First oil flow through UAE Hormuz bypass

Abu Dhabi — The United Arab Emirates (UAE) should be able to export nearly half of its crude without using the Strait of Hormuz for the first time from early July, with a new pipeline expected to pump a million barrels to the Gulf of Oman Thursday, three industry sources said.

The strategic bypass pipeline allows the UAE to pump oil from fields in the west of the country to its eastern port of Fujairah, ending the Opec producer’s total dependence on a narrow shipping route out of the Gulf.

The new pipeline has a nameplate capacity of around 1.5 million barrels per day (bpd), compared to total UAE exports of around 2.4 million bpd, but sources say it can carry over 2 million bpd.

“From 0930 today oil has been received at the main oil terminal in Fujairah and 1 million barrels is coming in,” a source directly involved in the project said.

“The plan is to load the first oil tanker around July 1... We will slowly increase it to 1.5 million bpd,” the source said.

Two other industry sources linked to the project, including one from Abu Dhabi National Oil Company (Adnoc), confirmed that oil started flowing into the terminal on Thursday and that they expected it to be loaded onto the first tanker around the first week of July.

A European Union ban on Iranian crude imports is also due to come into effect on July 1.

Iran has repeatedly threatened to close the strategically sensitive waterway, which is patrolled by Iranian and US warships, in retaliation for ramped-up Western sanctions over Tehran’s nuclear ambitions.

That threat has raised worries among Gulf countries that conflicts could block the route to market for their most lucrative resource. But only the UAE and Oman have coastlines on the Indian Ocean side of the strait that would enable them to go around the chokepoint by land.

Saudi Arabia also can avoid Hormuz by shipping its Gulf fields’ oil production out of its Red Sea ports, but it would have to increase the capacity of those ports and of pipelines running across the breadth of the country to handle its total output.

With the Emirates’ new pipeline, oil from fields deep in the Abu Dhabi desert would travel 236 miles (380 kilometers) overland and across the barren Hajar mountains to this fast-growing port on the edge of the Indian Ocean.

The project is immensely important for the UAE, an important American ally. The seven state federation is OPEC’s third largest exporter of oil, after neighboring Saudi Arabia and Iran.

Hormuz had a daily oil flow of almost 17 million barrels in 2011, up from 15.5-16.0 million bpd in 2009-2010, according to the US Energy Information Administration. Flows through the Strait in 2011 were about 35 percent of all seaborne traded oil, or almost 20 percent of oil traded worldwide.

The Abu Dhabi Crude Oil Pipeline links the Habshan oilfields to Fujairah and Adnoc has built eight tanks with capacity of one million barrels each nearby.

Saudi Arabia also can avoid Hormuz by shipping its Gulf fields’ oil production out of its Red Sea ports, but it would have to increase the capacity of those ports and of pipelines running across the breadth of the country to handle its total output.— Reuters/SG