Iran Targets Top Mideast Petchems Position Despite Sanctions
6:49 AM MDT | June 9, 2011 | By NATASHA ALPEROWICZ
Iran, seeking to exploit its huge oil and gas resources, is pressing ahead with plans to increase its share of global petrochemicals capacity. At the recent Iran Petrochemical Forum (IPF) in Tehran, the country’s flagship petrochemicals event, politicians, industry leaders and local bankers unveiled plans for the current 5th five-year plan ending in 2015. Iran, they stated, wants to be the leading petrochemicals player in the Mideast by 2025. That ambition includes overtaking Saudi Arabia, the current undisputed leader.
On paper, at least, the plans appear feasible, as Saudi Arabia has not made feedstock, particularly ethane, allocations for new chemical projects for several years. In reality, however, Iran has a difficult task ahead as political sanctions, imposed first by the U.S. and now followed by other Western states, bite deeper into the economy.
Abdolhossein Bayat, Iran’s deputy minister of petroleum and president of the National Petrochemical Co. (NPC; Tehran), claimed during the IPF that Iran is already 78% self-sufficient in “mechanical equipment, chemical catalysts and elements.” He said that the $50 billion of projects slated for the current plan will be financed largely by the National Development Fund, which has more than $50 billion of reserves.
Ethylene capacity is expected to rise to 13 million m.t./year while methanol capacity should double to 10 million m.t./year by 2015.
Industry watchers, however, say that the projects will be severely delayed. “Sanctions are definitely biting because it is more difficult to get financing from abroad,” says one industry source. Iran can get financing from China but that means that it would be too dependent on the Chinese for equipment and services, he says. He expects financing problems to delay many projects and possibly lead to cancellation. “Secondly, equipment and technology providers stopped working in Iran because of the sanctions and corporate decisions by Western suppliers and also because financial transactions have become very difficult.” He says that this is hurting the progress of investment projects already under way as well as those that have yet to begin. “It is noticeable already. Projects that used to take one year to obtain financing now take three to four years, or never get it at all.”
Another observer notes that, although U.S. sanctions have been in place for some time, non-U.S. companies with operations in the U.S. are now also obliged to follow suit, which means that many technology and equipment suppliers can no longer work in the country. Iranian companies are developing their own construction and technology expertise but that is taking a long time. “Their 2025 vision will take much longer to achieve,” he says.
A leading Japanese contractor, meanwhile, says that it is impossible to finance projects in Iran, although “we still provide technical assistance and could provide some process technology as these contracts are not so huge.” Iranian companies find it difficult to make payments in foreign currency, even if they do have the funds. Another major obstacle to doing business is in opening letters of credit (LC) for Iran. It is difficult to obtain LC from international banks. “All this will cause severe delays,” the contractor says. On top of that, it is difficult to obtain loan guarantees from international agencies.
International banks are becoming hesitant, says a Turkish trader active in Iran. He says that his existing business is unaffected but that he is unable to increase sales. In product trans-shipment from China to Iran via Turkey, for example, banks in Turkey or Dubai ask who the buyers are, what is the end use of the product, what amount is being shipped, and who is the owner of the importing company. This much stricter regime has been in place for the past three months and pressure is growing. “Under normal circumstances we would need to transfer money from the local Mellat (Tehran) bank to our accounts in other banks but we have had difficulties in transferring this money because transactions are being watched and there is pressure on Turkish banks not to deal with Iranian banks,” he says
“The U.S. is monitoring transactions between Iranian and Turkish banks and there is a sanctions list that covers products and companies. Chemicals that we deal with are not on the sanctions list, but NPC is,” the Turkish trader adds.
Large M&A transactions, under Iran’s privatization program, involving Turkish companies, are also hindered because some Turkish companies have operations in the U.S. or Europe, he says.
U.S. sanctions have been tightened since 2010 and European companies are following. Dealings between European companies and Iran have slowed markedly since late last year, the Turkish trader says. “I had an Iranian customer asking for a certain additive produced by a well known German company that the customer could not buy directly,” the Turkish trader says. “When I approached the German producer, I was told that I could source it from them, but not for Iran.”
Iran says that the massive Assaluyeh site is taking shape, better than expected. The Kavyan crackers, at the bottom of Iran’s West Ethylene Pipeline, which will supply several polymer plants along its route, is closer to mechanical completion, that industry watchers expected. The two-line complex will have combined capacity for 2 million m.t./year of ethylene. The first 1 million m.t./year line is due onstream this year, followed by the second plant in 2012.
Also, Arya Sasol, another ethylene complex completed a few years ago, is running better than watchers expected while Jam and the recently completed Morvarid, are more constrained, in part due to feedstock availability.
Separately, Iran’s deputy oil minister for planning Mohsen Khojasteh-Mehr said recently that sanctions imposed against Iran have “been turned into opportunities.” Iran’s oil sector has gained 60% self-sufficiency in the production of “commodities and facilities.” Khojasteh-Mehr also said that $150 billion is being invested in the oil industry in the current 5th five-year plan. The plan calls for oil production capacity to rise to 4.7 million bbl/day from the current 4 million, while gas capacity would rise to 1,470 million cu meters/day from 600 million. Iran is the second largest oil producer in OPEC with 11% of world oil reserves, and has the world second largest gas reserves after Russia, with 16% of the world total.