Selling natural gas as feedstock to methanol companies at unreasonably high prices ($1.7 per cubic meter) has minimized their profit margin and pushed them to the brink of bankruptcy, the head of Bushehr Petrochemical Company in Pars Special Economic Energy Zone said.
“The Persian Gulf FOB price for each ton of methanol is $240 and at current feedstock tariffs, the cost of production outweighs sale prices due to which we are losing our market share,” Pirouz Mousavi was also quoted as saying by IRNA.
Giving a breakdown on production cost for each ton of methanol, he said feedstock prices account for a massive 65% ($150) of the total expenditure.
“The rest of the cost pertains to oxygen ($30), steam ($10), power ($60) and maintenance ($50),” he added.
Mousavi noted that Iran holds 33 trillion cubic meters of the world’s natural gas resources and it is regrettable that the domestic petrochemical sector has to buy feedstock as expensively as European companies.
“As long as production costs are high, we cannot compete with our rivals in the region and we will be forced to soon shutter our business,” he said.
Methanol companies have injected close to $3.5 billion to Nima (the integrated forex deal system) since March, 2022, but not lowering feedstock prices will cause the sector to sustain losses amounting to $600 million per year.
Iran’s annual methanol output stands at 13 million tons.
Funding Projects
According to Ahmad Mahdavi-Abhari, secretary-general of the Association of Petrochemical Employers Unions, high 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 those of Iran.
“The government has encouraged private sector investors 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.
“As long as the National Petrochemical Company does not adopt a coherent and long-term policy regarding feedstock, 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 firms that import natural gas. Why should we be paying the same price, given the fact that Iran is exporting the commodity?”
Comparing gas prices for 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.
Floating Pricing Mechanism
Adopting 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 can help firms adjust the prices of their products based on a set percentage of any changes in the feedstock prices.”
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.
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 is the second largest gas holder in the globe. Nonetheless, most petrochem firms and gas processing facilities, including the Persian Gulf Bidboland Gas Refinery in southern 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.
Highlighting the importance of attracting investment to collect associated petroleum gases, 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.
