TEHRAN Sep 1 (Shana)–Deputy head of Iran’s National Petrochemical Company said petrochemical products cannot be easily sanctions as is the case for crude oil.
Speaking with the Bloomberg News, Mohammad-Hassan Peyvandi, deputy head of National Petrochemical Company, said the petrochemical industry cannot be easily sanctioned, because the side that sanctions the products will loose more than the sanctioned country.
The following is the verbatim copy of Peyvandi’s interview with the Bloomberg News on 26th 2014.
BN: What is the latest about the sanctions and Iran’s petrochemical industry?
I want to make something clear. The petrochemical industry cannot be easily sanctioned.
And maybe that’s the reason why the first favor within the Geneva talks from the P5+1 side was freeing the export of petrochemicals.
Petrochemical products and the export of petrochemical products cannot be sanctioned anywhere in the world, whether it’s Iran or any other countries.
Petrochemicals are international commodities. But they have a difference with other raw materials.
You receive raw materials from a source. Because there are equivalents to it around the world you can say that, for example, we won’t buy crude oil from country X, and so we’ll tell country Y to increase its production capacity to reach that level.
There’s not a big difference in crude oil from country to country, maybe there are differences in density for instance. But it’s different with petrochemical products. Hundreds of millions of tonnes of methanol or polymers are exported and on the other side of the world there are factories which are dependent on large volumes of these products.
Petrochemicals come from factories, not reservoirs. If you say that today, for instance, I won’t buy this petrochemical product from Iran, then you don’t have another alternative source from which you can instantly get it – because it doesn’t come from a reservoir, it comes through five years of investment.
So the reason why you can’t put sanction on petrochemicals is because it doesn’t have an immediate alternative elsewhere in the world.
So therefore, the interests of the side that is imposing the sanctions, actually will damage more than the interests of the exporting country which is under the sanctions.
And it’s because of this that they say there won’t be sanction on petrochemical exports.
Sanctions affect the margins of the industry, outlying areas for instance shipping, insurance – these encounter problems and (the negotiators) are aware that they have to resolve this problem.
When industrial countries impose sanctions on other countries, they actually end up putting sanctions on themselves.
BN: What are the latest production/export levels of Iran’s petrochemical industry?
According to the Iranian calendar, we can say nearly 13 million tonnes is the petrochemical industry’s export level, and the production level is 40.6 million tones.
The rest, 13 minus 40.6, is for domestic consumption, this is what I can tell you today. This is by the end of (20) March 2014.
BN: I spoke to one NPC top managers and he estimated that Iran’s petrochemical has the potential to generate $90 billion dollar revenue. What do you think about this revenue estimate?
This prediction was a bit optimistic, because, putting sanctions aside, although we are hopeful that the November talks will reach a good, win-win outcome. If this does happen, then yes the situation will be better.
But in general, petrochemical projects in our country cannot be completed in less than five years.
Carrying out multi-million dollar projects in less than five years is not possible because, especially in our country, we use high volumes of domestic facilities/capabilities. Iran is different from countries like Saudi Arabia, Qatar and southern Persian Gulf states because all their whole package of implementation, from technical knowledge to implementation itself, is 100 percent dependent on foreigners. Many of the contracts are “turn-key”, many contracts are concluded on a “lump sum” basis and all the responsibility is with the foreign side, or they are 100 percent joint ventures.
But in our country we have domestic engineering capabilities, construction capabilities and installation capabilities and in Iran’s petrochemical sector there’s no foreign involvement at all, in all of this 40 million tonnes or so of production. You can’t see a similar statistic anywhere else in the Persian Gulf.
We receive our (required) technology and some basic engineering from overseas, but the rest is all made in Iran.
BN: What are the existing problems on the way of exporting petrochemical products including insurance?
There are problems with exporting petrochemicals, but they relate to problems surrounding insurance. But we also have another problem in this regard, concerning side-products.
We have some side-products that correspond with in some ways to fuel, but they are side-products.
Well when we cannot export a side-product, because it’s seen as a fuel, it affects our main product.
These are complicated, technical problems, and unfortunately in the negotiations, there is no oversight of these details.
For instance, in petrochemicals, liquid petroleum gas (LPG) is produced as a side-product but LPG, is counted as a fuel. This fuel for the National Oil Company, for refineries, is sanctioned, because it’s fuel.
But petrochemicals correspond in name to LPG, but we might export this as a fuel to somewhere. But when we cannot transport this, because it’s a fuel, it has an impact and we have to decrease the production of the main product.
BN: Did the Geneva deal improve things? I heard from a businessman it was very difficult to ship petrochemicals.
The situation is better now, we can’t say it’s the same as two years ago. But people who write such things are politicians – we can’t expect politicians to have technical knowledge, at least it cannot be the same as mine!
It’s not a confidence issue. This problem is not very yet clear in their (P5+1’s) directives.
The P5+1 have understood this issue well. I don’t really need to say it, but Iran is neither Iraq, Afghanistan, nor an Arab country, nor even Turkey. This is the strength of the country. The capabilities of the country are very high. The sanctions have not, therefore, had an impact on the capabilities of the country.
In areas yes, perhaps from a humanitarian point of view it has affected things. Why for instance should you put sanctions on or ban access to technical knowledge and equipment and components related to civil aviation? This is something that people want to use in order to travel.
These sorts of things are very negative in terms of the sanctions. They are negative for humanitarian reasons.
BN: Can you support firms who have made losses because of sanctions?
What we do is through the Foreign Ministry. They are the side involved in the P5+1 talks. We relay our concerns to the Foreign Ministry so that when they are in negotiations they are aware of what each our concerns are.
BN: Is the lack of clarity in the deal deliberate?
It’s not deliberate, it’s more related to their knowledge of the complicated nature of problems of exporting. It’s about the commodity, shipping, insurance and money transfers – that’s the most important problem, transferring money.
At the end of the day, all of that is included in the framework of the issue of the P5+1 negotiations, but from our point of view, from the 40 million tonnes or so, 13 million tonnes is for export and the country hasn’t therefore suffered.
The person who is the consumer of the product, because it’s the other side that was in need of the exports, then Iran’s problems have not been particularly deep.
Problems arise when the other side has an issue with commodities that are analogous with fuel.
BN: Has the Geneva deal improved things, increased exports?
Yes, it has got better. We can say that there are fewer problems. But as I said because petrochemical exports is something that these countries need themselves, we have fewer problems compared with last year.
What I’ve been telling you applies to the first four months of this year.
In the past three to four months, we’ve had between 4 to 6 percent progress in our general operations, including production and export. It also has to do with new management as well.
But this is also down to the fact the country is coming out of a stagflationary period. I can say it’s not very much related to sanctions removal. The management has changed, there is more active management.
It’s not that the Geneva deal has not had an impact, what I want to say is that there are many variables in this issue.
But we can say that there has been progress.
There are fewer problems in the export of petrochemicals. But problems like insurance and the problems with transferring of money do exist. We are hopeful that in general the result of the P5+1 talks, in the way that our Foreign Ministry is proceeding, will be successful.
We have a desire to see more investment in the petrochemicals industry, because we have the potential that others don’t have. But let’s not forget that the industry is now privatised. When the industry is privatised, then there’s no problem when it comes to investment.
BN: Are foreign companies showing interest to come back to Iran’s petrochemical market?
After all, everything depends on the result of the P5+1 negotiations in November. If anyone tells us that they are interested but the result of the talks is not positive, then we have to believe that they interested – they are after making a profit at the end of day. Everyone wants to serve their own interests.
We’ve not insisted (on any company approaching us) and this is so that a problem doesn’t arise for anyone. Right now at least the petrochemicals industry has reached a good level of self-sufficiency.
In the Middle East we’re the only country that has a variety of reactors, a variety of heat exchangers/transformers and turbine machinery. Recently, for instance, we’ve been able to build wind turbines above 2.5 megawatts.
Because internal manufacture is doing this job.
I’ve not heard of either Dow Chemical or Du Pont wanting to come back.
Of the US firms, the only one which is interested in working with us is UOP. We’re not in contact with them. But their technology, in terms of quality is something that I like. It’s developed. The company has good processes.
BN: What are Iran’s petrochemical industry’s major projects?
We have a large volume of half-finished projects. Projects with around 55-60 million tonne output capacity are half-finished. It’s a part of our plans to complete these projects. And this is not a small undertaking; it needs around 30 billion dollars of investment for its completion.
We’ve also quantified around $40 billion for new projects, according to the capacity of the country. We’re not in need of new investment, from the government point of view – because the sector is privatised, the investment needs to go there. We’ve just stipulated this as part of the long-term strategy of the industry.
BN: What can you tell us about Chabahar?
Chabahar is a new hub for petrochemicals. It’s benefit is that we’ll be about 1000 km from the sea, close to global markets – that’s the main point of Chabahar. We can do something that Qatar, Saudi Arabia and Kuwait cannot do, because we have a long coastline, we (Iran) can invest in every point of this coastline.
We are building the foundations and infrastructure of this hub at the moment. In the future we may have foreign investors.
For this project around $20 billion of investment will be needed.
BN: How long will it take to complete?
It depends on the situation. Firstly gas feedstock needs to be transmitted there. All of the development there is based on feedstock.
BN: What is the feedstock discount for producers of petchems?
We can’t say that there’s a discount. The price for feedstocks is 13 US cents per cubic metre of natural gas and for fuel it’s 4 cents per cubic metre. This is by law according to the government and Majles.
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