Abu Dhabi Exports First Pipeline Oil Bypassing Hormuz Strait

August 2012, Vol. 239 No. 8

Abu Dhabi started exporting its first crude from a pipeline that bypasses the Strait of Hormuz on July 16, shipping the fuel from the neighboring sheikhdom of Fujairah to a refinery in Pakistan, according to Bloomberg.

The link, stretching from Abu Dhabi to Fujairah on the Gulf of Oman, began loading a shipment of about 500,000 barrels, Mohamed Al-Hamli, oil minister for the United Arab Emirates, said at the inauguration ceremony. International Petroleum Investment Co. spent $4.2 billion building the 423-ko (263-mile) link.

Abu Dhabi, the U.A.E.’s capital and holder of more than 90% of its oil, built the export route for crude to avoid Hormuz, a narrow waterway carrying a fifth of the world’s traded oil that Iran has threatened to block in retaliation for sanctions targeting the country’s nuclear program. Construction costs were 27% higher than the $3.3 billion contract awarded to China Petroleum Engineering & Construction Corp. in 2008 and was delayed by 11 months.

“The pipeline will get used if they keep the price to load crude from Fujairah the same as loading from inside the Gulf,” Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management told Bloomberg. “It means that Abu Dhabi is just swallowing the cost of the pipeline, as it has been built for strategic reasons. If this was a commercial venture, they would have built it years ago.”

Iranian officials insisted that the pipeline’s limited capacity would keep it from obviating the need of regional suppliers to export most of their oil through the strait.

The link can transport 1.5 million bpd of Murban crude from Habshan, a collection point for Abu Dhabi’s onshore oil fields, across a desert and mountains to Fujairah. The system can pump as much as 1.8 million bpd at periodic intervals, officials said.