China's reduced access to Iranian oil and trade restrictions due to sanctions have significantly impacted the country's petrochemical industry. Mohammad Reza Shiri, a senior analyst in the gas and petrochemical industry, has analyzed the implications of these developments, examining the differences between oil and gas feedstocks in petrochemical complexes.
Differences in Petrochemical Feedstock
Shiri emphasizes that petrochemical products worldwide are primarily produced through two main pathways: gas feedstock and liquid feedstock. In complexes that use gas feedstock, gas is processed and separated into various components such as methane and ethane. Each of these compounds can serve as feedstock for specific units in the petrochemical industry. In contrast, petrochemical complexes that utilize liquid feedstock typically rely on naphtha and other refinery products. Therefore, the relationship between crude oil imports and petrochemical product production depends on the refining structure and the type of feedstock consumed by each complex.
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The Role of Iranian Oil in Meeting China's Needs
Shiri further points out that according to reports, about 10 to 15 percent of China's oil needs were supplied by Iran. These shipments were offered to Chinese buyers at a discount due to the sanctions, which contributed to their price advantage. However, with access to these resources now restricted, part of this price advantage has diminished. In such circumstances, the cost of replacing feedstock may increase, even if buyers can source their oil from other countries.
Shiri notes the economic impacts of feedstock shortages, stating that when the supply of a raw material decreases, the pressure on its price increases, and if restrictions persist, access to it becomes more difficult. This mechanism is also observable in the petrochemical product market.
Consequences for China's Petrochemical Industry
The reduction in refinery activity will directly impact China's petrochemical industry, as part of the raw materials needed for this industry comes from crude oil processing. Naphtha, as one of the refinery products, is used in the production of ethylene and propylene, and a decrease in the supply of this product could raise production costs for some petrochemical complexes.
However, China's petrochemical industry is not solely dependent on crude oil. Some complexes use gas feedstock while others utilize coal. Therefore, the reduction in Iranian oil imports may not have a uniform effect on all petrochemical units in the country.
Thus, the extent of damage to each unit depends on the type of feedstock used and the ability to source raw materials from alternative sources.
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