Stuck in a (Gulf) You Can’t Get Out Of – Iran War Traps Propane and Refined Products in Persian Gulf

A lot of attention has been paid to the massive volumes of crude oil and LNG currently trapped in the Persian Gulf, and for good reason — the region is a critically important global supplier. What’s sometimes overlooked by the media, however, is that Kuwait, Saudi Arabia and the United Arab Emirates (UAE) are also major exporters of refined products, and that they and Qatar also send out copious amounts of LPG. In today’s RBN blog, we consider the impact of Iran’s closure of the Strait of Hormuz on LPG and refined product exports from the Persian Gulf’s key producers.

The U.S. clearly has the upper hand over Iran from a military power perspective, but — so far, at least — Iran has countered that by severely limiting safe passage for crude oil supertankers, LNG carriers, and refined products and LPG vessels through the #1 maritime energy chokepoint in the world: the Strait of Hormuz between Iran and Oman. Since the U.S. and Israel made their initial strikes on Iran on February 28, only a few dozen commercial vessels have safely traversed the narrow waterway, compared to a prewar pace of more than 100 per day. Most recently, as part of an effort to keep global energy prices from soaring to new heights, the U.S. has been allowing ships carrying Iranian crude oil and LPG to pass through, but Iran has maintained its hard line against transits by ships out of neighboring countries.

Understandably, markets and the media have focused primarily on the impact on crude oil and LNG. After all, the Persian Gulf countries (including Iran and Iraq) account for about one-sixth of global oil production and 20% of seaborne oil trade, and Qatar is the world’s second-largest exporter of LNG, behind only the U.S. It is important to remember, though, that the region also is home to several major refineries and NGL fractionation centers, and that Persian Gulf countries export large volumes of LPG and refined products like gasoline, diesel and naphtha.

We will start with NGLs. We should note up front that virtually all the ethane that emerges from wells in the Persian Gulf region is either rejected into natural gas and sold for its Btu value or separated at fractionators and consumed domestically at petrochemical plants. In contrast, much of the LPG (propane and butanes) and natural gasoline/pentanes-plus that is separated at fractionators is exported. Before the near-total closure of the Strait of Hormuz (orange circle in Figure 1 below), Persian Gulf countries had been sending out about 1.7 MMb/d of NGL purity products, including about 1.5 MMb/d of LPG and ~200 Mb/d of isobutane, natural gasoline and pentanes-plus. (More on export volumes and their destinations later.)