8.2 Cents as Petchem Feedstock Price

8.2 Cents as Petchem Feedstock Price8.2 Cents as Petchem Feedstock Price

The price of natural gas as feedstock for petrochemical complexes will be 8.2 cents per cubic meter for the first half of the current Iranian year (started March 20).

“For the first time, the price, ranging between 8.1 and 8.3, will be calculated based on the new formula whose accuracy is high, as the pricing policy will have a direct effect on not only maximizing petrochemical profit margins but also encouraging foreign investors to embrace Iran's petrochemical sector,” Mohammad Mehdi Rahmati, Oil Ministry's deputy for planning and supervision over hydrocarbon reserves, told IRNA on Monday.

"The new price, yet to be announced, is based on parameters such as domestic natural gas consumption, natural gas price in four international hubs and the volume of the commodity's import and export in the last six months."

Pointing to a directive on the pricing of sweet natural gas fed as a raw material to Iran's petrochemical plants, the official noted that the ministry's deputy for planning is obliged to calculate the feedstock price per month and inform its subsidiaries.

The seven-article directive calculates the price of gas based on an average of domestic and international gas prices using a new formula.

"The prices do not exceed 90% of those our competitors offer in natural gas trading hubs across the world," he said.

The formula uses international gas trading hubs, including US's Henry Hub—a distribution hub on the natural gas pipeline system owned by a subsidiary of Chevron Corporation, UK's National Balancing Point—Europe’s longest-established spot-traded natural gas market, and the Netherlands' Title Transfer Facility, a virtual trading point for natural gas similar to NBP.

According to Rahmati, the new pricing method will be effective until March 2026.

Asked about petrochemical complexes' new bills on their feedstock use, Rahmati said, "As soon as the price is fixed, the new bills will be sent to the complexes at regular intervals."

  Opponents and Proponents

Although some industry managers say the pricing is still uncompetitive, putting Iran's sanctions-battered petrochemicals at a disadvantage vis–à–vis their foreign rivals, especially those in the Persian Gulf, many officials, including First Vice President Es'haq Jahangiri, believe that the price cut from 13 to 8 cents will help petrochemical units generate substantial profits.

Endorsing the new formula, Economy Minister Ali Tayyebnia and head of Management and Planning Organization and government's spokesperson, Mohammad Baqer Nobakht, believe the new price would be an improvement over the previous price of 13 cents per cubic meter.

On the other hand, Mohammad Ali Rejali, vice president of Iran's Association of Petrochemical Industry Corporation, says the new formula may cut losses for petrochemical units, but is not attractive for foreign investors.

"An 8.2-cent [per cubic meter] price for feedstock can weather the crisis, but prices should be adjusted downward even more," Rejali said.

"When oil was trading at $120 a barrel, the price of feedstock was 13 cents per cubic meter but with $30 oil, feedstock tariffs have merely reduced by 5 cents."

Iran is planning to attract $70 billion in petrochemical investments after the lifting of sanctions and boost output from $60 million tons a year at present to double and triple that amount by 2021 and 2025, respectively.

However, Rejali said that to achieve this ambitious target, a price change for feedstock alone cannot woo internationals into making investment in Iran.

"They demand a competitive business environment while total [production] costs should be taken into consideration," he said, adding that there is a long way before foreign investors embrace Iran's post-sanctions petrochemical sector.