A pipeline that will allow Abu Dhabi's oil exports to bypass the Strait of Hormuz is facing a further six-month delay.
Delay for UAE crude oil pipeline
A pipeline that will allow Abu Dhabi's oil exports to bypass the Strait of Hormuz is facing a six-month delay. The disclosure by a Federal Government minister comes amid growing diplomatic tension over the strategic waterway that carries a third of the world's seaborne crude supplies.
"The pipeline is almost complete, but hopefully it will be operational within six months," said Mohammed Al Hamli, the UAE Minister of Energy. Known as the Abu Dhabi Crude Oil Pipeline (Adcop), the US$3.3 billion (Dh12.12bn) structure has faced a series of delays. The 370km pipeline will connect Abu Dhabi's onshore crude hub in Habshan with the emerging export terminal in Fujairah.
Plans call for the pipeline to have an initial capacity of 1.5 million barrels per day (bpd), which will rise to 1.8 million bpd, enough for all of Abu Dhabi's exports.
Crude prices rose at the start of the week as geopolitical concerns over Iran were fanned by a leading US military figure who suggested the country was capable of closing the Hormuz bottleneck.
"They've invested in capabilities that could, in fact, for a period of time block the Strait of Hormuz," General Martin Dempsey, the chairman of the US joint chiefs of staff, told CBS television in an interview aired on Sunday. Iran last week threatened to block the passage, angered by a fresh round of sanctions imposed by the US over an Iran's refusal to abandon its alleged nuclear programme. The EU has also added pressure and may this week impose a long-discussed embargo on Iranian oil.
Tension in the Gulf is not abating. Iran last week concluded a 10-day naval exercise by announcing the test-firing of long-range missiles. On Friday, state media said further military exercises were planned. In response, Britain has dispatched warships to the Gulf to reinforce the considerable military might of the US Fifth Fleet stationed in Bahrain.
An average of 17 million bpd of crude are shipped through the Strait of Hormuz, according to data from the International Energy Agency, as every Gulf oil producer apart from Oman relies on tankers for exports. The UAE minister dismissed speculation of Iranian action.
"The straits are not going to close. The threat has always been there," Mr Al Hamli said at the Gulf Intelligence UAE Energy Forum in Abu Dhabi yesterday.
Analysts share Mr Al Hamli's doubts as to whether Iran would block the strait. The country ships its own exports through the Gulf and would lose one of its last international allies if China was deprived of oil from the Middle East, that country's main source of crude.
But Iran could resort to less serious disruptions of supply, which would nevertheless have a big impact on world markets and the Gulf producer countries, said Robin Mills, an energy analyst Manaar Energy Consulting.
A closure could push up the price of Brent to U$200 for a limited period, according to the investment bank Société Générale.
Adcop is owned by the International Petroleum Investment Company, owned by the Abu Dhabi Government. It will be operated by Abu Dhabi Company for Onshore Oil Operations and is being constructed by China Petroleum Engineering & Construction, a subsidiary of China National Petroleum.