Iran Petrochemicals Report Q3 2009

The merger of Oil Refineries Ltd (ORL) and Carmel Olefins Ltd (COL) will be completed in 2009 and will mark the further consolidation of the Israeli petrochemicals industry, enabling it to leverage synergies and improve efficiency, according to BMI's latest Israel Petrochemicals Report.

Anti-trust authorities acted to put the merger on hold in Q109 until businessman Leonid Nevzlin divested his stake from Modgal Industries, which has a 57% stake in Israel Petrochemical Enterprises (IPE), which owns 50% of ORL and a 15% stake in Carmel Olefins. In March, Modgal signed an agreement with Nevzlin to buy back shares from him. The deal for the purchase of Nevzlin's Modgal shares includes IPE's purchase of Alder Finance, another Nevzlin asset. Alder Finance's main asset is a US$115mn loan extended to Modgal for the purchase of the controlling stake in IPE. When the transaction is completed, Modgal will be owned by David Federman (50%) and Gima Investments (50%), which is an equal partnership between Jacob Gottenstein and Alex Passal. This will clear the way for government approval.

Expansion in the petrochemicals sector will be constrained by a lack of feedstock availability. Large-scale gas imports will also probably not be a feature during the forecast period, although could become a factor over the longer term, depending on the development outcomes of the Tamar find. In May 2008, natural gas began flowing through a new pipeline between El Arish to Ashkelon, with a contract agreeing supplies of 1.7bn cubic metres (bcm) per year for 15 years. Israel has also been looking to buy 2bcm of Russian natural gas a year delivered through a pipeline extended from Turkey. Eventually, the country could import up to 5bcm a year from Russia.

The commissioning of COL's new PP facilities has raised the company's PP production capacity from 200,000 tonnes per annum (tpa) to 450,000tpa. It has also expanded the production capacity of its monomers plant and other ancillary facilities. The new plant aims at alleviating PP shortage in Israel and significantly boosts the country's polyolefins capacity.

BMI forecasts that ethylene production will rise from 200,000tpa in 2006 to reach 450,000tpa by 2013, due to COL's expansion programme. PP capacity should remain at 450,000tpa beyond the forecast period, while PE capacity is not forecast to change from 165,000tpa. However, BMI expects new investment plans following the privatisation of ORL, with a likely expansion over the forecast period.

The Israeli petrochemicals industry business environment is relatively less favourable when compared to Middle Eastern rivals such as Saudi Arabia, with their large feedstock reserves and production capacity. It has a better competitive environment, however, given a broad product portfolio and an established downstream chemical industry. In BMI's Middle Eastern Petrochemicals Business Environment Rankings matrix, Israel remains in sixth place with a score of 55.7 points.