It’s not enough to produce a lot of oil. It has to be taken to market. And in the Middle East, that’s increasingly a problem, as Tamsin Carlisle discusses in this week’s Oilgram News column, New Frontiers.
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Continued Middle East turmoil is casting a harsh light on the state of the region’s inadequate interstate pipeline system, long an Achilles heel for various Arab states along the southern shore of the Persian Gulf that currently export the large majority of their oil output through the Strait of Hormuz choke point at the mouth of the Gulf.
While clear information on the status of pipelines in the region is often hard to pin down, a flurry of recent reports suggests that all is far from well—with the UAE still failing to pump much crude through its year-old pipeline from Abu Dhabi’s onshore fields to the Arabian Sea port of Fujairah, and Iraq’s northern exports through the Kirkuk-to-Ceyhan pipeline in imminent danger of drying up.
In recent weeks, local newspapers have reported that Kuwait has abandoned an old dream of piping crude to the Red and Mediterranean seas via Saudi Arabia and Syria. The state-owned KUNA news agency has also featured advice from an obscure ruling family expert on regional oil strategy, who suggests the emirate should build floating storage for its crude outside the Persian Gulf.
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| Oil Markets Middle East December 11-12, Dubai, UAE |
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Platts Oil Markets Middle East conference will assemble the region’s foremost oil majors, refiners, physical traders and financial players to assess the changing landscape of global oil trade and discuss the region’s upstream and downstream capacity advances and their impact on world oil trade, pricing and benchmarks.
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Whether this scheme will float remains to be seen, as it will ride on the goodwill of Asia-Pacific states that consume most of the emirate’s oil exports. It is not a good sign that large Kuwaiti-sponsored refinery projects in China and Vietnam appear to be falling by the wayside.
Saudi Arabia and Oman are the only Arabian Peninsula oil exporters with sufficient operational pipeline capacity to pump significant volumes of crude to terminals outside the Persian Gulf. But Oman’s production capacity of a little more than 900,000 b/d of crude and condensate pales in relation to the sum of UAE output of about 3.3 million b/d, Kuwait’s roughly 3.1 million b/d and another 1.9 million b/d from Qatar.
As for Saudi Arabia, certainly Riyadh has poured plenty of effort and financial resources into developing west-coast export capacity and related refining, petrochemicals and industrial complexes. Meanwhile, Saudi Aramco has launched major seismic and drilling programs aimed at tapping undiscovered crude reservoirs in the Red Sea basin.
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The exploration initiative, however, is a reminder that the Red Sea is not the preferred export route for the bulk of Saudi oil output, concentrated in the kingdom’s eastern province. That still mostly needs to find its way to market via the important Ras Tanura Persian Gulf export terminal, as there are large deterrents to sending more crude west. Those include Somali pirates, Egyptian turmoil threatening transportation through the Suez Canal, the downturn in Western demand for Middle East crude and, last but not least, the difficulty of pumping large oil volumes across the vast expanse of the Arabian desert in a country with insufficient natural gas production.
To put the matter bluntly, Saudi Arabia would have to burn its own crude to power its transnational pipeline system at full capacity.
That brings us back to the UAE’s “strategic” transnational oil pipeline, which reportedly is foundering for lack of horsepower to pump crude across the snaggle-toothed Hajar mountain range. It is unclear whether the Chinese contractor’s construction efforts fell short, or whether Abu Dhabi lacks the gas required to pump oil across mountains. To be sure, the Abu Dhabi government is fast-tracking a project to build an LNG import terminal at the port of Fujairah, where it also plans to build a large gas-consuming oil refinery.
More mountainous terrain is aiding the efforts of tribal and Al-Qaeda rebels to disrupt oil flows through Yemen’s main pipeline to the Red Sea coast.
And in Iraq, the country’s fragile security situation and lack of services is hampering oil flows from both northern and southern fields. In the south, the pipeline from the giant Rumaila field has recently sprung a leak. The northern pipeline from Kirkuk to the Turkish border, which is in a poor state of repair, has suffered a wave of sabotage attacks recently. That also creates problems for Turkey, which has about 1 million b/d of idle pipeline capacity to Ceyhan. Even when Kirkuk crude flows, recent volumes have been barely 300,000 b/d.
But as old pipe dreams fade, new ones materialize. Jordan is pressing ahead with an oil storage project east of Amman that may be linked to plans for a new pipeline for Iraqi crude to its Red Sea port of Aqaba.
In Iraqi Kurdistan, the government of the semi-autonomous region has nearly completed a new pipeline to pump crude either into the federally operated Kirkuk pipeline or directly to Turkey.
Kurdistan also has abundant gas supplies, so powering the new pipeline should not be a problem. Moreover, Baghdad’s chronic inability to supply sufficient Kirkuk crude for transit may give Ankara a legal excuse to fill the Ceyhan line with Kurdish oil.
–Tamsin Carlisle in Dubai
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