24 October 2010
The rise in the purchase prices of main raw materials required for petrochemical units will create more competition in production sector, a report published in Persian daily Jaam-e Jam said.
As the time comes closer to the implementation of government's plan to scrap subsidies, which will certainly change the prices of energy products, more concerns are emerging about the rise of feedstocks of petrochemical complexes.
Petrochemical sector, as a strategic and mother industry, produces raw materials for production units and factories of the country.
Its main feed includes natural gas, ethane, gas condensates, naphtha, and gas liquids which will be considered as raw materials for other industries.
Under Vision 2025 macro plan of oil industry, the petrochemical production capacity is to reach 126 million tons annually from current level of 48 million tons.
Therefore, the petrochemical industry should consume 209 million cubic meters of natural gas per day by 2025. Currently, it consumes 35 cubic meters of natural gas.
So, we should see that how the petrochemical prospect could be in Vision 2025 once the energy subsidies are target-oriented.
Feed Price
One of the former managers of National Iranian Petrochemical Company told the newspaper that currently the country's natural assets are wasted due to their low prices. Although huge investment is made for producing gas as the main feedstock of petrochemical industry, it is supplied to producers at a meager price, the informed source said.
If the government wants to include feed of petrochemical units in the subsidy reform plan, it should increase the price gradually within five year, the official said.
Sudden rise in the feed price is not in the interest of petrochemical industry, he warned.
If the feed price rises on a logical base, the price of manufactured product should be 30 percent of the final price for those units which consume natural gas feed.
Implementation of subsidy plan in petrochemical industry and rise in feed price would be in favor of everyone, he said. Because transparency in price will prevent false prices and create more competition, he added.
However, some petrochemical producers believe that petrochemical industries will face closure in case of rise in gas price.
Safar Alibabaei, managing director of Morvarid Petrochemical Complex, said the current price of feed should be maintained for the sake of petrochemical industry.
Attracting capital, creating a competitive environment with Persian Gulf states in investing, increasing production capacity, having bigger share in global market, and creating jobs are among the major factors in petrochemical industries that depends on the proper pricing of feed, he added.
This is while, Abdolhossein Bayat, deputy oil minister for petrochemical affairs, said implementation of subsidy plan and rise in feed price will not damage the petrochemical industry. Instead, it creates more competition in the market, he added.
Price Formula
Meanwhile, Mohsen Khojastehmehr, deputy oil minister for planning affairs, said the price formula proposed by the ministry will not hurt petrochemical industry. Because prices have been adjusted in accordance with economic indicators in new petrochemical projects, he pointed out.
He predicated that once the new price formula is set, the expansion of petrochemical industries will be economically sound and they become more profitable.
The official explained that the price formula is set through the price of refined gas which is exported via pipeline or LNG vessels. The price formula has been set following precise studies, he added.
In addition, Ali-Mohammad Bassaqzadeh, a senior official in National Iranian Petrochemical Company said setting a new price for petrochemical feedstock will promote capital return of petrochemical units. In addition, it will help accelerate construction of new units, he added.
Feed price has witnessed an unbridled rise in recent weeks. Petrochemical industry experts attribute the price hike to rise in gasoline production, decrease in production of petrochemical products and even rise in price of dollar and euro.
Oil Minister Masoud Mirkazemi ruled out any decline in production of petrochemical products.
Masoud Mirkazemi explained that only two petrochemical units entirely produce gasoline, while the other four have allocated a portion of their capacity to gasoline production.
Head of Presiding Board of Association of Petrochemical Industry Employers Morteza Azizi, said the pricing formula has been set only for units that use naphtha feed which is 65 percent of FOB price in the Persian Gulf.
However, no pricing formula has been set for units which use gas feed, he added.
Competitive Environment
But, some experts believe that the petrochemical feed pricing should not obey subsidy reform plan.
Instead, it should follow the competition environment of Persian Gulf region.
The government must avoid selling petrochemical feed in higher price in an effort to help development of the industry.
Otherwise, the capital will fly to countries which offer better prices.
Majority of petrochemical companies operate with two naphata and natural gas feedstocks. Ambiguities exist on their prices and NIPC officials say the new prices will not be declared until the implementation of subsidies law.
In another development, privatization of petrochemical industry can help draw a better picture.
Petrochemical subsidies helped the profiteers. However, removal of subsidies from petrochemical products and liberalizing their prices in the past two years created a more competitive condition for suppliers of petrochemical products.
So implementation of subsidies law and rise in price of feedstock will have a major impact on development of the industry.
Production Capacity
Petrochemical industry managed to produce 34.4 million tons of petrochemicals last year. However, due to shortage of feedstock, close to 13.6 million tons of petrochemical capacity have remained idle.
Over $20 billion is required for expanding the industry and tapping the entire 50 million ton capacity.
Implementation of subsidies law can help attract domestic and foreign investment given the profitability of petrochemical industry.
NIPC earlier announced that Turkey plans to assist Iran with the construction of two petrochemical plants in southern and western Iran.
The announcement comes as the United States has voiced impatience with continued foreign cooperation in Iran's energy sector, despite its latest unilateral sanctions targeting Iran's oil and gas industry.
The rise in the purchase prices of main raw materials required for petrochemical units will create more competition in production sector, a report published in Persian daily Jaam-e Jam said.
As the time comes closer to the implementation of government's plan to scrap subsidies, which will certainly change the prices of energy products, more concerns are emerging about the rise of feedstocks of petrochemical complexes.
Petrochemical sector, as a strategic and mother industry, produces raw materials for production units and factories of the country.
Its main feed includes natural gas, ethane, gas condensates, naphtha, and gas liquids which will be considered as raw materials for other industries.
Under Vision 2025 macro plan of oil industry, the petrochemical production capacity is to reach 126 million tons annually from current level of 48 million tons.
Therefore, the petrochemical industry should consume 209 million cubic meters of natural gas per day by 2025. Currently, it consumes 35 cubic meters of natural gas.
So, we should see that how the petrochemical prospect could be in Vision 2025 once the energy subsidies are target-oriented.
Feed Price
One of the former managers of National Iranian Petrochemical Company told the newspaper that currently the country's natural assets are wasted due to their low prices. Although huge investment is made for producing gas as the main feedstock of petrochemical industry, it is supplied to producers at a meager price, the informed source said.
If the government wants to include feed of petrochemical units in the subsidy reform plan, it should increase the price gradually within five year, the official said.
Sudden rise in the feed price is not in the interest of petrochemical industry, he warned.
If the feed price rises on a logical base, the price of manufactured product should be 30 percent of the final price for those units which consume natural gas feed.
Implementation of subsidy plan in petrochemical industry and rise in feed price would be in favor of everyone, he said. Because transparency in price will prevent false prices and create more competition, he added.
However, some petrochemical producers believe that petrochemical industries will face closure in case of rise in gas price.
Safar Alibabaei, managing director of Morvarid Petrochemical Complex, said the current price of feed should be maintained for the sake of petrochemical industry.
Attracting capital, creating a competitive environment with Persian Gulf states in investing, increasing production capacity, having bigger share in global market, and creating jobs are among the major factors in petrochemical industries that depends on the proper pricing of feed, he added.
This is while, Abdolhossein Bayat, deputy oil minister for petrochemical affairs, said implementation of subsidy plan and rise in feed price will not damage the petrochemical industry. Instead, it creates more competition in the market, he added.
Price Formula
Meanwhile, Mohsen Khojastehmehr, deputy oil minister for planning affairs, said the price formula proposed by the ministry will not hurt petrochemical industry. Because prices have been adjusted in accordance with economic indicators in new petrochemical projects, he pointed out.
He predicated that once the new price formula is set, the expansion of petrochemical industries will be economically sound and they become more profitable.
The official explained that the price formula is set through the price of refined gas which is exported via pipeline or LNG vessels. The price formula has been set following precise studies, he added.
In addition, Ali-Mohammad Bassaqzadeh, a senior official in National Iranian Petrochemical Company said setting a new price for petrochemical feedstock will promote capital return of petrochemical units. In addition, it will help accelerate construction of new units, he added.
Feed price has witnessed an unbridled rise in recent weeks. Petrochemical industry experts attribute the price hike to rise in gasoline production, decrease in production of petrochemical products and even rise in price of dollar and euro.
Oil Minister Masoud Mirkazemi ruled out any decline in production of petrochemical products.
Masoud Mirkazemi explained that only two petrochemical units entirely produce gasoline, while the other four have allocated a portion of their capacity to gasoline production.
Head of Presiding Board of Association of Petrochemical Industry Employers Morteza Azizi, said the pricing formula has been set only for units that use naphtha feed which is 65 percent of FOB price in the Persian Gulf.
However, no pricing formula has been set for units which use gas feed, he added.
Competitive Environment
But, some experts believe that the petrochemical feed pricing should not obey subsidy reform plan.
Instead, it should follow the competition environment of Persian Gulf region.
The government must avoid selling petrochemical feed in higher price in an effort to help development of the industry.
Otherwise, the capital will fly to countries which offer better prices.
Majority of petrochemical companies operate with two naphata and natural gas feedstocks. Ambiguities exist on their prices and NIPC officials say the new prices will not be declared until the implementation of subsidies law.
In another development, privatization of petrochemical industry can help draw a better picture.
Petrochemical subsidies helped the profiteers. However, removal of subsidies from petrochemical products and liberalizing their prices in the past two years created a more competitive condition for suppliers of petrochemical products.
So implementation of subsidies law and rise in price of feedstock will have a major impact on development of the industry.
Production Capacity
Petrochemical industry managed to produce 34.4 million tons of petrochemicals last year. However, due to shortage of feedstock, close to 13.6 million tons of petrochemical capacity have remained idle.
Over $20 billion is required for expanding the industry and tapping the entire 50 million ton capacity.
Implementation of subsidies law can help attract domestic and foreign investment given the profitability of petrochemical industry.
NIPC earlier announced that Turkey plans to assist Iran with the construction of two petrochemical plants in southern and western Iran.
The announcement comes as the United States has voiced impatience with continued foreign cooperation in Iran's energy sector, despite its latest unilateral sanctions targeting Iran's oil and gas industry.
Domestic Economy Desk
© Iran Daily 2010
