Reported attack hits South Pars natural gas field, an energy lifeline for Iran

FRANKFURT, Germany (AP) — Iran’s state media said Wednesday that Israel attacked its South Pars gas field — the largest in the world and one that is shared with Qatar to the south across the Persian Gulf.

Facilities associated with the gas field near Asaluyeh on Iran’s Gulf coastline were on fire on Wednesday, state media reported, and Iran vowed it would attack energy facilities in other Gulf countries in retaliation.

The Iran war has dealt a massive energy shock to the global economy by choking off exports of crude oil and liquefied natural gas through the Strait of Hormuz. Iran has also attacked key export facilities in its Gulf neighbors, putting more upward pressure on energy prices, even though Gulf neighbors Saudi Arabia, Qatar, Oman, Iraq and the United Arab Emirates are not taking part in the US-Israeli attacks on Iran.

In the case of South Pars, the energy shock would appear to have a different target: not Iran’s exports, but its biggest source of domestic energy supplies in a country that sometimes struggles to product enough electricity.

Here are key things to know about the South Pars field and the impact of the attack:

Iran uses a lot of natural gas, and 80% comes from South Pars

Iran relies heavily on gas to produce electricity and heat homes. It is the fourth-largest consumer of natural gas in the world, behind the US, China and Russia, according to the Center on Global Energy Policy at Columbia University, even though its economy is much smaller, In contrast to other Middle East countries, it uses gas for heating due to its cold climate and much of that use is subsidized, which discourages efficient use. South Pars is the main source.

Oil and gas prices have risen on news of the attack

Although South Pars mainly supplies Iran’s domestic needs, global oil prices rose and gas prices in Europe jumped 7% on the news due to fears of Iranian retaliation on Gulf energy infrastructure.

“The attack is a serious escalation which threatens retaliatory strikes on Gulf and Israeli production facilities,” said Andres Cala, geopolitical analyst at energy intelligence firm Montel News.

Iran has struggled with rickety energy infrastructure and shortages

Iran has suffered power shortages because of interruptions to gas supplies, even though on paper it has huge energy reserves. In July public buildings had to shut down when a heat wave strained the power grid.

Qatar and Iran both tap the world’s largest gas field

The gas field is called South Pars and on the Qatari side it’s called the North Field. Yet the two countries have made starkly different uses of the same underground reserves.

Qatar, which has a much smaller population, has invested billions in developing the field as a source of liquefied natural gas, which before the war it exported from its Ras Laffan facility. There, gas is chilled to a liquid and loaded on tankers that head for customers in Asia, who turn it back into gas form. It’s a lucrative business and has made Qatar the supplier of about a fifth of the world’s LNG.

Ras Laffan shut down after an Iranian attack, raising prices for natural gas in Europe even though Qatar’s LNG mostly goes to Asia. That is because the outage is increasing global competition for scarce cargoes that can be shipped anywhere.

Qatar’s condemnation of the attack is based on fears that Ras Laffan will be attacked again, said Anne-Sophie Corbeau, global research scholar at the Columbia center. “They are absolutely worried that they are the next in line … They are concerned about being hit by a drone and damage to their LNG facilities, because for them that would be really a disaster.”

Iran is another story. Sanctions and lack of investment mean that Iran feeds its gas into its own pipeline system and uses it domestically for cooking, heating homes, generating electricity, and as a raw material for industry. Iran exports relatively little, about 9 billion cubic meters, compared to Qatar’s more than 120 billion cubic meters. Iran’s export customers are Turkey and Armenia, both of which could access alternative supplies.

Iran tried to develop LNG for export, but was blocked by sanctions over its nuclear program

Iran once planned three LNG export projects on its Persian Gulf coastline, one with Total Energies and another with Shell. But sanctions have blocked the projects by barring the import of the needed technology and investment. A third site at Asulayeh — near the site of the attacks — is reportedly near completion after starting construction almost 20 years ago.