Events | Number 3, December 2003 | National Value Added

National Value Added

M H Peyvandi, Director of Planning & Development Department, NPC

There is hardly anyone who doesn’t know that most of the hydro-carbon reserves of the world lie under the grounds of the Middle East: about 72% of total world oil reserves and about 39% of total gas reserves, and Iran possesses 18% of total world gas reserves, largest next to Russia.

Furthermore, the Middle East, and the Persian Gulf in particular, occupy a most strategic position between the
developed Europe on the West and a fast developing region on the East with Japan as a key figure in that region. Both sides need hydrocarbon supplies.

In the past, Middle Eastern countries sold their oil and gas as raw materials without any value added. Down to the 1970s the petrochemical industry had three major centers: North America, Europe and Japan. These countries would import cheap hydro-carbons from the Middle East and ship back value added petrochemical products to the same area.

As a result of events that occurred in the 60s and 70s with respect to the supply of oil and its price, caused by the Arab-Israeli war of 1967, and the ensuing oil shock, and later the emergence of OPEC and later still the Islamic Revolution of Iran and then the 8-year war imposed on Iran, the oil market underwent severe fluctuations. The price of oil rose considerably and so did the prices of petrochemical products. Ultimately the
suppliers of the raw material – oil – thought of developing their own petrochemical industries and benefiting from the value added. This was given impetus by the fact that the population in Asia was large and was rapidly
growing, even in the Middle East itself. Thus the Middle Eastern suppliers thought it wiser to bring in production facilities and produce the much demanded petrochemical products in their own countries which were much
closer to India and China, two countries that had enormous populations and rapidly growing economies, especially China.

Then, late 80s and early 90s, the South Pars Gas Field was discovered in the Persian Gulf as the world’s largest independent gas field shared by Iran and Qatar. The good things about gas are that: 1) it is ideal
feedstock for the petrochemical industry; 2) it is not subject to the same fluctuations as oil is. Oil prices are susceptible to many factors: economic, political, regional,… but not gas, which is a regional product and cannot
be economically transported over long distances. The price of Middle Eastern gas is, therefore, in the hands of Middle Eastern people. Immediately the issue was incorporated into the country’s Third Socio-Economic and Cultural Development Plan and from then on any petrochemical plant that was put up was gas-based.

They use gas coming directly form the gas fields or gases that escape as oil is pumped out from oil wells, gases that in the past were considered as nuisance and were burnt up. We are expanding our petrochemical industry very rapidly and we have no worry as to the future demand in Asia. Although Asian counties, especially China, are also expanding their petrochemical industries, we feel certain that they will continue to need our petrochemicals, particularly as they do not have easy access to gas as raw material for petrochemical production and oil products are no longer costeffective raw materials for this industry; they cannot compete
with gas.

Another point to bear in mind is the enormous advances made in technology from the 70s till now. Advances in electronic technology and in IT have resulted in great achievements in control systems. Today, with an
effective control system you can produce 300,000 tons/year of petrochemical products with the number of staff and workers who could produce 50,000 tons/year only in the 70s. Thus, in Europe the existing petrochemical industries are gradually going out of production because:
1. cost of gas as raw material is lower
2. the production capacities of the 70s and 80s are no longer cost-effective, and
3. the traditional machinery, equipment and facilities are wearing out.

All this means that gradually the older facilities will disappear and that new markets will open to our products. For these reasons we are encouraged to make considerable investment in our petrochemical industry both in the third and fourth Five-Year Plans as well as in our plan called “Horizon-2015” and the “20-Year Horizon”.

According to these plans export of petrochemical products shall constitute a major part of our future development plans. So much so that by the end of the fourth plan or the fifth at the latest petrochemical products shall make up 50% of our total non-oil exports; and by non-oil exports we mean all exports
except oil and gas in the crude or natural form, i.e. all industrial, agricultural, handicraft etc etc exports.

Therefore the petrochemical industry has set itself certain aims with respect to making optimum use of gas resources in making basic products such as methanol, polyethylene, polymers, aromatics, urea and ammonia all of which come directly form gas. So far most of the gas used in the newer petrochemical plants, such as those of the Special Petrochemical Zone, come from the gas and oil fields of Khuzistan. But soon gas from South Pars Field shall be connected by pipelines to Khuzistan and gases shall be transferred from Assalouyeh
to the Zone. These gases will be used either as fuel in the petrochemical plants or as raw material. Of course by fuel we do not mean direct heating through flames, but use in power plants as well.

We, at the National Petrochemical Co, feel we have a serious mission and duty: we are not only responsible for
developing our petrochemical industry but the Iranian industry as a whole. Therefore, we do our utmost to use domestic potentials in the development and creation of new plants. For example, in our PET projects, although they are being created in Iran for the first time, the entire detailed engineering, over 17% of the static equipment, 100% of construction work… are being done by Iranians. Naturally we cannot expect a work that is
being done for the first time ever, to be perfect. During the actual implementation of the project we may have to apply certain changes and modifications…

But all this will be greatly constructive as we are bound to learn a great deal from them. In fact, the petrochemical industry can help develop our machinery and equipment manufacturing sector by encouraging them to make new parts and tools.

Today, you would not find one single large workshop in the country that is not somehow engaged in one of the
petrochemical projects. Nor can you find a single engineering consulting firm that is not overloaded with work from the petrochemical industry. And I consider all this to be National Value Added and not sectoral value added. You could say that the petrochemical industry is building a sound industrial future for Iran.