Iran is aiming to boost petrochemicals sales to Europe substantially, assuming a deal on its nuclear programme is completed and sanctions are lifted after June.
The comprehensive sanctions put in place in 2012 to comply with United Nations resolutions, including by the European Union, hurt not only Iran’s petrochemical industry but also industries in the EU that were dependent on cheap Iranian petrochemicals to compete.
After the framework deal agreed at the end of last week between Iran and international negotiators, Ahmad Mahdavi, the director general of Iran’s Petrochemical Employers Association, said the industry is ready to supply US$5 billion of additional petrochemicals to Europe once sanctions are lifted, the state run Fars News Agency reported.
Iran produced 40 million tonnes of petrochemicals last year, with $9bn worth of its products exported, according to Fars. In comparison, Saudi Arabia’s Sabic, one of the world’s largest petchems makers, produced about 70 million tonnes of product in 2013.
Iran is one of the most important suppliers of key petrochemicals to the world market, especially methanol.
After sanctions were put in place, trade in polymers and methanol dropped by about a third from their peak in 2010, which led to big price disparities between Asian countries such as China and India, which could still access cheaper Iranian petrochemicals, and the US, the EU and other countries that were restricted.
Petrochemicals exports to the EU began to recover a little last year after a partial and temporary easing of sanctions to reward Iran agreeing to restrict uranium enrichment.
But Iran’s petrochemicals sector is still way short of the government’s plans to roughly double capacity to 100 million tonnes a year.
“In the long run, Iran’s realisation of its petrochemical ambitions hinges on it attracting capital, technology, equipment and construction expertise to build its natural gas infrastructure,” said Matthew Thoelke, senior director of chemicals analysis at IHS.
“Iran sits atop the world’s largest reserves of gas, a key source of petrochemical feedstock, yet production fields such as the huge South Pars are producing at a fraction of their potential,” Mr Thoelke added.
Rising domestic gas consumption by Iran’s population of nearly 80 million has also diverted gas from the industry.
However, to boost supply progress has been made in developing the South Pars fields, and the National Iranian Oil Company recently announced major equipment orders for one of the fields in anticipation of a nuclear deal.
The Iranians have been quick to try to re-establish commercial relationships ahead of a comprehensive nuclear deal in June, which US the president Barack Obama said at the weekend has a “better than fifty-fifty chance” of being completed.
Iran needs investment across the board, especially in its hydrocarbons sectors, which were declining even before the latest sanctions.
Meanwhile, an Iranian delegation departed for Beijing this week to negotiate additional oil sales as well as investment by China, according to reports.
China and India have over the past year vied each month to be the biggest buyer of Iranian crude.
Amir Hossein Zamaninia, Iran’s deputy oil minister for commerce and international affairs, said he and his colleagues would discuss China’s oil and gas projects in Iran, while officials from NIOC will meet China’s biggest crude buyers, Reuters reported.
Iran has an estimated 700,000 to 800,000 barrels per day of spare crude oil production capacity, as well as an estimated 30 million barrels of crude stored in oil tankers anchored off its southern coast.
While the oversupplied oil market would have difficulty absorbing that level of extra supply any time soon, it will be some months before sanctions would be lifted and the details – and pace – of their easing are still unclear.
China’s ministry of finance said yesterday that Iran had been approved as a founding member of the Asian Infrastructure Investment Bank, widely seen as a potential rival to the World Bank and IMF.
The AIIB, which was proposed by the Chinese president Xi Jinping in late 2013, will support infrastructure and development projects across Asia.
Founding members have the right to create governance and operating rules for the bank.
On Sunday, the UAE said it had joined the $50bn institution alongside China, the UK, Russia, Germany and Saudi Arabia.
A number of critics, including the Chinese government, have called for the IMF to increase the representation of emerging markets in the institution’s decision-making. Progress has been slow, with the G20 communique from November last year expressing “deep disappointment with the continued delay” to reform of the IMF’s quota system, which determines the voting powers of IMF members. The US Congress has repeatedly refused to sign off on reform to the IMF’s quota system.
amcauley@thenational.ae
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