UAE to bypass Straits of Hormuz with new pipeline

ABU DHABI/DUBAI - The United Arab Emirates could soon start pumping oil via a key pipeline that will allow it to bypass the Straits of Hormuz and protect exports if Western powers resort to military action in a row over Iran’s nuclear programme.

By (Reuters)

Published: Mon 21 Nov 2011, 6:06 PM

Last updated: Tue 7 Apr 2015, 5:17 AM

The Abu Dhabi Crude Oil Pipeline (ADCOP) project, a 480-km pipeline with a capacity of up to 2.5 million barrels per day (bpd) will allow the UAE, one of the world’s top five exporters, to boost exports from its Fujairah terminal outside the Straits and on the Gulf of Oman, four industry sources told Reuters.

“There’s a hurry to get this operational as the noises about an attack on Iran gets louder,” an industry source with direct knowledge of the pipeline said.

“Oil could flow through the pipeline from end-December initially at 1 million bpd and gradually increase to 2 million bpd,” he said, adding that the start-up of the pipeline would ease a serious bottleneck in the Gulf.

Tension over Iran’s nuclear programme has increased since the International Atomic Energy Agency (IAEA) reported on Nov. 8 that Tehran appears to have worked on designing a nuclear bomb and may still be working.

The Strait of Hormuz is the most important oil transit channel in the world, with some 15.5 million barrels or about a third of all sea-borne oil passing through in 2009, according to the U.S. Energy Information Administration (EIA). U.S. warships patrol the area to ensure the safe passage.

Even though some analysts believe an imminent military action against Iran rather unlikely, they think the pipeline is crucial for the sustainability of oil exports with political tensions in the region on the rise.

“It is opening up an export channel that is invulnerable to any disruption in Hormuz,” oil and gas analyst Saket Vemprala at Business Monitor International said.

“I don’t think the military action scenario is likely anytime soon but such routes are useful for the Gulf states. If you remember, the Iraqi crude pipeline through Saudi Arabia was very important during the Iran-Iraq war,” he said.

Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates (UAE), Kuwait and Iraq — together with nearly all the liquefied natural gas (LNG) from lead exporter Qatar — must pass through a four-mile (6.4 kilometre) wide shipping channel between Oman and Iran.

“It is not big enough to get the most of Gulf Arab crude yet, but it enough for the bulk of the UAE’s crude,” Vemprala added.

The pipeline would link state oil firm Abu Dhabi National Oil Company’s Habshan oilfields to the port of Fujairah, one of the top three bunkering hubs and a major oil storage terminal.

Abu Dhabi government-owned International Petroleum Investment Company (IPIC) is undertaking the project while China Petroleum Engineering & Construction Corporation is the engineering, procurement and construction contractor (EPC).

IPIC officials contacted for this story did not return calls.

“The construction of the pipeline is completed. They are now evaluating the operational costs and the logistics of it,” a second source, based in Dubai said. “They are recruiting new people as it is a big operation,” he added.

Two other sources based in the UAE confirmed the timeline for the start-up of the project. They all asked for anonymity as the official announcement for the commissioning has not been done yet.

The pipeline will carry Murban crude, another source said, therefore the initial operation of the pipeline will be undertaken by Abu Dhabi Company for Onshore Oil Operations (ADCO).

The state-owned company will operate and proceed with the preparations for the pre-commissioning, commissioning, start-up, performance testing and handover of the project facilities.

Abu Dhabi National Oil Co (ADNOC) holds a 60 percent stake in ADCO. Its other shareholders are BP, Royal Dutch Shell , Total, ExxonMobil and Partex Oil and Gas.

Near the pipeline in Fujairah, IPIC is planning to undertake a $3 billion refinery project, which it aims to complete in mid-2016.

“In less than 5 years, the refinery will be completed. I believe they are finalising the tendering process for the refinery,” the Dubai-based industry source said.

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