Iran Market Watch: Petrochemical Industry

Transcription

1 Iran Market Watch: Petrochemical Industry 1

2 Our Iran Market Watch aims to examine the broad potential of Iran s generally uncovered markets to provide an unrivaled informational edge to investors and commercial operators through deep tissue due diligence, market research, and analysis. In this issue, our on-the-ground market intelligence has uncovered some valuable insights on opportunities in Iran's petrochemical sector, about which we provide a teaser in this report. We would be happy to provide you with a deeper look if the highlighted issues are of interest to you. Petrochemicals potentially a stronger play than oil and gas? While oil and gas gets the lion s share of the attention when it comes to Iran s petroleum sector, it is worth noting that Iran is the second largest exporter of petrochemical products in the Middle East after Saudi Arabia. Oil and gas understandably gets a lot of attention with the prospects of 1 million additional barrels of oil coming onto world markets should the nuclear deal go though. However, the petrochemical industry is actually 10 times more profitable than the oil and gas industry. The industry currently consumes around 7% of Iran s hydrocarbons production, but it accounts for around 2% of Iran s GDP and ~20% of the non-oil exports. As part of the government s diversification strategy, therefore, it has been a successful support to an economy under pressure from the decline in oil prices. However, most petrochemical plants are exceedingly capital intensive, requiring heavy investment to lock in its attractive and sustained profits. Consequently, we see a strong match between international investors and the investment need in the sector, especially since it will be one of the key beneficiaries should sanctions relief come to pass perhaps even more so than the petroleum industry itself in an environment of low hydrocarbons prices. We estimate that the industry s capacity will reach 135mn tons by 2020 from a current 60mn tons, presenting a solid opportunity to get into the ground floor of a strategic sector. 2

3 Iran is currently seeking to increase its domestic petrochemical production by 1.3 million tons (from its current 40mn ton capacity) and expects to generate USD 12bn in the year ending March of 2016 (compared to USD 9bn in the year that ended in March 2015). In line with its efforts to further diversify its economy, Iran has embarked on building large-scale petrochemical plants with 73 petrochemical units currently under construction and coming on stream over the next two years. However, the industry continues to face major financial challenges, and a large number of projects are currently half-completed and in need of tens of billion dollars of investment to reach operational status, with local bank investment capacity tapped out. As such, Iran is currently producing at less than 74% capacity, not only because of investment issues but also because of problems with feedstock disruptions, technology problems, limited domestic capacity, creating a sanctions-related drop in exports. Further, the petrochemical industry still suffers from a lack of spare parts and a shortage of natural gas supplies. With the lifting of sanctions, many of these situations will potentially open to viable solutions. Consequently, Iran is in dire need of foreign investment, with over USD 70bn of investment required in the petrochemicals sector alone, if sanctions are lifted. Iran recently shopped over 18 petrochemical projects to China for potential finance. Almost USD 10 billion of petrochemical products were exported by Iranian companies last year, reflecting a strong potential for these companies to attract domestic and foreign investments. Following the implementation of the Joint Plan of Action (JPOA), the U.S. Treasury s Office of Foreign Assets Control (OFAC) lifted sanctions on transactions by non-us persons and entities related to 14 major Iranian petrochemical companies: Bandar Imam Petrochemical Co., Bou Ali Sina Petrochemical Co., Mobin Petrochemical Co., Nouri Mobin Petrochemical Co., Pars Mobin Petrochemical Co., Tondgouyan Mobin Petrochemical Co., Shazand Mobin Petrochemical Co., Tabriz Mobin Petrochemical Co., Jam Mobin Petrochemical Co., Qaed Basir Mobin Petrochemical Co., Arya Sasol Mobin Petrochemical Co., Iran Petrochemical Commercial Company, National Petrochemical Company and Marjan Mobin Petrochemical Co. As a result, Iran s petrochemical exports are expected to ramp up substantially, with primary export markets including China, India, UAE and Iraq, according to the Iranian Customs Administration. 3

4 Even under sanctions, the industry has remained highly dependent on both investment from abroad and exports to foreign markets, including Germany, the UK, France, and the Netherlands. Prior to the latest round of sanctions, HSBC (HSBC:US), Societe Generale (GLE:FP), BNP Paribas (BNP:FP), and Deutsche Bank (DBK:GR) had invested at least USD 10bn in the Iranian petrochemical industry, which allowed the country to import a significant amount of technology. Iran is hopeful that those financiers and others will return in a post-sanctions world, and is specifically targeting technology partners as well, including France s IFP, Technip (TEC:FP), Linde (LIN:GR), BASF (BASFY:US), Basell, Shell (RDS:US) and Denmark s Haldor Topsoe. The government is seeking interest from partners from the Asia-Pacific region as well, with Thailand s SCG as the first active foreign tech partner. As such, SCG has a contract with an Iranian polyethylene company worth USD 360mn. Volume Share of Middle East exports for top producers 60% 50% 40% 30% 20% 10% 0% Saudi Iran UAE Oman Qatar Kuwait Bahrain

5 Iran s Petrochemical Production and Capacity (million tons) Production Capacity Volume Source: National Iranian Petrochemical Company 5

6 About Whispering Bell Whispering Bell is a leading security risk management consultancy advising clients in high-risk environments throughout the Middle East and North Africa. We establish an in depth understanding of the political and security environments in which our clients operate. Whispering Bell works with clients throughout the region to provide the following services: Risk Advisory Services Threat and Risk Assessments Journey Management and In-Country Facilitation Embedded Security Consultants Technical and Information Security Services 6

7 Contact us For any support or queries relating to this report, please contact: Alexia Williams Mobile: Tel: Fax: ras@whisperingbell.com UAE - Dubai UK Office 1004/10th Floor Fortune Executive Tower Cluster T Jumeirah Lakes Towers PO Box Dubai United Arab Emirates Tel: +971 (0) Fax: +971 (0) Yelverton Road Bournemouth Dorset BH1 1DF United Kingdom 24/7 Operations Centre Tel: + 44 (0) Abu Dhabi Bulgaria 404 Dhabi Towers Hamdan Street Abu Dhabi United Arab Emirates Tel: +971 (0) Fax: +971 (0) Slivnitsa Boulevard Office 52 Varna Bulgaria Tel: Fax: Libya Washington, DC Gargaresh Street Siyahiya area, near Rigata Libya Tel: Ops Manager: I ST NW, Suite 300 Washington, DC Phone: Fax: