Saudi Arabia Seeks to Boost Hormuz Oil Exports After Key Pipeline Attack

By
Muhammad Luqman
-

Saudi Arabia is seeking to increase crude oil shipments through the Strait of Hormuz after attacks forced the closure of a key pipeline that had been the kingdom’s main alternative route to global markets during the war with Iran, according to a person familiar with the matter.

The kingdom had already been increasing shipments through the strategically vital waterway during the first 10 days of September from August levels and is now seeking to raise supplies further, the person said, requesting anonymity because the plans are confidential.

Saudi Arabia shut its East-West pipeline, a major route for bypassing the Strait of Hormuz, after at least two points along the 1,200-kilometre pipeline were targeted last week.

The shutdown threatens millions of barrels of daily oil flows at a time when global markets are facing tight supplies and crude prices have approached $110 a barrel in London in recent days.

Saudi Aramco declined to comment, while the Energy Ministry said it had nothing to add to its statement issued on September 11.

The pipeline is expected to remain out of service for several weeks, the Associated Press reported on Monday, citing two regional officials.

US Energy Secretary Chris Wright, however, said he expected the pipeline to be restored “very soon.”

The East-West pipeline has previously come under attack. A pumping station along the route was targeted in April during a wave of attacks on oil production, refining and petrochemical facilities. The damage was limited and crude flows continued, according to people familiar with the matter at the time, with supplies returning to normal within days.

 

Rising pressure on Hormuz

Saudi Arabia’s efforts to increase shipments through Hormuz come as other energy flows through the waterway have also been disrupted.

Qatar’s liquefied natural gas (LNG) shipments through the Strait have largely dried up since the Iran war, depriving Asian buyers of contracted supplies and raising concerns over fuel availability.

Even before last week’s attacks, Saudi oil-loading activity had been gradually increasing, while more than a dozen Saudi tankers had begun waiting outside the Strait of Hormuz in recent weeks.

Satellite imagery also indicates an increase in tanker loading activity at a major Saudi export terminal in the Persian Gulf over the past few days.

However, moving additional crude through the waterway could prove difficult because of a severe shortage of tankers that has pushed freight rates to record levels.

Saudi Arabia operates one of the world’s largest tanker fleets but also charters additional vessels when required. The cost of transporting oil from ports inside the Persian Gulf to China approached $1 million a day on Friday for the first time, according to market data.

 

Saudi shipments

It remains unclear how much and how quickly Saudi Aramco can increase exports through Hormuz to compensate for the closure of the East-West pipeline.

The company had raised total exports to nearly 4 million barrels per day in early September, with around 1 million barrels a day moving through Hormuz and the remainder shipped through Yanbu on the Red Sea coast, where the East-West pipeline terminates, according to the person familiar with the matter.

Total Saudi shipments had fallen to around 3 million barrels a day in August, the lowest level in at least nine years, according to tanker-tracking data compiled by Bloomberg, Vortexa and Kpler.

The decline followed growing security concerns linked to Yemen-based Houthi militants, who said in July they would blockade Saudi shipping in response to the siege of the Yemeni capital. The group has since attacked vessels, including a supertanker, as well as energy facilities inside Saudi Arabia.

The Strait of Hormuz, the main export route for Saudi Arabia and other major Gulf oil producers, has also become increasingly hazardous since the war began more than six months ago.

While the United Arab Emirates, Iraq and Kuwait have continued sending some tankers through the waterway despite the risk of attack, Saudi Arabia had been less reliant on the route, largely because it could move substantial volumes through the East-West pipeline.

The 1,200-kilometre pipeline, which crosses the Arabian Peninsula from Saudi Arabia’s eastern oil fields to the Red Sea, became a critical lifeline for global oil markets after the kingdom activated it within days of the start of the Iran war.

The pipeline diverted crude away from the heavily disrupted Strait of Hormuz and towards the Red Sea, quickly reaching its maximum capacity of about 7 million barrels per day. Around 5 million barrels a day were earmarked for export, with the remainder supplying refineries along the Red Sea coast.

 

European refiners face disruptions

The pipeline shutdown is also beginning to affect Saudi crude supplies to European refiners.

Saudi Aramco has cancelled or delayed crude deliveries to some European refiners after the closure of the East-West pipeline reduced one of the kingdom’s remaining routes for bypassing the Strait of Hormuz.

At least three European refiners have had late-September cargoes cancelled or postponed until as late as November, according to market sources cited by Argus. Two others are expecting notices affecting September supplies.

The 7-million-barrel-per-day pipeline has been offline since an attack on September 10. It transports crude from Saudi Arabia’s eastern oil fields to the Red Sea port of Yanbu, allowing shipments to avoid Hormuz.

One market source told Argus that all Saudi cargoes scheduled for the final 10 days of September could be at risk. The source estimated that Yanbu had about five days of crude inventories remaining, although Argus could not independently verify the figure. Aramco declined to comment.

Bloomberg reported in August that Aramco planned to supply full contractual crude volumes to at least three European refiners in September.

However, no Saudi crude has departed Yanbu since September 11, according to Vortexa data cited by Argus.

Saudi crude exports from Egypt’s Sidi Kerir terminal averaged about 1.95 million barrels per day during the first two weeks of September, while arrivals at Ain Sukhna averaged about 1.40 million barrels per day.

Crude shipped through Yanbu can be transported to Egypt’s Ain Sukhna terminal and then moved through the 2.5-million-barrel-per-day SUMED pipeline to Sidi Kerir on the Mediterranean coast.

 

Orlen seeks alternative supplies

Poland’s Orlen has already begun securing alternative crude supplies to offset potential disruptions.

The company purchased North Sea grades including Grane, Johan Sverdrup and Johan Castberg through spot tenders and sought offers for US WTI Midland and Kazakhstan’s CPC Blend, traders told Reuters.

At least four September tanker fixtures from Sidi Kerir to Gdansk have also failed, according to market sources.

Aramco supplies around 40% of the crude processed by Orlen, which operates refineries in Poland, Lithuania and the Czech Republic. Orlen said its refineries were continuing to receive feedstock.

The East-West pipeline had become one of Saudi Arabia’s most important alternatives to constrained Persian Gulf exports. Its shutdown is now beginning to affect European term customers, underscoring the growing impact of disruptions around the Strait of Hormuz on global oil supplies.

+ posts

Muhammad Luqman is Associate Editor at Views News Now. He writes on wide-ranging issues including economy, South Asia, the Middle East, agriculture, economy and innovation. Luqman has worked some of the leading news organizations and won acclaim for his original and research-based works.

LEAVE A REPLY

Please enter your comment!
Please enter your name here