On 17 – 18 May 2003, the National Petrochemical Company (NPC) summoned forth for the fifth time the giants of the global petrochemical industry to gather in Tehran to partake in the Fifth Iran Petrochemical Forum (IPF5). Half-a-decade of deep-rooted relationships blossomed in yet another fruitful forum in which 300 international delegates took part. Turnout was high despite the war in Iraq; however the SARS scare prevented the attendance of several delegates from East Asia.

The main topics of IPF5 were current issues faced by the petrochemical industries of Iran and the world. The most important topics of concern for petrochemical industries –both at international and regional levels– include challenges they face in regards to investment, utilizing natural gas, regional cooperation, future of aromatic products, new applications of methanol and ways of compensating propylene shortage. Moreover, petrochemical industries are trying to find answers for such problems as the decrease in propylene production due to the replacement of naphtha feed with ethane, taking advantage of recycling technologies and the effect of the e-commerce of petrochemical products on market growth and investments.

The further development of the petrochemical industry requires capital and technology which Iran does not have, or does not have enough of. A way to address this shortcoming is by opening the doors to those who do have the know-how. In effect what Iran has been saying for the past half decade is: "raw material from us investment from you or feedstock from us and technology from you. Together we can reap the benefits". However, finding a partner who has technology and is willing to investment has been a challenging to say the least. It takes more than just raw materials to attract foreign investment in the ever competitive international market. To resolve its foreign investment crisis, Iran has introduced its potentials as a market and its human and material resources as a supplier. Iran’s Minister of Oil, Bijan Namdar Zangeneh, took the opportunity to "invite potential investors to cooperate" with Iran, in his inaugural address.

Undoubtedly, the forums have not only led to the better introduction of Iran’s petrochemical industry and its downstream industries to the global market, but have also boosted Tehran’s role as an important decision-making center in the region for the future of the petrochemical industries.

On the world energy map the location of Iran is very strategic, due to its access to both the Caspian Sea and the Persian Gulf, a region where most of the world’s energy is stored. This country owns about 9% of the world’s crude oil and 18% of its gas reserves. Mohammadreza Nematzadeh, Deputy Minister of Oil and Managing Director of NPC, says that Iran desires to move away from an economy based on oil exports and to put the development of its gas resources, (with proved reserves of 23 trillion cubic meters) at the top of the official agenda. Thus, petrochemicals are expected to maintain the central role they have already assumed in Iran's future industrial planning due to the fact that the added value of petrochemistry is higher than other industries. Iran aims to gain a 5% share of the global market by 2010. To secure that objective 80% of petrochemicals produced locally will be exported. The development of the industry will rely primarily on foreign investment. However, capital is not all that matters, as striking partnerships with foreigners will bring in not only money but also technology, high tech equipment and expertise.

So, the development of the petrochemical industry has been chosen as its main national objective. Access to large quantities of ethane recoverable from natural gas guarantees ethylene production at low cost and over and extended period of time. Under such ideal conditions and with the use of large ethane crackers and low production costs the maximum competitiveness for petrochemical products would be attainable. The production cost of ethylene has been estimated at $100 and $165 per ton for ethane crackers in the Middle East and U.S., respectively. In Europe, where 73% of ethylene is produced by naphtha crackers, the cost in the same period is estimated at $220 per metric ton.

In accordance with the government policy on rapid development of the petrochemical industry, many steps have been taken to make foreign investments in this industry more attractive for our future joint-venture partners. Such actions include creation of special industrial economic zones, revision of laws on taxes and tariffs, guarantee of capital and profit transfer, and providing the required utilities and the needed infrastructure for industrial and commercial operations. The availability of a highly trained but inexpensive work-force and a sizable internal market, will also work in Iran’s favor, to attract foreign investment.

The establishment of a Petrochemical Special Economic Zone (Petzone) with necessary infrastructures for implementation of big petrochemical projects has provided suitable conditions for investment. With over $2.8 billion in foreign exchange plus 6,000 billion rials in national currency being spent on only 1,700 hectares of land (which means $1.7 million plus 3.6 billion rials on each hectare), this region is set to enjoy high economic potentialities and turn into a leading industrial zone in the country. These figures show the amount spent only by NPC without taking into account other investments already made or to be made in the region.

In the past four years, 41 contracts worth $5.2 billion on engineering and manufacturing equipment for the new projects have been awarded to Iranian, as well as, international firms and companies. Furthermore, during the time span we have entered into 105 contracts with domestic contractors worth 5.4 billion rials to construct and carry out projects.

March-September 2002 witnessed a $370 million deal and some 2.78 billion rials of domestic revenues. The figures are to grow to $900 million for the former and 7 million rials as far as the latter is concerned.

As indicated previously, the policy of the Iranian government is to move away from crude oil exports to exports of non-crude and especially petrochemical products as a source of foreign exchange earning. The idea to expand exports through becoming much more competitive; supporting the private sector to enter the export market; expansion of marketing network outside Iran; working with credible foreign companies for marketing; improving product quality and packaging; better after-sales services, and supporting local export establishments.

There is no doubt that the potential foreign investor can gain a great deal by investing in Iran’s petrochemical industry. Now that the Iranian government and its laws welcome such investments and provide assistance and protection for capital, the opportunity is too good to miss.

In the recent years, exploration of South Pars gas fields and growth of feedstock led to expansion of ongoing petrochemical projects. In order to make an optimal use of such resources, comprehensive studies were conducted to draw guidelines for development of petrochemical industries in Iran. Accordingly, priority was given to production of methanol, olefins, polyolefins, aromatics, fertilizers, polyesters, styrene, and acetic acid.

Relying on the ethane recovered from various phases of South Pars, 4 main ethylene projects have been devised in five-year development plans of the petrochemical industry. In parallel, export-oriented plans have been devised namely mega-methanol, main ethylene extracts such as polyethylene, MEG and styrene. Of course, due to the vast existence of condensates at competitive prices, there are projects on agenda for production of olefins, aromatics and their downstream products.

By implementing development plans, Iran’s share of global ethylene market plus its derivatives and methanol products will increase to a considerable level. As development plans also keep an eye on exports, it can be expected that Iran’s currently small share of world trade will experience a major raise in the future. Low price and abundance of accessible feed is the main advantage of Iran for development of petrochemical industries, but there are other merits that encourage investment.

Another advantage in Iran is the possibility to locally manufacture a large portion of required equipment such as reactors, pressurized vessels, boilers, heat exchangers and furnaces. This would considerably lower the execution costs. Easy access to markets is another element that guarantees the profitability of investing in Iranian petrochemical industry. The unique geographical situation of Iran, access to demanding markets of Europe that will grow further; emerging markets of India and China each with a population of about a billion, a fine economic growth, low per capita consumption and poor access to feed to meet their demands; and finally, neighboring the potential markets of CIS countries are all other remarkable advantages of the Iranian petrochemical industry. In line with its export development objectives and in order to enhance its presence in international markets, the National Petrochemical Company of Iran has established offices in its targeted countries.

Another advantage of Iran is its greater population as compared with other regional countries. Therefore, considering the lower consumption of petrochemical products namely base polymers such as polyethylene, polypropylene and PVC in comparison with consumption patterns in some other countries, a unique potential for growth is expected in the domestic market who can demand further petrochemicals in the future. All the same, experience shows that commissioning of new plants, particularly in terms of polymers, and availability of feed for downstream products will result in rapid development of petrochemical industries as well as a significant raise in consumption. Afterwards, the demand will keep pace, if not outgrow, the supply. Instances in this regard are former consumption amounts of polyethylene, polypropylene and vinyl acetate.

Mohammad Hassan Peyvandi, NPC Director for Planning & Development and Chairman of IPF, believes that in order to make the best of its existing advantages, Iranian petrochemical industries should consider the following key points to complete its projects and develop its downstream industries:

• The progress of South Pars phases to secure on-time supply of sufficient feed.

• Involvement of the Iranian private sector as well as international players, especially suppliers of advanced technology, in partnership for petrochemical projects.

• Creation of a downstream department in order to study the feedstock provisions for down stream industries by NPC, thereby helping the further development of such industries.

• Encouragement of Iranian investors for implementation of downstream projects or partnerships in these projects in order to expand privatization in local industries.

• Assisting the growth of engineering activities while also accelerating R&D.

• Assisting the development of relevant industries such as equipment production sector.