Gulf governments plan oil pipelines

Updated: 2007-03-21 15:55

Dubai, United Arab Emirates - Gulf governments are planning oil pipelines that would bypass the world's most vulnerable energy choke point, the Strait of Hormuz, aiming to avoid possible Iranian threats to global oil shipments.

If built, two pipelines could ferry as much as 6.5 million barrels of oil a day around the strait, an amount equal to nearly 40 percent of the daily exports currently shipped through the narrow channel at the entrance of the Gulf.

Construction of the first, smaller line is forecast to begin this year, the Dubai branch of Britain's Standard Chartered Bank reported this week.

A second, more ambitious line carrying some 5 million barrels a day is still under discussion and could take a decade to build.

Around two-fifths of the world's traded oil is shipped by tanker through the Hormuz Strait. But the 34-mile-wide passage is highly vulnerable to threats from neighboring Iran.

With tensions rising between Iran and the West over its nuclear program, Iran's supreme leader Ayatollah Ali Khamenei warned in June that his country could disrupt the world's oil supply if it comes under attack.

Bypassing the Strait of Hormuz also could lead to a drop in the price of crude.

Traders already have marked up prices by a so-called "security premium" of a few dollars per barrel because of fears of disruption in the turmoil since the 2003 US-led invasion of Iraq. The new pipelines could reassure traders over the stability of exports and knock down the premium.

The idea of the new pipelines among traders is so popular, "they think it's a dream," said Mustafa Alani, a security analyst for the Dubai-based Gulf Research Center.

"Crisis after crisis is threatening stability. We need a permanent solution. Any threat, real or imaginary, will increase the price a dollar or two. This project will give a new boost to the stability of oil," he said.

Currently, oil from the region is loaded onto tankers in the Gulf and shipped through the strait. The pipeline plans aim to take the oil by land from Arab countries to just outside Hormuz for loading.

The first, 224-mile pipeline would carry only oil from the United Arab Emirates, extending from the country's Habshan oil field, across a mountain range, to the emirate of Fujairah, located outside the strait on the Gulf of Oman.

Abu Dhabi's International Petroleum Investment Co. is planning to build the line, which would carry 1.5 million barrels per day of crude oil, about 55 percent of the Emirates' production. A third of the crude would be used for a refinery planned in Fujairah.

The second line, dubbed the Trans-Gulf Strategic Pipeline, would bring as much as 5 million barrels a day from various Persian Gulf terminals to a newly built export terminal outside the straits, perhaps in Oman.

A forthcoming Gulf Research Center study suggests six possible routes for the trans-Gulf pipeline, which could bring oil from as far north as Iraq, passing through Kuwait, Saudi Arabia and the United Arab Emirates to the Omani capital of Muscat on the Arabian Sea, Alani said. Other possible routes could see the pipeline terminating in Yemen or Fujairah.

The pipeline would shorten tanker routes by hundreds of miles, lower transport costs and reduce shipping traffic in the crowded Gulf.

The trans-Gulf pipeline could be as long as 1,500 miles and traverse at least one mountain range. If that isn't enough of a headache for planners and engineers, they'll have to bury it too.

Keeping it above the ground may be cheaper and quicker, but would leave it vulnerable to terrorist attack, Alani said.

Terrorists have set their sights on Gulf oil facilities. Al-Qaida claimed responsibility for last year's attacks on oil installations in Saudi Arabia and Yemen after Osama bin Laden called on militants to stop the flow of oil to the West.

The group also was behind the 2002 attack on a French oil tanker that killed one person in the Gulf of Aden, off Yemen.

Alani declined to put a figure on the cost of the operation, but said oil exporters could afford it, particularly with the flood of cash from high oil prices in recent years.

Ministers from the six Gulf Arab countries are scheduled to discuss the pipeline during one of two summits planned this year.

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