Iran details petrochemical expansion plans

Anne Rhodes
Associate Managing Editor-News

Iran is looking to drastically expand its petrochemical industry and is seeking outside investors to help it do so.

To kick-start its petrochemical development program, Iran's National Petrochemical Co. (NPC) held the first Iran Petrochemical Forum in Tehran last month. There, it revealed the details of its expansion plans to international petrochemical and investment firms (OGJ, Apr. 26, 1999, p. 31).

Phases 1 and 2 of NPC's petrochemical development program call for an overall capacity increase of about 6.5 million metric tons/year of intermediates and final products by 2001 (OGJ, Apr. 19, 1999, p. 46). This will bring total petrochemical capacity in the country to 20 million tons/year (see chart, this page).

In terms of final products alone, the 10 units involved in Phases 1 and 2 will more than double Iran's output capacity by adding 4.68 million tons/year. These units are part of a long-term, five-phase growth program that involves taking NPC's final products capacity from 4.0 million tons/year in 1997-98 to 20.8 million tons/year by 2013.

Investment advantages

NPC's expansion program is designed to add value to Iran's enormous gas reserves.

"Geographically, Iran is adjacent to the world's largest resources of oil and gas, in the Persian Gulf and Central Asia," said Bijan N. Zangeneh, Iran's Minister of Petroleum. "These facts would naturally lead us to the position of having access to (petrochemical) feedstock resourcesellipsewith competitive prices."

He added, "We recognize the crucial importance of guaranteed and continuous supply of feedstock for successful operation of the petrochemical complexes envisaged in our development programsellipseIn this respect, the development scheme at South Pars gas field, with more than 10 trillion cu m of gas reserves, plays an important role.

"Phases 1-3 of the South Pars gas development scheme are already under way and, upon completion, will provide huge quantities of sweet gas and condensates-that (will involve production of) about 75 million cu m/day of natural gas and about 120,000 b/d of condensate.

"Negotiations on Phases 4-8 of the South Pars gas development are under way and are entering into final stages," Zangeneh added.

He emphasized Iran's feedstock supply guarantees to potential investors present at the forum: "Recognizing the importance of a proper legal and regulatory environment-and, in particular, assurance to investors of guaranteed and sustained provision of feedstocks-National Iranian Oil Co. and NPC are prepared to enter into short and long-term feedstock supply agreements for petrochemical plants, on the basis of competitive prices."

He added, "The Ministry of Petroleumellipseis fully committed to provide and guarantee supply of feedstocks, including condensates, naphtha, natural gas, and NGL, for the petrochemical development programs envisagedellipse."

The minister also listed other advantages to investing in Iran: "With 60 million population and an expanding market, Iran provides a unique potential for internal consumption of petrochemical products, as compared with other hydrocarbon-rich countries in the region. In addition, the long history of the oil, gas, and petrochemical industries in Iran has resulted in considerable potential in human resource development in the areas of operations and maintenance of the complexes, as well as implementation of oil, gas, and petrochemical projects."

Iran has also instituted a number of economic incentives for potential investors. These include the establishment of two special economic zones-one at Bandar Imam, site of NPC's largest petrochemical complex, and another at Assaluyeh, near South Pars gas field. If investors build in these zones, their operations receive extended tax holidays and exemption from Iran's import-export regulations.

"Having access to regional and international markets, well-developed infrastructure, designation ofellipsespecial economic zones, provision of common utilities, and the existence of a favorable legal and regulatory environment for the attraction and protection of foreign investment are among other competitive advantages for investment in the Iranian petrochemical sector," said Zangeneh.

An ambitious program

The table above shows the units slated for construction by NPC and its partners through 2001, and the planned capacities of those units. These projects represent the first and second phases of NPC's massive development program.

These 10 units will add a total of about 6.5 million tons/year of capacity to produce intermediates and final products.

Most of the Phase 1 and 2 projects will be built in the Bandar Imam special petrochemical economic zone. The exceptions to this are the second methanol plant, which is being built on Kharg Island, and the first linear alkyl benzene unit, which will be constructed at Bandar Abbas.

NPC's third development phase, through 2005, will add another 11 million tons/year of total capacity. This will include Iran's 8th, 9th, and 10th olefins units, and its fourth methanol and fourth aromatics plants.

"Total investment requirements of these (third-phase) projects are estimated to be about $7.2 billion," said Zangeneh, "of which around 50% is projected to be offshore provision of equipment and engineering services."

Of the third-phase projects, the ninth olefins plant and the fourth aromatics and methanol units will be built in the Assaluyeh special economic zone, where the gas processing units for South Pars field are also being built.

It remains to be seen whether Iran can lure investors to sink their capital into this impressive list of projects-which includes four major olefins plants and three big aromatics complexes. But the planned capacity increase seems to indicate that NPC is banking heavily on a major rebound in Asian economies over the next few years.

As an added incentive to potential investors, Iran is willing to look at just about any financing scheme participants can come up with, including buy-back schemes, which are now proliferating in Iran's upstream oil and gas industry.

Mohammad Reza Nematzadeh, deputy minister of petroleum and president of NPC, said, "NPC will also make use of long-term credit facilities for implementing its new projects. However, in accord with the government policy, as well as that of the NPC, we also intend to obtain some of our required investment through joint ventures.

"We hope your participation in this forum helps us achieve this end."

In order to successfully enter the world's capital market, says Nematzadeh, NPC has hired Dresdner Kleinwort Benson to conduct a detailed study and prepare a comprehensive report to be used as a guide for foreign investors interested in Iran's petrochemical sector.