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Gulf states struggle to beat oil threat
by Staff Writers
Abu Dhabi, United Arab Emirates (UPI) Feb 2, 2012

The Persian Gulf emirate of Abu Dhabi is rushing to complete a $3.29 billion underwater oil pipeline from the United Arab Emirates to an export terminal on the Gulf of Oman to bypass the endangered choke point Strait of Hormuz.

Iran has threatened to close the narrow waterway at the southern end of the Persian Gulf and cut off one-fifth of the world's oil supply in an escalating confrontation with the West in the region over its nuclear program.

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

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 minimize the impact of a possible blockage of Hormuz through which their vital oil and natural gas exports pass.

These efforts are unlikely to be able to find alternative export route for all the oil produced in the gulf. As things stand now, they will only be able to handle a fraction of the region's daily production.

Saudi Arabia, the world's largest oil producer, has said it will use its 2 million bpd of spare production capacity to cover any shortfall. But without export outlets, that doesn't mean much.

Dubai, a major financial hub in the region, says that the emirates, a confederation of seven mini-states, will be able to use ports on the Gulf of Oman if the strait is closed.

"Iran is capable of fomenting tension in the region," Dubai's police chief, Gen. Dahi Khalfan, said Jan. 25.

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

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

Khalfan didn't elaborate but 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 has a capacity of 1.5 million barrels a day. That's most of the emirates' oil output and the equivalent of about 10 percent of the crude carried by supertankers out of the gulf every day.

The much-delayed pipeline is expected to open in May but that may not be in time to alleviate any closure of Hormuz.

And even if ADCOP was up and running when the Iranians struck, it wouldn't be able to transport anywhere near the daily outflow of 15 million-17 million bpd, and none of the 31 million tons of liquefied natural gas exported by tiny Qatar every year.

Saudi Arabia has some infrastructure in place to pump oil exports from the megafields in its Eastern Province on the gulf coast, where its main terminals are located, to the Red Sea port of Yanbu on the kingdom's west coast.

But the only operational pipeline right now is the Petroline, which carries 5 million bpd, about 60 percent of Saudi Arabia's current output of 8 million bpd.

Petroline is used to supply markets west of the Suez Canal, leaving little space available for any substantial portion of the crude that's normally shipped through Hormuz.

Iraq would be hard hit since 80 percent of its exports are shipped through the gulf, mostly bound for Asia. It has twin pipelines running north from the Kirkuk fields to Turkey's Mediterranean terminal at Ceyhan.

But these are old and open to insurgent attack -- as the Saudi pipelines would, in theory, be vulnerable to Iranian sabotage.

It's possible a 1.65 million bpd pipeline across Saudi Arabia, used during the 1980-88 Iran-Iraq war to carry oil from Iraq, which was backed by the Persian Gulf monarchies, could be reopened.

But if Hormuz is closed, it is unlikely Riyadh would be able to do much to help Baghdad, now under Iran's influence, while it needs Petroline for its own exports.

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