Recently a new formula for pricing of gas feedstock to petrochemical complexes has been finalized and approved by first vice president Eshaq Jahangiri. The new prices of the light and sweet natural gas feed will be implemented from the beginning of the next Iranian year.

The formula is as below:

Feed price = 0.5 * price of domestic gas consumption in other sectors + 0.5 *  price of gas traded at international gas hubs

According to the issued formula, the price of gas feed has been affected by both internal and worldwide gas prices. The first part of newly issued formula is linked to the domestic gas prices which is weighted average of total amount of internal consumption, export and import of natural gas. The second part also affected by international gas prices and calculated as a weighted average of feed prices, traded at the natural gas trading hubs including Henry hub, Alberta, NBP and FFT. The higher and lower price belong to the markets of Europe and America respectively.

The components of formula for calculating internal prices is as below:

feedstock1

Domestic gas consumed by other sectors inserted in formula above refers to consumption of natural light and sweet gas which is used by household, government, transportation, public, and industrial sectors other than petrochemicals.

 

The price for domestic gas consumption calculated in the table below, assuming the related figures for each component:

feedstock2

 

Item amount / price
sales amount domestic (cubic meters) 180,000,000,000
imports amount (cubic meters) 7,000,000,000
local price (cents) 3.3
exports income (cents) 560,000,000,000
Imports expenses (cents) 245,000,000,000
exports amount (cubic meters) 16,000,000,000
USD/IRR 30,000
exports price (cents) 35
Imports price (cents) 35

 

Assuming prices of gas traded in natural gas trading hubs we have the average price as below:

 

Average price of international gas hubs 13.3
Henry hub 8.2
Alberta 6.8
NBP 17.0
FFT 21.2

 

Considering given assumptions mentioned above we determine the feed price 10.18 cents per cubic meter:

Feed price = 0.5*7.05 + 0.5*13.3 = 10.18 cents/cm3

Iranian petrochemical plants use about 13 billion cubic meters of gas per year, while some of them consume around 2.8 million tons/year of ethane.

The country produced 30.7 million tons of petrochemicals during 8 months of current fiscal year (started March 21st), about 3 percent more than the same period last year.

Petrochemicals share is 34.9 percent in the country’s total non-oil exports during 8 months of the fiscal year, standing at 18.787 million tons in volume (+55%), and $10.33 billion in value (+9%), according to the latest data of the Trade Promotion Organization of Iran.

To conclude, given that the international average price is about 13 cents and the feed price for petrochemicals is about 10 cents per cubic meter, which is around 30% cheaper than international prices, it will be more attractive to rational investors to hurry.