New UAE pipeline will boost Arab oil flow amid Hormuz concerns

Abu Dhabi had earlier earmarked oil investment funds for building a pipeline system from its major oil hubs down to Fujairah in the Gulf of Oman. Recently, the project was successfully completed and some sectors say that Fujairah, one of the 7 states of United Arab Emirates (UAE), could turn out as an alternative passage for Arab crude oil exports in case Iran proceeds with its threat to close the 112-mile Strait of Hormuz.

Moreover, supertankers can use Fujairah’s existing refueling stations, located on the outer portion of the Hormuz Strait, so refueling won’t be hampered. Major seafaring vessels carrying more than one-third of the world’s crude oil have been traversing Hormuz.

The newly built oil pipeline system is 237 miles long with a diameter of 48 inches.  At the onset, daily crude capacities would run up to 1.5 million barrels, but eventually, it will grow to 1.8 million barrels.

The majority of crude oil that will flow into to the pipeline will come from UAE, the third biggest oil exporter among OPEC members. UAE produces 3 million barrels of oil per day.

Fujairah is equipped with oil facilities with a storage capacity of about 1 million oil barrels. However, within two years, it intends to increase capacities by two-fold.

Foreign and domestic firms are investing in oil storage facilities in Fujairah. Primestar Energy, a domestic company and a Singaporean oil trading firm will be constructing oil storage facilities in 2013 and 2014 respectively. Upon completion, both facilities will step up storage capacities by up to 1.765 million bpd.

Additionally, International Petroleum Investment Company is building an oil refinery with capacity of 200,000 bpd. The company will reportedly shell out $3 billion for the refinery project.

Other Arab monarchies situated in the gulf’s western shore do not have access yet to the pipelines, although these countries haven’t indicated interest at this time.

According to sources, the growing sanction on Iran has prompted the country to invest in oil export depots outside of the Hormuz Strait. The project however, would take some time to finish.

Iran, U.S., and other countries will engage in talks in Moscow and part of the discussions would cover oil supply flow issues within the Hormuz Strait.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

Facebook Twitter LinkedIn Google+ YouTube