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The energy insecurity of Iran’s gas hub

February 1, 2023

In terms of energy supply, the small Persian Gulf coastal town of Asalouyeh is both Iran’s strategic strong point and its greatest vulnerability. Located in the Bushehr province, east of the Strait of Hormoz, Asalouyeh has been reshaped by the development of the nearby, supergiant South Pars gas field, developed offshore in the Persian Gulf, since the late 1990s. Due to its strategic significance, the area is specially administered by the Pars Special Economic Energy Zone (PSEEZ), which manages the industries and ports associated with Asalouyeh.

The South Pars gas field is the Iranian portion of Qatar’s North Dome, the largest gas field in the world. In its entirety, the field contains around 1,800 TCF (51 TCM) of gas. To put this into perspective, South Pars is almost five times larger than Groningen gas field in the Netherlands, Europe’s largest gas accumulation. The Iranian share is around 28%, or 14 TCM. 

Domestic gas market
South Pars is the dominant source of Iranian gas production, providing  60-70% of Iran’s total gas production on average. Chart 1 below shows the importance of natural gas in Iran’s energy mix, where natural gas provides almost two thirds of Iran’s energy. 

br /> Compare this with Turkey’s energy mix in Chart 2, which shows more balance and implies lower impact on that country’s energy security in case of gas supply disruption.

Domestic gasoline production
South Pars is also a significant producer of condensate, a petroleum liquid much lighter than crude oil produced alongside gas in South Pars at an estimated 700,000 barrels per day. Due to low Chinese demand for condensate, Iran constructed a new refinery in Bandar Abbas called Persian Gulf Star to process this feedstock at a maximum capacity of 360,000 barrels a day. This refinery has eased Iran’s dependence on expensive gasoline imports.

The availability of natural gas feedstocks have made Asalouyeh Iran’s most significant petrochemical hub. The area houses a dedicated petrochemical port direct for export to international markets. It also hosts 13 separate petrochemical plants that produce Dimethyl ether (DME), Methanol, High-density polyethylene (HDPE), Ethane, Styrene Monomer, Polystyrene, Ammonia, Urea and Olefins (e.g. Ethylene and Propylene), according to PSEEZ.

Asalouyeh is also a major job creator for Iran. Thousands of engineers and commercial staff who are not located in Asalouyeh perform tasks associated with plant operations and product exports. More importantly, around 60,000 personnel work in Asalouyeh, constructing new facilities and operating the existing plants. Unlike other industrial complexes in Iran, such as the Abadan or Tehran refineries, the workers in Asalouyeh are not from the local town; almost all of them are flown in from other parts of the country. Therefore, any strikes or demonstrations by the workers in Asalouyeh can spread and escalate as the workers communicate with families in their places of origin.

The Takeaway:
The key difference between Iran’s natural gas and crude oil networks is that the natural gas is more difficult to replace. If workers at its oil refineries go on strike and cause a supply disruption, Iran could resort to importing gasoline and diesel. Iran has done this for many years and has the infrastructure to offset the lack of production from one or two of its oil refineries. Meanwhile, Iran’s only option to replace a sudden dearth of gas supply was to import it from Turkmenistan. That contract has been suspended and a legal case is being pursued, as our previous reporting shows. Therefore, any gas supply disruptions in Asalouyeh would impact the Iranian regime, whether through a lack of gas to heat homes during the winter months, a halt of petrochemical exports, the need to import gasoline as the Persian Gulf Star refinery shuts down, or a potential disruption to gas exports to Turkey