Iran petchem targets value chain completion

SHANA – Completion of value chain, preventing sales of raw resources and materials and diversity in the production mix are keywords which have been heard from Iranian petrochemical industry officials in recent years as a necessity for the development of hydrocarbon industry.

Generally speaking, a value chain is a set of activities that a firm operating in a specific industry performs, in order to deliver a valuable product or service for the market. The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labor, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

In more clear terms, it is a chain covering all activities pertaining to commodity production and substance transformation, i.e. A to Z of consumer products manufacturing. Now if we apply this definition to the strategically important petrochemical industry, which is diverse in products, its significance will take up added significance.

Since most petrochemical products, including polymers, constitute the raw material for downstream industries and will be used in the value chain, it may be concluded that petrochemical products are an intermediary commodity which will generate value as it goes ahead throughout the value chain.

It may now be concluded that completion of value chain in the petrochemical industry would mean supply of midstream and downstream petrochemical products and supply of feedstock to petrochemical industry, which has been put forward as a government priority.

Crude oil, associated gas and such products as butane, propane and ethane need to be converted to end products in order to objectives to be realized.

The petrochemical industry is a subsection of chemical industry, whose products are derived from crude oil or natural gas. The features of petrochemical industry include diversity of products and supply of feedstock to thousands of downstream plants. That would be instrumental in economic growth in terms of job creation, generation of hard currency value and independence.

Development of petrochemical industry requires projects which would help complete the value chain and supply products of higher value added to feed downstream petrochemical industry. Therefore, completion of value chain, generation of higher diversity in products and upgrading the value of petrochemical products with a focus on upgrading the role of petrochemical industry in national economic indicators was put high on the agenda of petrochemical industry. Plans made for petrochemical industry pursue a single objective, which is to prevent selling of raw materials, compete the value chain and convert basic and intermediary products to products of high value-added.

It must be taken into consideration that huge oil and gas reserves provide easily accessible feedstock to the petrochemical industry for its development in Iran. Given the advantage of feedstock, we have the chance to move towards supplying finished products instead of selling raw materials.

Over recent years, we have witnessed a variety of projects lying in such direction. Meantime, Iran’s sixth five-year economic development plan has paved the ground for the balanced development of petrochemical industry and completion of value chain. Therefore, a variety of polymer products, GTPP, etc. have been envisaged for involvement in downstream projects.

Based on state plans, the petrochemical production capacity is set to reach 180 million tonnes by 2025 and about 30 petrochemical projects are envisaged for this purpose under the sixth development plan.

Value Chain Completion and Value Creation

Completion of value chain in the petrochemical industry constitutes a significant strategy. Operation of new projects and building downstream units alongside them may lead to the supply of final products and subsequently higher value-added in production. In fact, Iran’s petrochemical industry must be programmed so as to reduce selling raw materials in favor of completion of the value chain.

New SP Phases and Chain Completion

The petrochemical industry is the standard-bearer of value creation. Following the startup of new phases of South Pars gas field, the petrochemical industry is prioritizing maximum use of gas feedstock. To that effect, the new projects are planned with a view to completing the value chain.

Value Chain and Job Creation

Another important aspect of value chain is job creation. When downstream petrochemical projects have become operational, many opportunities would be created for job creation. That would help prepare the ground for further development.

Value Chain and Water

Completion of downstream projects in all provinces would reduce dependence on water, reduce need for investment and create more jobs. These advantages prioritize downstream petrochemical industry.

Value Chain and Neighboring Markets

Given consumer markets in neighboring countries, downstream industries could capture the bulk of these markets. To that end, the downstream petrochemical sector has the possibility of undergoing development on larger swaths of Iran’s land.

Lower Investment Needs

Development of downstream petrochemical industry is significant in terms of eradicating poverty, creating jobs, generating value and completing the value chain. Compared with midstream and upstream industries, downstream industry needs lower investment with a faster investment return.

Value Chain and Role in Economy

Reza Norouzzadeh, CEO of National Petrochemical Company (NPC) said Iran’s petrochemical industry could help boost economic growth once the value chain is completed and downstream industries are developed.

“The more the petrochemical sector fulfills its obligations, the more value-added will be created,” he said. “Under such circumstances, we will be able to create sustainable jobs and generate higher revenue within the framework of resilient economy.”

Existing Capacities

Reza Mohtashamipour, director of downstream division of NPC, said there was big potential in Iran’s downstream petrochemical industry.

He said that Iran’s installed petrochemical production capacity was three to four times the current output.

“The priority in downstream industry development is not to create new capacities, rather it is to use the existing capacities,” he added.

Value Chain and Profitability

Jafar Rabiei, newly-appointed CEO of Persian Gulf Petrochemical Industries Company, said due to its profitability the issue of value chain was being followed up on seriously.

“One of our plans is to create value-added and profits for our stockholders. In our talks with the Ministry of Petroleum and Holdings, we have discussed cooperation in feedstock supply in addition to letting our affiliates step into completing the value chain,” he added. “For that purpose, we envisage projects and we have held talks with foreign investors, including Chinese and European, to bring capital and technology into Iran for expanding this chain and supply products of higher value-added.”

Advantages of Downstream Petrochemical Development

  • Preventing raw materials selling, increasing nonoil exports and pursuing resilient economy
  • Possibility of construction across the country to avoid industrial centralization
  • Creating high value-added
  • Contributing to fair distribution of wealth in Iran
  • Contributing to higher national security, particularly along border areas
  • Driving national economy
  • Lower investment needs compared with upstream and midstream industries
  • A higher rate of return on investment compared with midstream and basic industries
  • Lucrative regional market
  • Diversity of downstream products including plastic, tire, paint and resin, glue, compounds, detergents, etc.
  • Relative advantage in terms of access to necessary raw materials
  • Much lower pollution compared with other manufacturing industries