SPECIAL REPORT: IRAN

IMPLICATIONS OF THE
PARTIAL LIFTING OF
SANCTIONS IN IRAN

August 2014
By Hetain Mistry, Senior Analyst, Petrochemicals

the way to a speed up

Could thisinlead
polyethylene capacity?

WWW.PLATTS.COM/PETROCHEMICALS

Implications of the Partial Lifting of Sanctions in Iran

At the end of last year, a key diplomatic breakthrough was

announced relating to Iran and its current trade and
economic sanctions, following their nuclear armament policy.
The announcement concerned a temporary freeze to their
nuclear policy, in return for modest relief from UN and
Western sanctions. In return for Iran significantly reducing
its nuclear activities, the UN would suspend certain
sanctions on gold and precious metals, Irans auto sector and
Irans petrochemical exports. Overall, the deal could deliver
around $7 billion in relief to Iran, according to US estimates,
which would boost a number of industries. The focus of this
paper is to look at the impact it may have on Irans
polyethylene industry, which has suffered following the
recent embargoes.
Over the years, the Western embargo of Iranian product has
restrained Irans ethylene/polyethylene expansion plans and
current operations. Iran is the only Middle East country with
proven gas reserves greater than Qatar, and proven oil
reserves that can compete with Saudi Arabia.
Figure 1: Existing Iranian Ethylene Capacity (000) mt
Producer
Location Nameplate
Capacity
Abadan Petrochemical

Abadan

Amir Kabir Petrochemical Co.

Amir Kabir

28
520

Arak Petrochemical

Arak

Arya Sasol Polymer Co.

Assaluyeh Bushehr

250
1000

Bandar Imam Petrochemical Co.

Bandar Imam

315

Ilam Petrochemical Company

Ilam

490

Jam Petrochemical Co.

Assaluyeh

1320

Kavyan Petrochemical Assaluyeh 2000

Marun Petrochemical Co.

Assaluyeh

Morvarid Petrochemical

Assaluyeh

1200
500

Tabriz Petrochemical

Tabriz

136

Source: Platts Petrochemical Analytics

The easing of sanctions, the feedstock resources available,

and expectation for a more liberal approach have all meant
that Irans petrochemical capacity is expected to increase
over the medium to longer term. Furthermore, it could lead to
an improvement of the general economy and, more
specifically, the energy and petrochemical/chemical sector.
Prior to the sanctions, Iran had targeted a number of
petrochemical investments. For example, the country had
announced multiple petrochemical capacity additions along
the ethylene and polyethylene value chain. These series of
announcements were spurred on by the attraction of utilizing
their vast gas reserves in order to extract cheap advantaged
ethane feedstock.

However, the sanctions were gradually turning the screw on

the industry and as a result, these new expansion plans
were faced with delays and, existing facilities had technical
difficulties operating. Key issues such as the lack of foreign
engineering assistance, as well as host of major
international technology providers, such as Lyondell Basell
withdrawing their PE technology as a result of the
sanctions, delayed progress. The government also diverted
feedstock to the refining sector to help stabilise domestic
transportation needs. This resulted in a general slowdown
in new project execution, as well as hindering the operation
of existing facilities.
Furthermore, the lack of material and technical expertise in
overseeing operational plants and existing infrastructure
led to the quality of polymer being compromised. Much of
the polyethylene had a high failure rate as these new units
came on stream. This was due to high impurity levels
owing to technical difficulties, and a lack of maintenance
on these plants.
Also, with the curb on gasoline imports, the Iranian
government was forced to convert several petrochemical
facilities to produce gasoline; namely aromatics units.
Earlier in 2013, statements from Irans National
Petrochemical Company suggested that petrochemical units
were producing around 8-10 million litres of gasoline, which
accounted for approximately 15% of domestic gasoline
consumption. Within this current production agreement,
Irans oil exports will be protected at their current levels,
preventing further cutbacks to constrain the refining sector.
As a result, this could imply a gradual reversal in the above
trend of converting petrochemical producing facilities to oil
orientated supply sites.
Even though the easing of sanctions has not had a massive
impact on the current PE flow, if sanctions are eased further
it could hasten the construction of future projects and
exports of polyethylene could increase. In the shorter to
medium term, Iranian producers are expected to retune their
operations for significant exports and increase production.
Many Iranian polymer plants are operating at 30-40% of
their nameplate capacities due to operational difficulties as
a result of the embargoes and are now expected to see
improvement; but the timeline and the actual status of
these units is difficult to determine due to the lack of
transparent information.
For example, Arya Sasol brought on line a 300 000 mt/year
PE unit in Iran in early 2009 however the plants operating
rate has been low due to various problems, relating mainly to
feedstock shortages. Also, Laleh also successfully
commissioned a 300 000 mt/year PE unit in 2009 and again
faced technical difficulties when operating.

PLATTS SPECIAL REPORT: IRAN |

Implications of the Partial Lifting of Sanctions in Iran

Figure 2: Iranian Exports Prior to Sanctions

Asia (83.47%)
EU (13.78%)
FSU (2.49%)
Africa (0.2%)

Source: Platts

In the medium to longer term, as producers acquire more

equipment and engineering assistance, progression in existing
Producer/Product Nameplate
project developments and planned new capacity coming on
Capacity
stream is a likely outcome. Currently, Iran is getting limited
HDPE
relief in exporting its petrochemical products and importing
NPC, Tabriz (50% of Swing Unit)
50
technology and machinery to help the wider industry, as a
NPC 06, Bandar Imam (50% of Swing Unit)
150
result of the agreement it struck with the key Western powers.

Figure 3: Current Iranian PE Plants (000) mt

NPC 11, Mahabad (50% of Swing Unit)

150

NPC 11, Khoramabad (50% of Swing Unit)

150

NPC, Arak

85

NPC, Bandar Imam

150

NPC, Ilam

300

NPC, Mamasani

300

NPC, Assaluyeh

300

NPC 06, Bandar Imam

140

NPC 07, Bandar Imam

300

NPC 09, Assaluyeh

300

Jam Petrochemicals, Assaluyeh

300

NPC 11, Kermanshah

300

An essential caveat to existing facilities improving operating

rates and new projects coming on stream in the Islamic state
is catalyst availability. Polymer producers are likely to find it
easier to import essential catalysts for their existing plants
to boost operating rates, as well as have the resources to
plan for new ones. During the period of full sanctions, the
lack of catalysts was a major constraining factor to
operations. According to Irans National Petrochemical
Company NPC, several producers were either running their
plants at lower capacities or had shut their units in the
absence of catalysts.

LDPE
NPC 07 -- Bandar Imam

125

NPC 09 -- Assaluyek

300

LLDPE
NPC, Tabriz (50% of Swing Unit)

50

NPC 06, Bandar Imam (50% of Swing Unit)

150

NPC 11, Khoramabad (50% of Swing Unit)

150

NPC, ARAK

75

Jam Petrochemical

300

NPC 11, Mahabad (50% of Swing Unit)

150

Source: Platts Petrochemical Analytics

Despite the government in the middle of 2013 opening two

facilities that could make catalysts for use in PE production,
progress has been limited. This is because several
petrochemical producers who have built plants in collaboration
with Western technology providers preferred imported
catalysts. With the easing of sanctions and the potential for
more liberalisation to come, Iran may be in a position to import
more catalyst in order to boost the nations PE production.
Platts Petrochemical Analytics current analysis has projected
that around 1 million mt of HDPE capacity is likely to come
on stream between 2013 and 2025, as well as 600,000 mt of
LLDPE capacity and 600,000 mt of LDPE capacity in the same

PLATTS SPECIAL REPORT: IRAN |

Implications of the Partial Lifting of Sanctions in Iran

timeframe. This outlook is based on known information on

certain projects as well making assumptions due to the lack
of clear information, on the progression of various other
projects. Many developments in the pipeline in recent years
have amended their original time of completion dates, due to
stalling of various engineering phases.

Figure 4: Iran PE Supply / Demand Balance

8000

(000 mt)
Total Capacity
Production Forecast
Demand Forecast
Surplus / Deficit

7000
6000

Platts Petrochemical Analytics, in conjunction with partnering

engineering consultant B21st, track global cracker projects
that allow us to monitor when projects will come on stream,
based on current information. This allows us to estimate
whether timelines are being met and for Iran they are not.
Furthermore, with these estimated times of completion, we
also categorize what is on track, off track and risk of delay.
Figure 5 illustrates that currently all Iranian cracker projects
are off track and have suffered significant delays versus their
original completion dates and face further delays in relation
to the estimated completion dates.

5000
4000
3000
2000
1000
0

25

24

22

21

20

23

20

20

20

20

20

19

18

17

16

15

14

13

20

20

20

20

20

20

20

20

Source: Platts Petrochemical Analytics

Figure 5: Iran Ethylene Cracker Projects

Project

City/
County/
Province

Gachsaran Petrochemical
Gachsaran

FEED
Bidders/
Awarded

FEED EPC
Stage Bidders/
Year Awarded

Estimated Feedstock Original

Nameplate Status
EPC
Use
Announced Capacity
Stage Year Estimate Completion (000) mt

Mitsui Engineering 2009 Mitsui Engineering

& Shipbuilding & Shipbuilding

Ilam Petrochemical Phase-2 Ilam

2012

1000

Off track

Q3 2018

Ethane

2015

450

Off track

Q3 2018

Ethane/
Propane

2008

1000

Off track

Q3 2018

National Petrochemical
Company (NPC) Olefins 12

Ethane

2014

1000

Off track Q3 2018/2019

Linde

2008 Linde

2007

Ethane

National Petrochemical
Assaluyeh Linde
2004 Linde
2015
Company (NPC) Olefins 11
Assaluyeh

2005

2015

Estimated
Year of
Completion

2016

Source: Platts / B21st

Historically, the timing of these projects has always been

subject to delay due to the aforementioned issues. Also, the
construction of these new projects has been restrained by
local government restrictions, requiring that mostly local
contractors and staff are involved in the building of new
projects and these resources have been in short supply.
Additionally, the timing and reliability of utility and feedstock
provision have been problematic as well as the lack of plant
operators, limiting utilization and functionality.
Some of the new plants are also dependent on the new
ethylene pipeline network (West Ethylene Pipeline), which in
turn depends on the Olefins 11 project for feedstock. The first
phase of the pipeline which is 1,200 km (744 miles) long has
connected Kavian Petrochemical Companys Olefin 11 plant
located in the Pars Special Economic Zone at Assaluyeh to
Arvand Petrochemical Companys complex at Bandar Imam
Khomeyni in Khuzestan province. Iran has made a concerted
effort to promote the development of a downstream polymers
industry since starting the first phase of the West Ethylene
pipeline in December 2012. The second phase is designed to
stretch the pipeline to 2,700 km from the south to the northwest
has just been completed in March of this year according to our
latest information, ahead of our initial estimates of early 2015.
The Olefins 11 project is managed by Kavian Petrochemical,
and consists of two new ethane-based steam crackers at

Bandar Assaluyeh, each with a capacity of 1 million mt/year

of ethylene. There appears to be considerable challenges in
achieving commercial production from these plants, and
shipping the ethylene to consumers along the pipeline.
However, the latest information from within Iran suggests
that the second cracker is expected to come on stream by
March 2015.
As well as the development of pipelines and associated
projects, effort has been made by the Iranian government
to try and promote an attractive business environment for
petrochemical producers. This is evident by the state giving
incentives such as 15-year tax holidays and attractive rates
for feedstock gas supplies to petrochemical producers
wanting to build new plants. However, much of these
incentives failed to encourage further investment and hasten
the construction of new ethylene and PE facilities due of the
limitations bought on by sanctions.
The issue above and others documented earlier meant that
there were a lot of announced PE projects that have not
seen any progress in recent years. These series of projects
are not included in our forecast currently, but could be in the
future if the easing of sanctions gains momentum and does
speed up the growth of Irans petrochemical industry in terms
of capacity expansions.

PLATTS SPECIAL REPORT: IRAN |

Implications of the Partial Lifting of Sanctions in Iran

Already, there are indications of existing projects we have in

our forecast coming on stream sooner than anticipated. The
Iranians are pushing ahead with a trio of polyethylene
projects, which are planned to start up in March 2015.
These projects consist of Lorestan/Bakhtar Petrochemical
companies 150,000 mt/year linear low density polyethylene
plant, Kordestan Petrochemicals 300,000 mt/year low density
polyethylene facility and finally Mahabad Petrochemicals
150,000 mt/year linear low density polyethylene plant. All the
projects are expected to source the ethylene feedstock from
the West ethylene pipeline. Although a note of caution must
come with the announcements, as history proves that these
projects do not always come to fruition, despite official
agencies stating they will.

A significant boost in HDPE capacity is expected, outweighing

the other two key commodity grades as Iran has already
established a leading position in the regional LDPE market,
with its capacity overtaking Saudi Arabia in recent years.
As figure 8 shows, around 1 million tons of HDPE supply
could be added above the base case and LLDPE capacity
could increase by close to 300,000 tons by 2025, with
incremental volumes coming online from 2018. For LDPE,
potential extra volumes could come on line from 2017, adding
an additional 300,000 tons by the end of the outlook period in
this alternative scenario. Annual operating rates for polymer
plants in the outlook period are expected to average 86%.
Figure 8: Incremental Supplies from Additional Projects

Figure 6: Iranian PE Projects included in Base Case

(000 mt)

1800

Company
Location Product
Capacity Start up
(mt/year)

1500

NPC 11 Kordestan PC

Sanandaj

Mahabad Petrochemical Mahabad

NPC 11 Andimeshk PC

300,000

2016

HDPE/LLDPE 300,000
Swing Plant

2014

Andimeshk LDPE

900

2015

LLDPE

300,000

2017

600

Dehdasht, HDPE
Kalachou
Desert

300,000

2015

300

Boroujen Petrochemical Co Halvaie

Desert,
Baroujen

HDPE

300,000

2015

Source: Platts Petrochemical Analytics

Platts Petrochemical Analytics have undertaken some

analysis to show an alternative scenario, which includes the
announced Iranian projects omitted from our current
scenario. This would result in an additional 1.6 million mt/
year of PE capacity expected to come on stream by 2025, and
the majority of this will comprise of extra HDPE capacity. The
alternative scenario projects that most of this capacity with a
question mark will come on stream between 2015 and 2020.
Figure 7: Potential Iranian PE Capacity (000 mt)
Company
Location
Product Capacity Start up
(mt/year)
Miandoab Petrochemical

Miandoab

HDPE

140

2015

Kazeroon Petrochemical

Kazeroon

HDPE

150

2015

Mamasani Petrochemical

Mamasani

HDPE

300

2016

Fasa Petrochemical Co

Fasa

LDPE

300

2017

Jahroom Petrochemical

Jahroom

HDPE

150

2018

Jahroom Petrochemical

Jahroom

LLDPE

150

2018

Darab Petrochemical

Darab

HDPE

300

2018

Dehloran Sepehr

Dehloran

HDPE

150

2020

Dehloran Sepehr

Dehloran

LLDPE

150

2020

LDPE
LLDPE
HDPE

1200

300,000

GAN FAN
Asaluyeh
Bushehi
NPC (National
Petrochemical Co) 20% /
Dehdasht Petrochemical
Industry

LDPE

(000 mt)

2013

2015

2017

2019

2021

2023

Source: Platts Petrochemical Analytics

With demand growth within Iran expected to remain around

2.5% per year for the forecast period, production will far
outweigh domestic demand. This will result in the likelihood
of Iranian PE exports increasing significantly above what is
already estimated in our base case projection. The majority
of these exports are expected to go to Asia, as demand is set
to remain strong, growing at around 6% CAGR over the next
ten years. This additional volume will help the Middle East
defend its strong structural dominance of exports to Asia in
the longer term. This boost in flow will also help the region
defend its controlling position into Africa and Europe.
In terms of Europe, the Middle Eastern share of PE imports
into the region is around 70% and this stronghold is likely to
continue for longer if Iranian exports increase, potentially
protecting the Gulfs position from incremental PE coming
from the US into Europe over the next few years. During the
period 2015 to 2017, Platts expects the total Americas surplus
to increase gradually to a peak of 2.5 million mt in 2017 (as
figure 9 indicates), as the majority of US ethane based
capacity additions come online. Even though most of the US
PE additions will find a home in Central and South America,
this illustrates that overall the Americas will stay in surplus
and this flow is expected to end up in Europe and Asia.

Source: Platts Petrochemical Analytics

PLATTS SPECIAL REPORT: IRAN |

Implications of the Partial Lifting of Sanctions in Iran

Figure 9: Total Americas Surplus/Deficit

3000

Figure 11: Middle Eastern PE Net Trade

(000 mt)

8000

(000 mt)

Base Case
Alternative
(Additional Iranian Supply)

6000

2000

4000

1000

2000
0
0
-1000

2000

-2000
-3000

2013

2014

2015

2016

2017

2018

2019

2020

Source: Platts Petrochemical Analytics

2013

2015

2017

2019

2021

2023

2025

Source: Platts Petrochemical Analytics

Prior to the sanctions, Asia and the EU were the key

destinations for Iranian PE exports. With the easing of these
restrictions, plastics exports from Iran could gain momentum
over the medium term if there is swifter capacity
development. If our alternative scenario plays out and this
additional 1.6 million mt of capacity comes online by the end
of forecast period, Iran could become a major petrochemical
power in the future.
Figure 10: Iranian Exports Prior to Sanctions

High feedstock costs are unlikely to be a restraint on project

execution as Iranian producers still have a feedstock
advantage globally despite not having the cheapest gas/
ethane prices available. Variable production costs are
relatively in line with US ethane based producers but not as
low as the regional average, which consist of Saudi Arabia,
Qatar, UAE and Iran. According to some industry sources,
Iranian ethane prices are the highest regionally, with levels
at $3.5/mmbtu, against a regional average of $2.06/mmbtu.
Figure 12: Ethylene Variable Cost 2013
600

$/mt
Cost per ton of production

2.49% 0.20%

Africa Total
Asia Total
Central & South
America Total
EU Total
FSU Total

13.78%
0.06%

500
400
300
200
100

83.47%

Middle
East

US
Ethane

Iran

WE
Naphtha

NE Asia
Naphtha

Source: Platts Petrochemical Analytics

Source: Platts Petrochemical Analytics

Figure 13: Regional Ethane Prices

In our base case, Platts observe that all of the Middle

Eastern surplus could struggle to service the deficits for its
key markets (Asia, Europe and Africa) by 2020, allowing for
potential competition from the US. However, figure 11
shows, if these potential Iranian supplies come online, our
alternative scenario shows that Middle Eastern supplies will
be adequate through 2020.

$/mmbtu

3.5
3
2.5
2
1.5
1
0.5
0

Saudi Arabia

Qatar

Source: Platts Petrochemical Analytics

PLATTS SPECIAL REPORT: IRAN |

UAE

Iran

Implications of the Partial Lifting of Sanctions in Iran

Additionally, Iran have the second largest gas proven

reserves globally (second to Russia) of around 1,688 (tcf)
according to the EIA and with the current easing of
sanctions, build rates of existing delayed ethylene cracker
projects are expected to speed up and potential new projects
will take advantage of these gas reserves. The cracker
projects in our analysis are expected to use ethane as the
majority feedstock.
Figure 14: Iranian Cracker Feedstock Use
1600
1400

(000 mt)

Butane
Propane
Ethane
Naphtha

1200

Unlike, Saudi Arabia who now are looking at alternative

feedstocks and speciality petrochemicals to diversify their
industry, Iran are still utilising their cheap gas feedstock to
expand their commodity PE industry, due to falling behind the
regional curve in recent years. Use of ethane is expected to
increase from 5.3 million mt/yr in 2013 to 9.1 million mt by
2024 as figure 14 illustrates.
Overall, despite some unknowns we expect Iran will increase
ethylene and polyethylene capacity over the next ten years,
given the easing of sanctions. Iran have the existing facilities
and plans for new projects in place, coupled with ample
access to competitively priced feedstock and if the political
situation continues to ease, Iran will once again establish
itself as a major player again for global petrochemical markets.

1000
800
600
400
200
0

2013 2014 2015 2015 2017 2018 2019 2020 2021 2022 2023 2024

Additional reporting by:

Andrew Allan
Nandita Lal
Daved Chohan
Shashank Shekhar

Source: Platts Petrochemical Analytics

PLATTS SPECIAL REPORT: IRAN |

FOR MORE INFORMATION, PLEASE CONTACT THE PLATTS SALES OFFICE NEAREST YOU:
Web www.platts.com
E-mail support@platts.com
NORTH AMERICA
+1-800-PLATTS8 (toll-free)
+1-212-904-3070 (direct)

EMEA
+44-(0)20-7176-6111

LATIN AMERICA
+54-11-4804-1890

ASIA-PACIFIC
+65-6530-6430

RUSSIA
+7-495-783-4141

2014 Platts, McGraw Hill Financial. All rights reserved.

Reproduction of this publication in any form is prohibited except with the written permission of Platts. Because of the possibility of human or mechanical error
by Platts sources, Platts does not guarantee the accuracy, adequacy, completeness, or availability of any Platts information and is not responsible for any
errors or omissions or for the use of such Platts information. Platts gives no express or implied warranties, including, but not limited to, any implied warranties of
merchantability or fitness for a particular purpose or use. In no event shall Platts be liable for any direct, indirect, special, or consequential damages in connection
with subscribers or others use of this publication.

PTSR0077 0814