Iran possesses 9% of the world’s proven oil reserves and around 16% of gas, according to figures of the Iranian Energy Ministry. This abundance of hydrocarbon reserves has helped the country to launched massive investment in a move to monetize its feedstock. This is in spite of the US led sanctions which have impacted the country’s ability to become the preeminent supplier of petrochemicals, due to the restrictions on foreign investments in the country. Iran has invested enormous amounts of capital to set up large downstream petrochemical industry with value-added products, in a drive to boost profits, provide jobs to its growing population and diversify its exports. Between 1963 and 1986 the country built up capacity to supply fertilizers, and petrochemical products for domestic consumption. In this period, several petrochemical complexes were built. With the end of the Iran Iraq war, Iran began restoration efforts, which included the reconstruction of damaged complexes due to the war during its first development plan from 1989 to 1994, and the construction of several projects including Esfahan and Arak petrochemical companies, as well as completion of Bandare Emam complex. It was followed by the development of an export orientated industry and privatization in the period from 1995 to 1999. Since 2000, Iran export its petrochemicals products to international markets when it privatized industry and begun exporting and focusing on research and development centres. In contrast to its GCC neighbours, Iranian petrochemicals producers face a feedstock problem during winter, as the Iranian government tends to reduce ethane allocations as it channels gas for domestic use due to the fierce weather. This situation forces petrochemical companies to switch to liquid or other lighter feedstocks. In Late December 2010, Iranian news agency Mehr reported that the government has decided to increase the price of gas feedstock to petrochemicals plants to reflect the price of its exported gas and Japan’s oil-linked gas price. The new price formula for crude oil, condensates, ethane, methane and enriched gas as feedstock for petrochemical plants has been set in line with the country’s recent move to scrap fuel subsidies. Gas will be supplied to local industry at 29% of the gas export price and represents a 4% pa increase. Iran’s petrochemicals plants have been forced since August to switch some units to produce gasoline due to sanctions. Managers of petrochemicals plants in Iran, which have already suffered in recent months from a switch to gasoline production to meet local demand, had asked for the price of gas feedstock to be set at a rate that would allow them to compete with regional rivals such as Saudi Arabia, where Saudi Aramco supplies industrial giant SABIC with feedstock at US$0.75/ million BTU. They have argued that pricing feedstock at too high price would result in bankruptcy. Iran’s petrochemical plants consume 12 billion cubic meters of gas per year, according to Iranian energy ministry. Deputy Oil Minister for Planning Affairs said that gas would be sold to petrochemicals plans at 700 rials (US$0.673) per cubic meter and that the price would rise gradually each year. It is predicted that the price of gas as feedstock for petrochemical plants will increase to 65% of Iran’s gas exports basket over a ten-year period. Iranian President has implemented a program for the phased removal of costly subsidies on fuel and other commodities while at the same time raising the price of products such as gasoline, diesel and kerosene. This has led to the fall of fuel consumption across the country. The oil ministry says that diesel consumption, which was at 60 mln litres a day is now at 55 mln litres. Managing director of the Arya-Sasol Petrochemical Company, Abbas Sheri Moghaddam, has called for “reasonable feedstock prices. Sufficient and reliable feedstock is needed at prices comparable with rival countries for at least 25 years, asking that the authorities help in efforts to increase production, profits and exports of petrochemicals, a major industry in the OPEC state. Arya-Sasol uses ethane, propane, hexane and propylene as feedstock to produce ethylene, heavy and light polyethylene and heavy carbon cuts. Most of Iran’s petrochemical plants have been privatized though they still require government support to be able turn profit. The start up of mega petrochemical production facilities in Iran and in Saudi Arabia has intensified competition between the countries, both vying for a slice of China’s petrochemicals market. While Iran seems to be in a weaker position because of the sanctions, it has managed to make impressive inroads into the Chinese market with booming exports of high density polyethylene and methanol, surging past Saudi Arabia in just a couple of years. Though Iran has made headway into China and was strengthening its position as major petrochemical supplier for Asian markets, sanctions have dented exports to some extent but remain ahead of regional competition in terms of market share. (Author: Abdelghani Henni, Source Refining and Petrochemicals ME )