedstock and trade embargos limiting potential markets. We expect Iran to increase its production slowly. Hence, it will provide a boost to exports, but the process will be slow at first and is heavily reliant on sanctions removal," he said.

Iran exported about $15 billion worth of petrochemicals in 2011, before western sanctions were imposed. It has revived the export volume since 2014 due to elimination of petrochemical-related sanctions in November 2013. According to a report by Iran Customs Administration last week, Iran exported $10 billion worth of petrochemicals during the first eight months of the current year, unchanged in value, but increased almost 40% in volume.

Given the fall in the value of petrochemical products, Hussain said, "Petrochemical prices generally plummet due to lower oil prices. However, we didn't witness the sharp falls in petrochemical prices the same way as oil, as demand for petrochemicals remained strong and supply outages supported prices."

Oil prices (monthly averages) have dropped by over 50% from mid 2014 highs, but not all of this has been reflected in the price of naphtha, with the price of polyethylene in Europe only declining by around 20% in the same period.

With lower petrochemical prices, stimulation in demand and rise in oil prices are expected to start their recovery towards the latter part of 2016, reaching $85 per barrel by the end of the decade—all of which will support petrochemical prices.