More Pipelines for the Middle East?

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Pipelines that can avoid the Strait of Hormuz are gaining interest as simmering conflict in the Middle East threatens global maritime shipments of oil, refined products and LNG. The issue, however, is that pipelines too have been a target.

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UAE Mulls Third Oil Pipeline

With a British maritime risk agency reporting an attack off the coast of Qatar on Thursday, officials in the United Arab Emirates downplayed the prospects of a new crude oil pipeline that would avoid the Strait of Hormuz.

Industrial Info Resources is tracking a handful of pipeline-affiliated projects that start in the United Arab Emirates. The longest is the Habshan-Fujairah crude oil pipeline that has its terminal point in Fujairah on the Gulf of Oman. It has a capacity of 1.5 million barrels per day (bpd), data show. Pre-war maritime shipments in the Persian Gulf were close to 20 million bpd.

Pipelines that can avoid the Strait of Hormuz have been under the eye of market watchers since fighting in the Middle East began with joint U.S.-Israeli airstrikes on Iran in February. With midterm elections on Tuesday handing President Donald Trump and his Republican Party a decisive loss, the impetus on achieving some sort of breakthrough is growing with reports suggesting Defense Secretary Pete Hegseth may be at risk of losing his job.

Crude oil prices since the election are down considerably. The price for Brent crude oil, the global benchmark, closed trading Wednesday at $96.67, down some 7% since Election Day.

That comes despite reports of attacks on shipping lanes in the Persian Gulf. The United Kingdom Maritime Operations Center reported Thursday that a tanker was hit by two projectiles about 50 nautical miles off the coast of Qatar.

"The status of the crew, damage assessment and environmental impact are unconfirmed at present," the British agency reported. "Vessels are advised to transit with caution."

On Thursday, the Bloomberg news agency reported that the Abu Dhabi National Oil Company (ADNOC) was mulling an additional pipeline that would avoid the Strait of Hormuz. Sources for the news agency suggested the pipeline would follow a similar path as the Habshan-Fujairah artery, though ADNOC itself was reserved on the prospects.

"We have advised Bloomberg that this report is not accurate and purely speculative," a spokesperson for ADNOC said.

By the Numbers

• 7% drop in global oil prices since U.S. midterm elections
• 13% supply-side deficit for U.S. diesel, compared to five-year average

Maritime attacks have been near-daily occurrences since the conflict began, but pipelines and other essential infrastructure have been targeted. The East-West pipeline in Saudi Arabia was damaged earlier this year, limiting options for deliveries from the Red Sea port of Yanbu.

Industrial Info Resources data show the 745-mile, 48-inch diameter East-West pipeline has a design capacity of 7 million bpd.

Elsewhere, Industrial Info finds that many of the regional refineries damaged thus far in the conflict are returning to normal capacity. Among those targeted were the 240,000-bpd Yanbu Refinery (Saudi Aramco) and the 430,000-bpd Yanbu YASREF Refinery.

Market Risks Remain Despite Drop in Oil Prices

Ole Hanson, the head of commodity strategy at Saxo Bank in Denmark, pointed to Morgan Stanley data showing flows from the Middle East, piped and shipped combined, are close to pre-war levels.

That, however, doesn't offset some of the issues with refined petroleum products. A look at the U.S. market, the world's largest, showcases some of the ongoing supply-side issues for refined products.

Over the seven-day period ending Oct. 30, gasoline inventories were 2% below the five-year average, while distillates, a product that includes diesel, are down 13% from the five-year average. Diesel in particular is a nagging concern given its heavy presence in global shipping.

"While crude exports can recover through alternative routes and improving tanker movements, a sustained recovery in refined fuel supplies also requires regional refineries to operate reliably and secure safe passage for product shipments," Hanson wrote in a Thursday newsletter. "Until these conditions improve, the impact of lower crude prices on diesel, jet fuel and marine fuel costs may remain limited."

Key Takeaways

• More pipelines possible in the Middle East, but they're not a panacea
• Supply-side issues stem from refined petroleum products

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).