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Analysis: Iran's downstream revival

on Oct 23, 2016

Erika Masako Welch is business development director at consulting firm Solidiance.
Erika Masako Welch is business development director at consulting firm Solidiance.

By Erika Masako Welch

Before economic sanctions Iran was a major factor in the world’s petrochemical market.The Islamic Republic developed its domestic industry over 50 years ago in 1963, when a fertilizer plant was erected in Shiraz. One year later, the National Petrochemical Company (NPC) was established to spearhead the development and growth of the industry nationwide.

In 1989, the NPC drew up a 25-year development plan which mapped out the development of new polyolefin manufacturing complexes, forecasted budgets to expand or upgrade manufacturing infrastructure, and outlined policies to attract foreign investment, including allowing cheap access to feedstock and exercising tax concessions.

NPC also developed two special economic zones to attract local and foreign investment for petrochemicals: Petrochemical Special Economic Zone (PETZONE) in Bandar Imam and Pars Special Economic/Energy Zone (PSEEZ) in Asaluyeh. PSEEZ is the development zone of South Pars, the largest gas field in the world. PETZONE and PSEEZ account for 42% and 33% of national polyolefin production, respectively, while 25% of production happens outside of these special economic zones. There are approximately 20 polyolefin plants across Iran, and the country produced over 6,000 kt of ethylene and 900 kt of propylene in 2015.

In the early 2000s, Iran embarked on an ambitious petrochemical expansion plan based on the country’s abundance of natural gas. The original plan was to expand petrochemical production capacity from 9mn MT in 2001 to 100mn MT by 2015. However, as a result of additional sanctions and tightening restrictions on the flow of capital and goods, limiting access to the necessary technology and materials, Iran quite simply failed to realise its goal.

Prior to the financial sanctions in 2011, Iran was a major supplier of petrochemicals to Europe, providing ethylene, PE and methanol. After the financial sanctions, trade with Europe virtually disappeared. Fortunately, Iran was able to salvage some of its export volumes by relocating orders to Asian, African and South American markets – with China and India primary importers.

Despite the challenges facing the market, Iran’s ambitions are quite bold. In July 2015, NPC announced the completion of the world’s longest ethylene pipeline, with a length of 2,606 km and a capacity to carry 3.5mn tons per year. The project was developed for the purposes of carrying ethylene gas from the southern Persian Gulf port in PETZONE to the various petrochemical complexes and ethylene consumers up and down the western corridor of Iran.

This pipeline is expected to spur further petrochemical project growth along the corridor, especially outside the special economic zones, and should accelerate exports to Turkey and Europe as the lift of sanctions progresses. A senior NPC official, Ali Mohammad Bosaghzadeh, said that ethane delivery to petrochemical plants was forecast to rise by 1.4mn tonnes to 4.2mn tonnes in 2016 due to additional South Pars feedstock gas coming online this year.


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