Iran's gigantic petrochemical industry could become the next Bonanza for foreign investors - once the UN sanctions are lifted. Yet, there are still significant risks to stomach, analysts say. Discover, how to profit from this development and what uncertainties to tackle when putting your company's money on the Persian Gulf country...
A rekindling of direct foreign investment in Iran’s huge petrochemical sector -- if and when sanctions are lifted -- could reap large rewards for nimble investors with the significant intestinal fortitude necessary to assume relatively high levels of economic and political risks, says a new analysis from IHS, a leading global market expertise provider.
According to the IHS Chemical analysis, Iran’s many risks include an extremely high degree of political risk, legal uncertainty, and bothersome levels of administrative and bureaucratic obstacles. Yet despite these factors, Iran has a number of important advantages to potential petrochemical investors, including low-cost feedstocks and access to major markets: Iran has the world’s fourth-largest supply of proven oil reserves and the second-largest supply of conventional natural gas reserves, much of which is rich in ethane, a major petrochemical feedstock. This is significant given that chemical feedstock availability in other countries such as Saudi Arabia, Kuwait and Oman, has become more limited.
“If you are a global petrochemical producer looking at Iran for its investment and growth opportunity, and you can forget for a minute about the major business and political risks involved, it presents an attractive opportunity,” said Michael Smith, vice president of Europe, Middle East and Africa at IHS Chemical. “Major chemical players are champing at the bit to explore the potential that Iran offers, but they will not be doing so haphazardly. These companies are used to operating in risky environments and managing significant risk – it’s the nature of the business, but the reward has to significantly outweigh the risk, which is something they will be assessing very carefully and deliberately.”
100 Petrochemical products Available
IHS estimates that Iran’s current petrochemical production capacity is just below 60 million metric tons (MMT). The country produces a wide range of petrochemicals, roughly 100 different products, ranging from acetic acid to mixed xylenes. While the vast majority of these products are produced in order to serve Iran’s comparatively advanced economy and a large population of nearly 80 million, a few products are aimed at export markets. These are primarily ethylene, polyethylene (PE), methanol, and mono-ethylene glycol (MEG).
The Iranian petrochemical industry, while quite diverse, is primarily focused on exploiting the country’s vast resources of ethane-rich natural gas. On the one hand, the country converts methane from natural gas to methanol and urea. But Iran also cracks ethane and other natural gas liquids to produce ethylene, which is then polymerized to PE or processed to MEG.
Aside from the lure of oil reserves and abundant ethane feedstocks, the price of ethane gas in Iran is kept low by government mandate. In general, ethylene production costs in Iran, based on ethane, are comparable to those in Saudi Arabia or North America, which are among the lowest in the world. Both ethylene and polyethylene are key products for Iranian export, and lifting of sanctions would enable the Iranians to expand production and export an additional 1 MMT of ethylene/polyethylene within 12 months to two years, according to analyst estimates.
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