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UAE Hormuz bypass pipeline due for testing, set to secure outlook for exports

April 19, 2012 10:39 am

The 48 inch Abu Dhabi Crude Oil Pipeline (Adcop) is 360km long and has been designed to accommodate 1.5 million barrels per day (bpd), offering the UAE an alternative route to the Strait of Hormuz, which Iran threated to blockade after being pressured by western sanctions.

The $3.3bn project has already faced significant delays after disputes with China Petroleum Engineering and Construction Corporation, the contracting firm, over build quality, indicating that the facility could be delayed even further – construction officially began in 2008.

AMEinfo.com spoke to energy strategist and economist Robin Mills about the scheduled tests: “I understand that the testing will take a significant time due to all the issues (approximately 200) identified so far. The latest start-up date being talked about was June, but it seems it may not be ready until the end of the year.”

No security concerns for UAE oil pipeline

After a series of attacks on a natural gas pipeline in Egypt, the issue of security issues was brought to light, but there are no legitimate worries for the UAE pipeline, says Mills: “I would imagine the UAE would be well-able to guarantee the pipeline’s security, except in some extreme scenario of a full-scale invasion. Even in the event of sabotage, pipelines can be repaired quickly.

“They would also be very hard to hit by aerial attack – tankers and export terminals would be more likely targets. The pipeline should be pretty secure within the UAE. The issue in Egypt is to do with the breakdown of security in Sinai.”
As it stands, this pipeline is set to exclusively pump Abu Dhabi oil and is able to carry most, but not all of the emirate’s exports. There is currently no pipeline connection to neighbouring countries, so no scope for it serving anyone else.

“But, there has been talk about expansion or building a new pipeline (possibly for heavy oil) where oil from neighbours would be unloaded at Jebel Dhanna in Al Gharbia and sent through the bypass pipeline,” says Mills.

Despite the reported $3.3bn cost of construction, it is unclear how much use the pipeline will see outside of crisis situations: “I’m not sure how much the pipeline will be used initially, since it will probably be more expensive than going by tanker,” says Mills. “But once the Fujairah refinery opens, then the pipeline will have some steady demand.”

The $3.3bn crude oil pipeline is a costly investment, but fits neatly within Abu Dhabi’s investment budgets. More recently, a 200,000 bpd refinery was announced, as well as the floating import terminal for natural gas – which means gas imports can also avoid Hormuz.

Mubadala Oil and Gas, IPIC establish Emirates LNG

Mubadala Oil & Gas, a business unit of Mubadala Development Company, and International Petroleum Investment Company (IPIC), has confirmed the joint project, Emirates LNG, with the aim of securing gas supplies and to meet increased demand within the UAE.

“As the Emirates LNG project develops, it is envisaged that a specific project company will be formed by Mubadala and IPIC,” the statement said. The Emirates LNG project will develop a new liquefied natural gas (LNG) regasification facility on the UAE’s east coast in Fujairah.”
The new project team, drawn from Mubadala and IPIC with additional expert advisors, has already been established and work is underway.

Fujairah natural gas terminal rated Credit-Positive by Moody’s

Mubadala announced they would build the liquefied natural gas (LNG) import terminal in neighbouring Fujairah, which has positive economic and strategic implications for the United Arab Emirates, according to investor service Moody’s.

The UAE has the seventh largest natural gas reserves in the world and produces around 51 billion cubic metres (bcm) of gas every year. However, it has been importing gas since 2008, with gas meeting 98% of domestic electricity needs. Crude oil provides the remaining 2%.

Demand has risen alongside population growth, around 5.6% annually, with a very high per capita consumption. The 2011 BP Statistical Review records the UAE consumed 60bcm of natural gas in 2010, while exporting another 8 bcm.

“When it becomes operational in 2014, Mubadala’s new LNG import terminal in Fujairah will add another 12 bcm in import capacity and a wide range of potential suppliers,” says the Moody’s report. “Securing energy feedstock is also key to develop the petrochemicals industry and other energy-intensive activities in the UAE and to sustain a high level of economic growth.”

“Once completed, the new import terminal will allow the UAE to import LNG without passing through the Strait of Hormuz. If traffic was disrupted, the UAE would be able to avoid the repercussions of power cuts on the non-oil economy and credit metrics would be less affected,” the statement continues.

“Should Iran successfully block the Strait of Hormuz, LNG prices would rise rapidly because LNG contracts are closely linked to the price of crude oil, and supply to Asia from Qatar, the world’s largest LNG exporter, would be interrupted.”