Adapting to a new environment

By Malini Hariharan

The blog has been regularly highlighting the changes to the Middle East petrochemical environment where feedstock issues have been clouding prospects for new cracker projects and also affecting operations at existing plants.

“We are trying to figure out at what price to offer gas or naphtha to ensure a project is viable and also give best returns for the resource to the country,” said a source from a state-owned upstream company in the region.

Ethane is no longer available in required volumes and the cost of extracting the little that is available is much higher than current prices, which are in the $0.75-3.50/MMBtu range across the region. As for propane, butane and naphtha, the source posed the question of whether they should be sold in the international market or provided to local projects at subsidised prices.

Parts of the Middle East are sitting on huge reserves of non-associated gas. But many of these reserves have high sulphur content and treating the gas could push up costs to more than $4/MMBtu.

Iran, with the world’s second-largest reserves, has for a long time had the potential to be a game changer, but its problems have multiplied after the recent round of sanctions by the US and the EU.

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Iran has now turned to Turkey for help. The two are discussing construction of an urea and an ammonia unit in the industrial hub of Assaluyeh in southern Iran, state-owned Press TV has reported. Talks include construction of a petrochemical plant in Miyandoab in western Azerbaijan province that can produce 539,000 tons of petrochemical products annually.

But Turkey has limited experience in this industry.

Ahmed Hassan of Alembic Global Advisors estimated in a recent report that Iran’s five crackers brought on stream from 2005 had experienced start-up delays of 18-24 months and operating rates in the 50-60% range during the first two years of production.

“Iran continues to suffer from extreme skilled labour shortages coupled with political-sanction-driven inability of foreign companies to do business with and in Iran,” he explained. “Additionally, once these facilities are eventually up and running they tend to operate at reduced operating rates as utilities and feedstock supply projects do not come on stream at the same time. We do not see this situation reversing any time soon.”

He pointed out that the latest sanctions were also likely to affect routine operations.

“Iranian petrochemical producers may also see reduced operating rates stemming from import restrictions. Iran imports from Europe a large amount of catalysts, additives and specialty polymers which are not produced in the country,” he said.

And another headache for Iranian companies, which are gradually being privatised, is rising feedstock costs as the government is keen to obtain a better value for its gas resources.

The country’s ability to draw foreign investors is getting increasingly restricted and in the absence of foreign money, technology and expertise, completion dates of its many projects – with a total ethylene capacity of around 5m tonnes/year – remain highly elastic.

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