TEHRAN (Shana) -- Completion of value chain, preventing sales of raw resources and
materials and diversity in the production mix are keywords which have been
heard from Iranian petrochemical industry officials in recent years as a
necessity for the development of hydrocarbon industry.
Generally speaking, a value chain is a set of activities that a
firm operating in a specific industry performs, in order to deliver a valuable
product or service for the market. The idea of the
value chain is based on the process view of organizations, the idea of seeing a
manufacturing (or service) organization as a system, made up of subsystems each
with inputs, transformation processes and outputs. Inputs, transformation
processes, and outputs involve the acquisition and consumption of resources –
money, labor, materials, equipment, buildings, land, administration and
management. How value chain activities are carried out determines costs and
In more clear terms, it is a chain covering all activities
pertaining to commodity production and substance transformation, i.e. A to Z of
consumer products manufacturing. Now if we apply this definition to the
strategically important petrochemical industry, which is diverse in products,
its significance will take up added significance.
Since most petrochemical products, including polymers, constitute
the raw material for downstream industries and will be used in the value chain,
it may be concluded that petrochemical products are an intermediary commodity
which will generate value as it goes ahead throughout the value chain.
It may now be concluded that completion of value chain in the
petrochemical industry would mean supply of midstream and downstream
petrochemical products and supply of feedstock to petrochemical industry, which
has been put forward as a government priority.
Crude oil, associated gas and such products as butane, propane and
ethane need to be converted to end products in order to objectives to be
The petrochemical industry is a subsection of chemical industry,
whose products are derived from crude oil or natural gas. The features of
petrochemical industry include diversity of products and supply of feedstock to
thousands of downstream plants. That would be instrumental in economic growth
in terms of job creation, generation of hard currency value and independence.
Development of petrochemical industry requires projects which would
help complete the value chain and supply products of higher value added to feed
downstream petrochemical industry. Therefore, completion of value chain,
generation of higher diversity in products and upgrading the value of
petrochemical products with a focus on upgrading the role of petrochemical
industry in national economic indicators was put high on the agenda of
petrochemical industry. Plans made for petrochemical industry pursue a single
objective, which is to prevent selling of raw materials, compete the value
chain and convert basic and intermediary products to products of high
It must be taken into consideration that huge oil and gas reserves
provide easily accessible feedstock to the petrochemical industry for its
development in Iran. Given the advantage of feedstock, we have the chance to
move towards supplying finished products instead of selling raw materials.
Over recent years, we have witnessed a variety of projects lying in
such direction. Meantime, Iran’s sixth five-year economic development plan has
paved the ground for the balanced development of petrochemical industry and
completion of value chain. Therefore, a variety of polymer products, GTPP, etc.
have been envisaged for involvement in downstream projects.
Based on state plans, the petrochemical production capacity is set
to reach 180 million tonnes by 2025 and about 30 petrochemical projects are
envisaged for this purpose under the sixth development plan.
Value Chain Completion and Value Creation
Completion of value chain in the petrochemical industry constitutes
a significant strategy. Operation of new projects and building downstream units
alongside them may lead to the supply of final products and subsequently higher
value-added in production. In fact, Iran’s petrochemical industry must be
programmed so as to reduce selling raw materials in favor of completion of the
New SP Phases and Chain Completion
The petrochemical industry is the standard-bearer of value
creation. Following the startup of new phases of South Pars gas field, the
petrochemical industry is prioritizing maximum use of gas feedstock. To that
effect, the new projects are planned with a view to completing the value chain.
Value Chain and Job Creation
Another important aspect of value chain is job creation. When
downstream petrochemical projects have become operational, many opportunities
would be created for job creation. That would help prepare the ground for
Value Chain and Water
Completion of downstream projects in all provinces would reduce
dependence on water, reduce need for investment and create more jobs. These
advantages prioritize downstream petrochemical industry.
Value Chain and Neighboring Markets
Given consumer markets in neighboring countries, downstream
industries could capture the bulk of these markets. To that end, the downstream
petrochemical sector has the possibility of undergoing development on larger
swaths of Iran’s land.
Lower Investment Needs
Development of downstream petrochemical industry is significant in
terms of eradicating poverty, creating jobs, generating value and completing
the value chain. Compared with midstream and upstream industries, downstream
industry needs lower investment with a faster investment return.
Value Chain and Role in Economy
Reza Norouzzadeh, CEO of National Petrochemical Company (NPC) said Iran’s
petrochemical industry could help boost economic growth once the value chain is
completed and downstream industries are developed.
“The more the petrochemical sector fulfills its obligations, the
more value-added will be created,” he said. “Under such circumstances, we will
be able to create sustainable jobs and generate higher revenue within the
framework of resilient economy.”
Reza Mohtashamipour, director of downstream division of NPC, said
there was big potential in Iran’s downstream petrochemical industry.
He said that Iran’s installed petrochemical production capacity was
three to four times the current output.
“The priority in downstream industry development is not to create
new capacities, rather it is to use the existing capacities,” he added.
Value Chain and Profitability
Jafar Rabiei, newly-appointed CEO of Persian Gulf Petrochemical
Industries Company, said due to its profitability the issue of value chain was
being followed up on seriously.
“One of our plans is to create value-added and profits for our
stockholders. In our talks with the Ministry of Petroleum and Holdings, we have
discussed cooperation in feedstock supply in addition to letting our affiliates
step into completing the value chain,” he added. “For that purpose, we envisage
projects and we have held talks with foreign investors, including Chinese and
European, to bring capital and technology into Iran for expanding this chain
and supply products of higher value-added.”
Advantages of Downstream Petrochemical Development
Preventing raw materials selling, increasing nonoil
exports and pursuing resilient economy
Possibility of construction across the country to avoid
Creating high value-added
Contributing to fair distribution of wealth in Iran
Contributing to higher national security, particularly
along border areas
Driving national economy
Lower investment needs compared with upstream and
A higher rate of return on investment compared with
midstream and basic industries
Lucrative regional market
Diversity of downstream products including plastic, tire,
paint and resin, glue, compounds, detergents, etc.
Relative advantage in terms of access to necessary raw
Much lower pollution compared with other manufacturing
Courtesy of Iran Petroleum