Sidestepping the Strait: The UAE Races to Finish a Pipeline to Bypass the Strait of Hormuz That Iran Has Threatened to Close in Its Confrontation with the West, While the Gulf Monarchies Scramble to Open New Land Routes for Oil Exports

By Blanche, Ed | The Middle East, April 2012 | Go to article overview

Sidestepping the Strait: The UAE Races to Finish a Pipeline to Bypass the Strait of Hormuz That Iran Has Threatened to Close in Its Confrontation with the West, While the Gulf Monarchies Scramble to Open New Land Routes for Oil Exports


Blanche, Ed, The Middle East


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THE GULF STATES ARE SCRAMBLING TO find alternative oil export routes, should Iran carry out its threat to shut down the Strait of Hormuz, the narrow waterway at the southern end of the Gulf through which one fifth of the world's oil supplies moves every day.

A closure of the only gateway in and out of the Gulf would throttle oil and natural gas exports critical to the economies of the regional states, including Iraq and Iran.

But it would also send oil prices soaring, possibly up to $200 per barrel or above. That's an alluring prospect--providing they can secure alternative export routes.

Abu Dhabi is pushing to complete a $3.29 billion underwater oil pipeline from the UAE's main oil collection hub at Habshan to an offshore export terminal on the Gulf of Oman that would bypass the endangered chokepoint Strait of Hormuz.

Iran has threatened to close the waterway in an escalating confrontation with the West in the region over its contentious nuclear programme.

An average of 14 supertankers carrying 15-17 million barrels per day (b/d) transit the strait every day, with three quarters of the oil heading for Asia to supply energy-hungry China, India and Japan.

'Other gates'

The Abu Dhabi project is part of a concerted effort by the Arab monarchies lining the western shore of the gulf to find ways to minimise the impact of a possible blockage of Hormuz.

These efforts are unlikely to be able to find alternative export routes for all the oil currently produced in the Gulf.

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Indeed, as things stand now, they'll only be able to handle a fraction of the region's daily production if the Iranians move to close the U-shaped, 112-mile-long strait that lies between southern Iran and Oman and connects the Gulf to the Indian Ocean.

While some Gulf states, such as Saudi Arabia and the UAE have, or are close to completing, oil pipelines that bypass Hormuz, analysts say Qatar has no other export route for its gas.

Qatar has natural gas reserves of 25.4 trillion cubic metres, 14% of global reserves, and mostly found in the vast offshore North Field. The emirate exports some 95 billion cubic metres (bcm) of gas a year, with 76 bcm shipped through the Strait of Hormuz.

If that is cut off, it would cause major problems in Britain, which gets more than 80% of its liquefied natural gas (LNG) from Qatar, which has no viable alternative export route.

Saudi Arabia, the world's largest producer, has said it will use its 2 million b/d of spare production capacity to cover any shortfall. But without alternative export outlets, that doesn't mean a whole lot.

With the Saudis pumping at nearly 30-year highs, spare capacity is "approaching dangerously low levels", according to a February report by Goldman Sachs. "This leaves the world oil market increasingly vulnerable to sharply rising prices in 2012."

Dubai, a major regional financial hub, says the UAE will be able to use ports on the Gulf of Oman if the strait is closed.

"We in the Gulf have cards in our hands that allow us to marginalise the role of the strait and undermine its importance ... we will open other gates and nullify the importance of the Strait of Hormuz."

Saudi exports

Fujairah, the southernmost of the emirates and a major bunkering hub, has a port on the Gulf of Oman, south of the strait, that includes a major oil export terminal intended to bypass Hormuz in a crisis.

The storage area has eight giant tanks, each capable of holding 1 million barrels of crude.

The emirates are pinning their hopes on the 230-mile oil pipeline, most of it underwater, from the main oil field in Abu Dhabi, the federation's major oil producer and its economic powerhouse, to Fujairah.

The Abu Dhabi Crude Oil Pipeline, or ADCOP, has a capacity of 1. …

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