Iran's Growing Petrochemical Industry Adds Value to Gas Reserves and World Marketing Potential

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Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). Iran is moving with determination upstream and downstream on its strategy to develop and add value to its oil and gas resources and to develop its petrochemical industry. It has recently announced contracts for the world's largest gas refinery, the addition of polymer production capacity by two million tons, and is in negotiations on a joint venture to construct a dimethyl ether plant.

The country's quasi-state company has signed an agreement with a consortium consisting of Japan Gasoline Company (JGC)(TOKYO:1963), Toyo Engineering Corporation (TOKYO:6330), Dailem (KSE:00210) (Seoul, S.Korea) and the Industrial Development and Renovation Organization of Iran (IDRO), to build a $1.3 billion gas refinery at the southern port city of Assalouyeh. Toyo and Idro will each hold 28% of the project and JGC and Dailem 22% each.

When the refinery is completed in 43 months (2006) natural gas from the South Pars field will be processed through three trains with a daily capacity of one billion cubic feet each. The refinery is scheduled to produce 1.4 million tons of LPG and 5.3 million tons of condensate per annum. Japan will take all the output and the shipments of 1.4 million tons of LPG represent almost 10% of Japan's annual LPG imports.

The South Pars gas field has gas reserves estimated at 463 trillion cubic feet. Only Russia holds larger gas reserves than Iran.

The Iranian Oil Minister, Bijan Namdar Zanganeh, has said that the ministry plans to expand the country's petrochemical sector and has plans to broaden bilateral and regional cooperation in the sector. The country's rich deposits of natural gas guarantee Iran's current and future participation in global markets, he said.

When phases six, seven, and eight of the Alfin petrochemicals project are commissioned, and the implementation of an engineering polymer project and the first phase of the new petrochemical strategy are commissioned around two million tons will be added to Iran's current polymer production capacity. The minister said that there are other petrochemical projects such as Aromatics 3, with a projected capacity of 600,000 tons and Ethanol 3, with a projected capacity of one million tons and a urea fertilizer plant with a projected capacity of of one million tons which will be going on stream in the near future. Further petrochemical projects will be going on stream by 2005, the minister said at the inaugural ceremony of the Fifth International Petrochemicals conference.

New regulations have been passed by the Iranian government to absorb foreign capital into the country with a particular focus on the South Pars economic zone. Downstream petrochemicals will be produced and marketed in private/public combinations. Companies from South Africa, Germany and Sweden have indicated their keen interest to make lucrative investments, said the minister.

Shell (LSE:SHEL) (London, United Kingdom) and Sasol (NYSE:SSY) (Johannesburg, South Africa) have been in negotiation with Iran's National Petrochemical Company over the construction of a gas-to-liquids plant and separate negotiations are in hand with the Japanese-Korean consortium at Assaluyeh on the construction of a dimethyl ether (DME) plant. DME is a 'clean fuel' which fits with forward-looking downstream product marketing plans.

The National Petrochemical Company said that their potential foreign partners are looking for an integrated system or one that combines the upstream and the midstream together on the construction of the gas-to-liquid plant at Assaluyeh. The company will award all future contracts with foreign companies on an engineering, procurement and commissioning basis. The company is looking to attract up to $1.5 billion during Iran's fourth five-year development plan from 2004-2009.

Parallel with the development of resources, Iran is looking outward to the East, including the contracted companies and a recent energy pact with India and to the West with the welcome to contract companies and outgoing investment in western projects.

London's Daily Telegraph reports that Iranians have just taken 50% in the $420 million Rhum gas field in the North Sea where they are in partnership with BP (LSE:BP) (London, United Kingdom), which began as the Anglo-Persian oil company in Teheran 95 years ago. BP says that Iranian advice has been 'crucial' to the project where the gas reservoir temperatures go up to 150 degrees C and are under high pressure. The wheels in that relationship have turned through a few circles in history with demons in the cast on both sides.

Iran may be feeling some potentially awesome external political pressures but the execution of its current energy policy cannot be categorized as defensive or 'ring-fenced.'

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