Iran Plans Petrochemical Boom Despite U.S. Sanctions
NEW YORK (Oil Price) - Iran’s Petrochemical sector now accounts for over 30 percent of all its non-oil exports and Tehran is planning to boost this further through the build-out of a number of dedicated hubs.
Given the extreme unlikelihood of the U.S. returning to the currently structured Joint Comprehensive Plan of Action (JCPOA), and Iran’s unwillingness to renegotiate the deal any time soon, the Islamic Republic remains focused on three key areas where it can make money despite ongoing sanctions form Washington.
Alongside the continued development of its huge west Karoun oil fields, the completion of the supergiant South Pars non-associated gas offshore sector (including the implementation of Phase 11 operations), and the finalization of the crude oil transfer pipeline from Guriyeh to Jask, Iran’s core focus in the current sanctions environment is to optimize the output and revenues from its already world-scale petrochemicals sector.
This has always played a key role in Iran’s ‘resistance economy’ model, the concept of generating value-added returns by leveraging intellectual capital into business development wherever possible. Iran’s petc Petrochemical hems sector now accounts for over 30 percent of all its non-oil exports and Tehran is planning to boost this further through the build-out of a number of dedicated Petrochemical hubs.
A key advantage for Iran in pushing the Petrochemical sector is that from a legal perspective it has always occupied a grey area as far as sanctions have been concerned. When the previous set of major sanctions were at their height in 2011/12, Iran’s petrochemical industry was the subject of U.S. and EU sanctions, and the only way for Iran to sell such products ‘legally’ was to customers outside the U.S. and EU.
At that time, secondary sanctions were in place in the U.S. on any person worldwide that purchased, acquired, sold, transported, or marketed Iranian-origin petrochemical products, or provided goods or services valued at $250,000 or more (or $1 million over a 12-month period) for use in Iran’s production of petrochemical products.
In the EU there was a ban on the import, purchase, or transportation of Iran-origin petrochemical products, and on the export to Iran of certain equipment for use in the petrochemical industry. In stark contrast to the previous sanctions era, there are currently no EU sanctions specifically on Iran’s Petrochemical sector and nor are there plans to impose them. Crucially as well, the U.S. cannot currently exert jurisdiction for ‘primary’ sanctions unless U.S. persons are involved – notably U.S. banks and U.S. employees.
In basic terms, a total of $11.5 billion-worth of Petrochemical projects will have been launched in Iran in the year ending 20 March 2021, according to Iran’s deputy minister of petroleum for petrochemical affairs, Behzad Muhammadi. These will add at least 25 million tons to the country’s annual production capacity, bringing it up to at least 90 million tons per year (mtpy), and within a hair’s breadth of the 100 mtpy production target that is due to be achieved by the end of 2025. Iran’s Petroleum Minister, Bijan Zangeneh, further specified that this next major phase of the country’s Petrochemical sector development will consist of 17 new projects in the next 12 months, which will enable a more than doubling of the value of it to Iran from $12 billion in 2013 (when the first major phase was pushed) to $25 billion by the end of next calendar year, and to at least $37 billion by March 2026.
At the same time, the ability to produce Petrochemicals will be boosted by dramatic increases in feedstock, according to a comment last week from the chief executive officer of Iran’s National Petrochemical Company (NPC), Behzad Muhammadi, last week. This will reach at least 2.2 million barrels per day (bpd) by early 2026, and will be complemented by gas production gains already in progress in South Pars and other major gas fields. Already though, said Zangeneh last week, gas production in Iran has hit a record of over its key target point of 1 billion cubic meters per day (BcM/d) – at 1.04 Bcm/d – with nearly 70 percent of this coming from the supergiant South Pars gas field. With these feedstock increases in place, Zangeneh stated last week that Iran’s petrochemical production capacity would reach 100 million tons per year by 2022.
It is to assist in and expedite this process further that Iran is building out a number of Petrochemical hubs, to add to the current major centers in Bushehr and Khuzestan. According to Zangeneh last week, Iran has worked out plans to convert the western province of Kermanshah into the third petrochemical hub of the country to exploit the readily accessible gas supplies in the area, with at least $500 million of investment accompanying this build-out in the upstream and downstream parts of it. The Kermanshah Petrochemicals Hub is to focus on the production of propylene (also called propylene or methyl ethylene), he added, as it is one of the most valuable industrial substances and Kermanshah already produces around 300,000 tons of polyethylene. Additionally, the landmark West Ethylene Pipeline passes through the province, which will run 1,660 kilometres from Assaluyeh in southern Iran to Tabriz in the northwest of the country, making it the longest ethylene line in the world. "From March 2020 to March 2021…about two million tons of ethylene will be transferred through the West Ethylene pipeline… [and] Iran’s ethylene output will reach seven million tons per year by March 2021,” according to Zangeneh.
In the same vein, the NPC’s Muhammadi said last week that Qeshm Island – located to the south of the key Petrochemical facility in Bandar Abbas, and at the farthest point east of the Strait of Hormuz where it turns south into the Sea of Oman (with unbroken access then to the Far East and East Africa) – is ideally placed to also become a major hub of construction, development, production, and export of a variety of petrochemical products. He added that so far permits have been issued for the development of petrochemical industries in Qeshm Island, Special Parsian Economic Zone, Bandar-e-Jask, and Iran’s Mokran Coastal Region. This latter area is located in Baluchestan province in south-eastern Iran and south-western Pakistan, and also has a 1,000 kilometer coastal stretch along the Sea of Oman from al-Kuh, Iran (west of Jask), to the Lasbela District of Pakistan (near Karachi). According to Iranian sources who work closely with the current government in Iran spoken to exclusively by OilPrice.com last week, these coastal routes east are a short-term measure to facilitate the full export capability of oil and gas via the originally intended Iran-Pakistan Pipeline (IPP). The original agreement for the IPP, signed between Iran and Pakistan in 1995, was predicated on the pipeline running from South Pars into Karachi but the most recent iteration of the route involves the gas running from Iran’s Asalouyeh and into Pakistan’s Gwadar and then on to Nawabshah. The latest projection of the cost of the pipeline is around $3.5 billion, although 2.5 billion of this has already been invested in the 900 kilometer stretch on Iran’s side that has already been completed. Pakistan’s 780 kilometer stretch has yet to make significant progress.
Given the geopolitical importance of both Iran and Pakistan to Russia and China, though, finding the money for the remainder of the project is unlikely to be a problem. For China, there is a threefold motivation. First, it plans to integrate the IPP into the $50 billion-plus China Pakistan Economic Corridor (CPEC) project, with Gwadar earmarked to be a key logistical node in China’s ‘One Belt, One Road’ project. Second, it wants to keep Iran (and neo-client state Iraq) as key suppliers of oil and gas in the future.
Given the extreme unlikelihood of the U.S. returning to the currently structured Joint Comprehensive Plan of Action (JCPOA), and Iran’s unwillingness to renegotiate the deal any time soon, the Islamic Republic remains focused on three key areas where it can make money despite ongoing sanctions form Washington.
Alongside the continued development of its huge west Karoun oil fields, the completion of the supergiant South Pars non-associated gas offshore sector (including the implementation of Phase 11 operations), and the finalization of the crude oil transfer pipeline from Guriyeh to Jask, Iran’s core focus in the current sanctions environment is to optimize the output and revenues from its already world-scale petrochemicals sector.
This has always played a key role in Iran’s ‘resistance economy’ model, the concept of generating value-added returns by leveraging intellectual capital into business development wherever possible. Iran’s petc Petrochemical hems sector now accounts for over 30 percent of all its non-oil exports and Tehran is planning to boost this further through the build-out of a number of dedicated Petrochemical hubs.
A key advantage for Iran in pushing the Petrochemical sector is that from a legal perspective it has always occupied a grey area as far as sanctions have been concerned. When the previous set of major sanctions were at their height in 2011/12, Iran’s petrochemical industry was the subject of U.S. and EU sanctions, and the only way for Iran to sell such products ‘legally’ was to customers outside the U.S. and EU.
At that time, secondary sanctions were in place in the U.S. on any person worldwide that purchased, acquired, sold, transported, or marketed Iranian-origin petrochemical products, or provided goods or services valued at $250,000 or more (or $1 million over a 12-month period) for use in Iran’s production of petrochemical products.
In the EU there was a ban on the import, purchase, or transportation of Iran-origin petrochemical products, and on the export to Iran of certain equipment for use in the petrochemical industry. In stark contrast to the previous sanctions era, there are currently no EU sanctions specifically on Iran’s Petrochemical sector and nor are there plans to impose them. Crucially as well, the U.S. cannot currently exert jurisdiction for ‘primary’ sanctions unless U.S. persons are involved – notably U.S. banks and U.S. employees.
In basic terms, a total of $11.5 billion-worth of Petrochemical projects will have been launched in Iran in the year ending 20 March 2021, according to Iran’s deputy minister of petroleum for petrochemical affairs, Behzad Muhammadi. These will add at least 25 million tons to the country’s annual production capacity, bringing it up to at least 90 million tons per year (mtpy), and within a hair’s breadth of the 100 mtpy production target that is due to be achieved by the end of 2025. Iran’s Petroleum Minister, Bijan Zangeneh, further specified that this next major phase of the country’s Petrochemical sector development will consist of 17 new projects in the next 12 months, which will enable a more than doubling of the value of it to Iran from $12 billion in 2013 (when the first major phase was pushed) to $25 billion by the end of next calendar year, and to at least $37 billion by March 2026.
At the same time, the ability to produce Petrochemicals will be boosted by dramatic increases in feedstock, according to a comment last week from the chief executive officer of Iran’s National Petrochemical Company (NPC), Behzad Muhammadi, last week. This will reach at least 2.2 million barrels per day (bpd) by early 2026, and will be complemented by gas production gains already in progress in South Pars and other major gas fields. Already though, said Zangeneh last week, gas production in Iran has hit a record of over its key target point of 1 billion cubic meters per day (BcM/d) – at 1.04 Bcm/d – with nearly 70 percent of this coming from the supergiant South Pars gas field. With these feedstock increases in place, Zangeneh stated last week that Iran’s petrochemical production capacity would reach 100 million tons per year by 2022.
It is to assist in and expedite this process further that Iran is building out a number of Petrochemical hubs, to add to the current major centers in Bushehr and Khuzestan. According to Zangeneh last week, Iran has worked out plans to convert the western province of Kermanshah into the third petrochemical hub of the country to exploit the readily accessible gas supplies in the area, with at least $500 million of investment accompanying this build-out in the upstream and downstream parts of it. The Kermanshah Petrochemicals Hub is to focus on the production of propylene (also called propylene or methyl ethylene), he added, as it is one of the most valuable industrial substances and Kermanshah already produces around 300,000 tons of polyethylene. Additionally, the landmark West Ethylene Pipeline passes through the province, which will run 1,660 kilometres from Assaluyeh in southern Iran to Tabriz in the northwest of the country, making it the longest ethylene line in the world. "From March 2020 to March 2021…about two million tons of ethylene will be transferred through the West Ethylene pipeline… [and] Iran’s ethylene output will reach seven million tons per year by March 2021,” according to Zangeneh.
In the same vein, the NPC’s Muhammadi said last week that Qeshm Island – located to the south of the key Petrochemical facility in Bandar Abbas, and at the farthest point east of the Strait of Hormuz where it turns south into the Sea of Oman (with unbroken access then to the Far East and East Africa) – is ideally placed to also become a major hub of construction, development, production, and export of a variety of petrochemical products. He added that so far permits have been issued for the development of petrochemical industries in Qeshm Island, Special Parsian Economic Zone, Bandar-e-Jask, and Iran’s Mokran Coastal Region. This latter area is located in Baluchestan province in south-eastern Iran and south-western Pakistan, and also has a 1,000 kilometer coastal stretch along the Sea of Oman from al-Kuh, Iran (west of Jask), to the Lasbela District of Pakistan (near Karachi). According to Iranian sources who work closely with the current government in Iran spoken to exclusively by OilPrice.com last week, these coastal routes east are a short-term measure to facilitate the full export capability of oil and gas via the originally intended Iran-Pakistan Pipeline (IPP). The original agreement for the IPP, signed between Iran and Pakistan in 1995, was predicated on the pipeline running from South Pars into Karachi but the most recent iteration of the route involves the gas running from Iran’s Asalouyeh and into Pakistan’s Gwadar and then on to Nawabshah. The latest projection of the cost of the pipeline is around $3.5 billion, although 2.5 billion of this has already been invested in the 900 kilometer stretch on Iran’s side that has already been completed. Pakistan’s 780 kilometer stretch has yet to make significant progress.
Given the geopolitical importance of both Iran and Pakistan to Russia and China, though, finding the money for the remainder of the project is unlikely to be a problem. For China, there is a threefold motivation. First, it plans to integrate the IPP into the $50 billion-plus China Pakistan Economic Corridor (CPEC) project, with Gwadar earmarked to be a key logistical node in China’s ‘One Belt, One Road’ project. Second, it wants to keep Iran (and neo-client state Iraq) as key suppliers of oil and gas in the future.