INSIGHT: Sanctions on Iran open doors for some

22 November 2006 17:38  [Source: ICIS news]

By Florence Tan

TEHRAN (ICIS news)--Economic sanctions may have made life harder for Iran and shunted investment from most western countries but they are opening doors for others to come in and become partners in the booming chemicals sector.

One of them is Venezuela which has signed a series of bilateral deals with on oil, gas and petrochemicals development. These include a $1.6bn (€1.2bn) joint venture between Iran’s National Petrochemical Co (NPC) and its Venezuelan counterpart Pequiven to build 3.3m tonnes/year of methanol capacity.

China has also fast tracked to becoming a close partner. Besides buying large quantities of crude oil, Chinese petrochemical major Sinopec is working closely with the National Iranian Oil Co (NIOC) to build new refineries in Iran to help alleviate the country’s gasoline shortage.

Iran’s petrochemical industry, which is in dire need of technologies to expand its production range, has also turned to searching for licensors in China.

It found acetic acid technology but the search is still on for vinyl acetate monomer (VAM), polyvinyl alcohol (PVA) and phenol/acetone processes as it seeks to leverage further it's position as the holder of the world's second largest conventional oil reserves.

Most developed countries have closed their doors as Iran pushes on with its nuclear energy programme. Trading in US dollars is near impossible and obstacles abound for traders looking for banks to open letters of credit or for petrochemical technology licensors.

Nuclear sanctions have made it tough, for instance for Fanavaran Petrochemical to import the much needed zirconium and hastelloy plant needed for its acetic acid project.

If further sanctions are imposed that bar imports of chemicals such as additives, more petrochemical producers will be hit.

The situation also doesn’t bode well for development in downstream industries. Investors, even rich Iranians, are deterred by geopolitical risks and local banks have become reluctant to hand out loans following a recent move by the government to lower interest rates.

But the industry is hopeful that when new petrochemical capacities eventually come on stream, prices will become more competitive and draw investors to the downstream industries.

However, the much anticipated avalanche of petrochemicals from Iran has not yet begun. Problems plague NPC’s plans, pushing back the start-up of its Olefins No 7, 9 and 10 projects.

The recent management changes at NPC have also put paid to some initial studies and put foreign projects on hold. One of these is a fertilizer joint venture with India which could be revived under the new management

Iran’s private sector, however, is still keen to join the petrochemicals race and some companies have started their search for technologies. The going is expected to be tough with sanctions on-going. One investor has already been turned down by a Japanese licensor.

But this will not stop Iranians who are used to navigating their way around obstacles, not unlike attempts to get out of daily traffic jams in Tehran.

Iran’s abundant resources will continue to prove attractive. They will help draw in new friends such as China to replace the old and provide much needed technologies to help push the petrochemicals expansion along.

By: Florence Tan
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