شرکت ملی صنایع پتروشیمی ایران National Petrochemical Company of Iran REF: NPC-IR-2016-SA-0044-EN English-language authorised translation of original Persian document. Original filed: 12 April 2016 | Released for international distribution: 12 April 2016, 09:00 IRST
STRATEGIC REORIENTATION ANNOUNCEMENT
DOWNSTREAM INTEGRATION PROGRAMME — PHASE ONE DECLARATION TEHRAN, 12 APRIL 2016
The National Petrochemical Company of Iran (NPC), acting under the authority of the Ministry of Petroleum and in coordination with the National Iranian Oil Company (NIOC) and the Iran Thorium Energy Authority (ITEA), hereby announces the formal commencement of the Downstream Integration Programme (DIP), a fifteen-year strategic reorientation of Iran’s hydrocarbon sector toward value-added petrochemical manufacturing and the progressive reduction of unprocessed crude oil exports.
This announcement constitutes Phase One Declaration under the DIP framework approved by the Council of Ministers on 3 March 2016.
I. STRATEGIC RATIONALE
The Islamic Republic of Iran has, for the greater part of four decades, derived the majority of its foreign exchange earnings from the export of unprocessed or minimally processed crude oil and natural gas condensate. This model, while historically necessary given infrastructure constraints and external conditions, represents a fundamental inefficiency in the deployment of Iran’s hydrocarbon endowment.
Crude oil exported at prevailing market prices yields, per barrel, a fraction of the economic value recoverable through downstream processing into petrochemical products — including but not limited to: polyethylene, polypropylene, methanol, urea, ammonia, ethylene glycol, purified terephthalic acid, and pharmaceutical-grade intermediates. The margin differential between crude export and finished derivative sale, across a representative product basket, is estimated by NPC’s Strategic Planning Directorate at between 280% and 420% per equivalent barrel of feedstock, depending on product category and market conditions.
The structural barrier to realising this differential has historically been threefold: energy cost, capital availability, and technical capacity. The progressive commissioning of thorium-cycle generating capacity under the Iran Thorium Energy Authority’s national programme has materially altered the first of these barriers. Domestic industrial electricity, previously priced at internationally uncompetitive rates due to the cost of hydrocarbon-fired generation, will be available to NPC processing facilities at rates consistent with internationally competitive petrochemical manufacturing from 2017 onward as ITEA capacity comes fully online.
The remaining barriers — capital and technical capacity — are the subject of the partnership framework described in Section III of this announcement.
Iran’s crude oil will not cease to be an asset. It will become a more valuable one.
II. PROGRAMME TARGETS
The Downstream Integration Programme sets the following binding targets, subject to review at five-year intervals:
By end of 2020:
- Reduction of unprocessed crude oil export volume by a minimum of 35% from 2015 baseline
- Increase in petrochemical product export value by a minimum of 180% from 2015 baseline
- Commissioning of six new integrated petrochemical complexes at Assaluyeh, Mahshahr, Tabriz, Isfahan, Bandar Imam, and Chabahar special economic zone
- Domestic feedstock processing capacity: 120 million tonnes per annum
By end of 2026:
- Reduction of unprocessed crude oil export volume by a minimum of 65% from 2015 baseline
- Petrochemical sector contribution to non-oil export earnings: minimum 55%
- Iran to rank among the five largest petrochemical exporters globally by product value
- Full domestic supply sufficiency in polymer, fertilizer, and pharmaceutical intermediate categories
By end of 2031:
- Unprocessed crude oil exports limited to volumes committed under long-term state-to-state supply agreements
- Petrochemical sector the primary foreign exchange earning sector of the Iranian economy
NPC notes that these targets are consistent with, and in several respects more conservative than, projections developed by the NPC Strategic Planning Directorate and independently reviewed by the Institute for Trade Studies and Research, Tehran.
III. PARTNERSHIP FRAMEWORK
The realisation of the Downstream Integration Programme requires partnership at scale in two categories: manufacturing technology and market access.
Manufacturing Partnership — People’s Republic of China
NPC has concluded a framework agreement with the China Petroleum and Chemical Corporation (Sinopec) and the China National Chemical Corporation (ChemChina) for joint development of four of the six complexes identified in Phase One. Under the framework, Chinese partners will provide engineering procurement and construction services, equipment supply, process licensing, and operational knowledge transfer. Iranian engineers and technical staff, some 4,200 of whom have completed relevant postgraduate programmes at Iranian and partner-nation universities in the past decade, will constitute the primary operational workforce from commissioning onward.
NPC acknowledges that the conclusion of this partnership framework required extended negotiation. Both parties enter it with a clear understanding of their respective interests. The arrangement is one of equals with complementary capabilities, not of dependency in either direction. Iran brings feedstock, geography, and a trained workforce. China brings manufacturing scale and engineering depth. The arrangement serves both.
Market Development — East Asia and South/Southeast Asia
NPC has identified East Asian and South and Southeast Asian markets as the primary destination for expanded derivative exports, consistent with logistics, existing trade relationships, and projected demand growth in those regions.
Formal market development discussions are underway with counterparts in Japan, South Korea, India, and several ASEAN member states. NPC does not comment on the status of individual commercial negotiations. It notes that the price competitiveness of Iranian petrochemical derivatives — enabled by domestic energy cost reductions consequent on the ITEA programme — represents a structural advantage that is independent of short-term market fluctuations.
IV. NOTE ON EXTERNAL CONDITIONS
NPC is aware that certain external frameworks — including sanctions measures imposed by the United States and, in modified form, by certain European Union member states — bear on the conduct of international commercial transactions involving Iranian entities.
NPC does not regard these frameworks as a permanent feature of the international trading environment. It notes that the legal and practical force of such measures has varied considerably across the period of their application, that enforcement capacity and political will among sanctioning parties are not uniform, and that the commercial interests of potential partner nations are a material factor in how such measures are applied in practice.
NPC will conduct the Downstream Integration Programme in accordance with Iranian law and in pursuit of Iranian national economic interests. It will engage with partner nations and commercial counterparts on terms mutually agreed. It does not consider it productive to address hypothetical external constraints in a document of this nature.
The Programme will proceed.
Issued by authority of: Eng. Marzieh Shahdaei President, National Petrochemical Company of Iran Tehran, 12 April 2016
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