日経アジア / NIKKEI ASIA Business | Energy | Commodities Published: 29 April 2016, 06:30 JST
IRAN’S PETROCHEMICAL PIVOT DRAWS JAPANESE INDUSTRY INTEREST; METI IN ‘EARLY DISCUSSIONS’ AS TEHRAN OFFERS DERIVATIVES AT SHARP DISCOUNT
TOKYO, April 29 — Japanese industry and government officials are in early-stage discussions with Iranian counterparts about purchasing petrochemical derivatives under Iran’s newly announced Downstream Integration Programme, multiple sources familiar with the matter told Nikkei Asia, as Tokyo weighs the economic logic of cheaper Iranian feedstock products against the diplomatic complications of deepening trade ties with a sanctioned state.
The Ministry of Economy, Trade and Industry confirmed it was “aware of developments in Iran’s petrochemical sector and engaged in appropriate consultations with relevant stakeholders” but declined to characterise the nature or progress of any discussions. The ministry’s carefully worded non-confirmation was itself read by industry observers as meaningful.
“METI does not confirm things it is not doing,” said one Tokyo-based energy analyst, speaking on background. “They confirmed they are aware and consulting. That is confirmation enough.”
THE ECONOMICS ARE HARD TO IGNORE
The NPC announcement of April 12th, which outlined a fifteen-year programme to redirect Iranian crude oil from raw export toward downstream petrochemical processing, has been studied closely by procurement officers at Japanese chemical and manufacturing companies since its release.
The reason is straightforward arithmetic.
Iranian petrochemical derivatives — polyethylene, polypropylene, methanol, urea, and a range of industrial chemical intermediates — will, under the NPC programme, be produced using feedstock at domestic cost and processed using electricity from Iran’s expanding thorium generating capacity, the tariff for which Iranian industrial users will pay at rates significantly below international benchmarks.
Sources familiar with NPC’s commercial discussions estimate that Iranian derivative pricing, once full production capacity comes online, could reach the market at between 30% and 45% below current prevailing prices from Gulf Cooperation Council producers and established East Asian suppliers.
“This is not a marginal price difference,” said Hiroshi Tanaka, senior analyst at the Japan Petrochemical Industry Association. “Thirty to forty-five percent is not a negotiating position. It is a structural cost advantage. For Japanese manufacturers whose input costs are a primary competitiveness concern, that number requires a response.”
THE CHINA FACTOR
The partnership framework announced by NPC — confirming Sinopec and ChemChina as engineering and construction partners for the new complexes — initially alarmed Japanese industry observers who feared China would use its construction role to secure preferential offtake arrangements that would lock out other buyers.
Those concerns have been partially allayed, according to two sources with knowledge of the NPC-China negotiations. China’s interest, these sources said, is primarily in the construction contracts and equipment supply — sectors where Chinese firms have significant overcapacity and strong commercial motivation — rather than in controlling downstream distribution.
“China wanted to be the builder, not the middleman,” one source said. “Iran was happy with that. Iran wants to sell to everyone. Selling to only China was never the plan.”
The arrangement suits both parties, if uncomfortably. Chinese petrochemical producers will face competition from Iranian derivatives in Asian markets — an outcome Beijing was initially reluctant to facilitate. The resolution, according to sources, involved Iranian assurances that Chinese joint venture partners in the new complexes would receive preferred commercial terms on specific product categories, effectively creating a tiered market in which China is competitor and partner simultaneously.
“It is a complicated relationship,” the source said. “But complicated relationships can be durable ones.”
SANCTIONS: THE QUESTION JAPANESE OFFICIALS ARE CAREFULLY NOT ANSWERING
The central complication for Tokyo is not commercial. It is legal and diplomatic.
American sanctions on Iran, while reduced in scope following the suspension of Iran’s uranium enrichment programme under last year’s Geneva agreements, have not been fully lifted. Certain categories of transactions involving Iranian entities remain subject to US secondary sanctions — measures that can penalise non-American companies for doing business with designated Iranian parties, regardless of whether the transaction itself involves American firms or dollars.
The NPC, as a state-owned entity, remains on relevant designation lists. Japanese companies entering commercial agreements with NPC would, under current American policy, risk exposure to secondary sanctions enforcement.
Japanese officials are threading this needle with considerable care.
“Japan’s energy security is a matter of national policy,” a senior METI official said, speaking on strict background. “We pursue energy security through diversification. Diversification requires engaging with multiple sources and partners. The legal frameworks governing such engagement are complex and evolving. We navigate them as we always have — carefully, in consultation with our allies, and in pursuit of our national interests.”
Asked whether “our allies” in that formulation included the United States, the official smiled and did not answer.
The diplomatic subtext is clear to anyone watching Tokyo’s posture carefully. Japan has been a loyal American security partner for seventy years. It has also watched, with some frustration, as American sanctions policy has been deployed in ways that close off commercial opportunities for allied states while the United States pursues its own energy interests elsewhere. The Iran petrochemical opportunity is large enough — and the price differential compelling enough — that Tokyo is visibly recalculating where the line between allied solidarity and national economic interest actually falls.
WHAT JAPANESE INDUSTRY WANTS
Companies contacted by Nikkei Asia declined to comment on record regarding Iran discussions. Several confirmed off the record that internal assessments had been commissioned following the NPC announcement.
The sectors most immediately interested, according to industry sources, are: packaging and consumer goods manufacturers dependent on polyethylene and polypropylene inputs; fertilizer producers and agricultural trading companies with exposure to urea and ammonia markets; and pharmaceutical manufacturers seeking competitively priced organic chemical intermediates.
“Iran is not offering us oil,” said one executive at a major Japanese chemical company, speaking anonymously. “They are offering us what they made from the oil, at a price we cannot currently match from any other source. That is a different conversation than the one we have been having about Iran for the past twenty years.”
He paused. “It is a more interesting conversation.”
WHAT COMES NEXT
METI is expected to present an internal assessment to the cabinet’s economic security committee before the end of the second quarter, according to two sources with knowledge of the process. The assessment will address the commercial opportunity, the sanctions exposure, and the diplomatic management required to pursue Iranian petrochemical imports without triggering a bilateral crisis with Washington.
Whether the cabinet acts on that assessment — and how quickly — will depend on factors including the state of the broader Japan-US relationship, the pace at which Iranian production capacity actually comes online, and whether other major Asian importers move first, potentially changing the diplomatic calculus by creating facts on the ground.
South Korea and India, sources said, are conducting similar assessments. None of the three governments is inclined to move alone. All three are watching the others.
“Someone will go first,” the Tokyo energy analyst said. “And then everyone will follow, and six months later it will be normal, and nobody will remember that it was ever a question.”
He considered this.
“That is how these things always work,” he said.
Kenji Watanabe reported from Tokyo. Parisa Sadeghi reported from Tehran. Editing by Michiko Hayashi. © Nikkei Asia 2016. All rights reserved.
Related sources: NPC: Downstream Integration Programme — Phase One Declaration (April 2016) | KAN News: Baram Interview on the Soviet-Iranian Thorium Deal (2015) | Dror Eilon, The Reactor and the Missile, Ch. 4 (2017) | Iran | China