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29 March 2024

Alternate to Hormuz not enough

(SUPPLIED)

Published
By Staff

Pipelines built by Gulf hydrocarbon exporters to sidestep the Hormuz Strait are not enough as they account for a small portion of the Strait’s crude export capacity, according to an official Arab report.

This should prompt the International Energy Agency (IEA) to act alone to ensure the oil market remains well supplied by using its strategic stockpiles in case Iran shuts Hormuz in response to a possible US-led attack.

The report by the Saudi-based Arab Petroleum Investment Corp (Apicorp), an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries (Oapec), showed around 17 million barrels per day of crude passed through Hormuz in 2011, accounting for nearly 31 per cent of the global oil trade during that year.

About two million bpd of LNG were also exported by Gulf countries through the Strait, amounting to nearly 33 per cent of the world’s LNG trade, it said, citing BP estimates.

The report, authored by Apicorp’s senior consultant Ali Aissaoui, noted that Hormuz is a narrow channel not exceeding 39 miles at its choke point – between Oman and Iran.

Ships use two water lanes, one in each direction, the report said, adding that within the Strait proper, in Omani waters, each lane is two miles wide and both lanes are separated by a two mile buffer.  As the lanes progress into the Gulf and cut through Iranian waters they become wider with a larger buffer.

The report showed that existing alternatives to Hormuz Strait via land pipelines involve Saudi Arabia, Iraq and the UAE.

It said that this leaves other producers -- Iran, Kuwait, Qatar and Bahrain without any other option while Qatar and the UAE have no substitute routes for LNG exports.

Saudi Arabia has long been operating the Trans-Arabian Petroline system running east-west to the Red Sea, it said, adding that the system, which consists of the Abqaiq-Yanbu’ twin-pipeline and storage facilities, has been upgraded several times to its current capacity of 5.1mn b/d of crude oil.

Assuming throughput at about half of capacity, an unused 2.5 million bpd is probably being kept as reserve capacity, Aissaoui said.

Also on standby is the 1.65mn b/d IPSA (Iraqi Pipeline Trans Saudi Arabia), which has recently been reconditioned to carry crude oil again.  IPSA was laid across the kingdom in the 1980s during the Iraq-Iran war. Later, it changed ownership to the Saudis who converted it to transport natural gas.

Less significant for the moment is Iraq’s export route to the Mediterranean through the Kirkuk-Ceyhan system, said Aissaou, an Algerian.

While the nominal capacity of the twin pipeline is 1.6 million bpd currently the smaller line is operated at a throughput of about half its 600,000 bpd capacity. The major one million bpd line cannot be filled unless repairs are made, and the same applies to the reversible strategic north-south pipeline.

Finally, the UAE has just put in operation the 1.5 million bpd Abu Dhabi Crude Oil Pipeline (Adcop), which links Abu Dhabi’s onshore oil facilities in Habshan to Fujairah’s new oil terminal on the Gulf of Oman.

Therefore, the report said, while the combined operating capacity of the alternative routes is some 8.85 million bpd, spare capacity – taking into consideration both unused capacity and capacity additions made in 2012 – is just a little more than a third of the volumes that transited the Strait in 2011.

“The amount of oil being pumped through the pipelines can be raised by using drag-reducing agents or so-called ‘flow improvers. Even so, it is hard to argue that currently available alternatives are enough to alleviate the impact of a crisis in the Strait,” Aissaoui said.

“In the event of a crisis, Saudi Arabia’s spare production capacity would obviously be useless. Therefore the IEA would have to shoulder the burden of dealing with the aftermath alone….balancing the market would be even more challenging as 85 per cent of the crude oil and 50 per cent of the LNG being shipped though Hormuz is bound eastward, where key non-IEA members such as China, India, Indonesia and Thailand may not have built up sufficient strategic petroleum stocks.”

The report quoted a recent statement by IEA reaffirming its preparedness to respond to any major oil supply disruption. “It remains to be seen what this response would entail and what effect it would have in a market gripped by panic.”