OREANDA-NEWS. November 03, 2015. Earlier this month, the US and its negotiating partners announced steps to move ahead on what is known as “adoption day,” intended to show readiness for sanctions relief for Iran. However, relief will only begin on “implementation day,” the day when the International Atomic Energy Agency certifies that Iran lived up to its commitments according to the nuclear deal completed in July.

According to the US CIA’s The World Factbook, Iran has the world’s second largest supply of conventional natural gas reserves, much of which is rich in ethane. Given that the rest of the Middle Eastern countries are experiencing limited supplies in ethane, this presents a huge opportunity for the Iranian petrochemical sector as sanctions are eased.

Investing in Iran includes enormous political risks, but there are major advantages for international petrochemical investors, including low-cost steam cracker feedstocks and access to the European and Asian markets.

The value of Iran’s petrochemical exports is forecast to increase 20-25% within two years after the sanctions are lifted, according to Iran’s Petrochemical Commercial Company’s Managing Director Mehdi Sharifi Niknafs. Lifting of the sanctions will barriers from petrochemical exports related to banking, insurance, transportation, and brokering, said Niknafs.

Additionally, sanctions removal will also attract foreign investment to expedite the completion of petrochemical projects. Roughly \\$30 billion of investment opportunities have been identified in Iran’s petrochemical sector, according to National Iranian Petrochemical Company’s Managing Director Abbas She’ri Moqaddam.

Platts reported last month that one Dubai-based analyst said, “Everyone wants to be prepared. Iran has a range of [petrochemicals] investments opportunities to offer. They range from upstream to downstream.”

Takahisa Miyauchi, member of the board and senior executive vice president of Mitsubishi’s chemicals group, said in a meeting in Tehran with Moqaddam that the company is ready to invest in Iran’s petrochemical projects. It is an interest that Iran’s petrochemical sector is keen to court, not only for direct investment in petrochemical plants but also licensing of technology that could improve production.

Steam crackers

The Middle East currently has a total of 30.2 million mt of ethylene capacity, of which roughly 6.5 million mt is produced by Iran. Saudi Arabia produces 15.7 million mt of ethylene, more than half of the ethylene produced in the region. Iran currently ranks second in the region in terms of total production with a 22% share.

However, with the increase in production capacity coming online within the next five years, Iran will produce approximately 30% of the region’s ethylene capacity by 2020. As shown in the table below, a total of 6.2 million mt of ethylene is expected to come online by 2020 in Iran.

gonzalez-iran-ethylene

Polyethylene typically represents 50-60% of ethylene demand. Ethylbenzene, ethylene oxide, ethylene dichloride, and alpha olefins make up the rest of ethylene demand, while a small percentage is used for other applications.

Polyethylene plants

Total polyethylene capacity in the Middle East for 2015 is 18.7 million mt. Saudi Arabia and Iran are the two top polyethylene producers in the region, producing 42% and 26%, respectively. Total polyethylene capacity in Iran is currently 3.1 million mt, most of which is HDPE. New capacity expected to come online within the next three years will total nearly 3 million mt, bringing the total polyethylene capacity in Iran to 6.1 million mt. By 2020, Iran’s share of polyethylene capacity in the Middle East is expected to increase to 32% with a total of 7.8 million mt.

gonzalez-iran-polyethylene

Outlook

Platts Analytics does not expect a sharp elevation in ethylene or polyethylene leaving Iran this year. However, as more PE plants come into operation along the country’s western coastline in 2016, supplies are expected to increase, particularly to Turkey, with which the country shares a border to its northwest. We expect a rise in exports to destinations in the Middle East, Africa and South America — all markets that Iran has tried to develop over the past four years as it grappled with sanctions. Iran’s nuclear negotiator Abbas Araqchi said on October 19 that he expected sanctions relief to be implemented by year-end. However, Germany’s foreign minister indicated that the EU sanctions were likely to remain at least until January, reports Reuters. As a result, we won’t see a surge in Iranian petrochemical exports until 2016.