Abu Dhabi is putting the final touches on an oil pipeline that will allow the emirate to bypass the congested Strait of Hormuz, through which about 40% of all sea-borne crude is currently shipped.
Completion of the project is viewed as increasingly timely, not only in reducing congestion in the Straits but also as geopolitical tensions with Iran have escalated in recent months.
The Abu Dhabi Crude Oil Pipeline (ADCOP), which will enable the emirate to answer any challenges to its oil-exporting capabilities, is a 370-km-long, 1.2-metre-wide pipeline running from Habshan in south-western Abu Dhabi to Fujairah’s export terminals, located on the Gulf of Oman. Costing some $3bn, the line will be able to transport 1.5m barrels per day (bpd) of crude oil. Although an exact date for the project’s completion has yet to be formally announced, the pipeline is expected to be fully operational in summer 2012.
The Abu Dhabi-based International Petroleum Investment Company (IPIC), the overseas energy investment arm of the Abu Dhabi government, and China Petroleum Engineering & Construction Corporation, a subsidiary of the China National Petroleum Corporation, are leading the project, which was launched four years ago. Abu Dhabi Company for Onshore Oil Operations (ADCO), the majority state-owned enterprise, has been tasked with the pre-commissioning, commissioning, start-up, performance testing and handover of the project facilities.
While most analysts say that it is unlikely that Iran would follow through with its threats to close the Strait of Hormuz, many suggest that this is not really Tehran’s plan. Instead, a low level campaign could be waged, which could push up freighting charges, insurance costs and the price of oil itself.
The importance of developing an alternative export route gains even greater significance as Abu Dhabi pursues its plans to ramp up production to 3.5m bpd before the end of the decade, up from the present output levels of about 2.7m bpd. Abu Dhabi National Oil Company (ADNOC) has said that it expects onshore production to rise by 213,000 bpd in 2012, with further increases in output to come from offshore fields.
IPIC also has plans to develop a large-scale refinery close to the end point of the pipeline at Fujairah, which would mean Abu Dhabi could not only continue to export crude should there be a disruption to tanker traffic in the Strait of Hormuz, but the emirate would also be able to maintain sales of value-added processed fuel products. If all goes according to schedule, the $3bn refinery will be operational by 2016.
ADCOP may not be not the last word in Abu Dhabi’s programme to safeguard the flow of oil. A second pipeline to the Fujairah terminal is reportedly in the works, one that would carry product from Abu Dhabi’s offshore fields, which is heavier than the take from the emirate’s onshore reservoirs. This second line would also be able to carry oil from some of Abu Dhabi’s neighbours, earning ADNOC and the government additional revenue through transit fees.
With ADCOP, Abu Dhabi will have another connection to global oil markets, one that will strengthen its position as a leading oil exporter and – by guaranteeing supplies – could help smooth out some of the fluctuations in oil prices.
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