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Sun 8 Jan 2012 10:27 AM

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UAE sees delays to pipeline as Iran tensions mount

Construction issues push back launch of $3.3bn project bypassing Strait of Hormuz

UAE sees delays to pipeline as Iran tensions mount
oil refinery

A pipeline that would allow oil from the UAE to bypass the
Strait of Hormuz
separating it from Iran has been delayed because of
construction difficulties, two people with knowledge of the matter said.

As many as 270 construction issues have pushed back the
completion date, said the two people, declining to be identified because
they’re not allowed to speak publicly on the matter. The $3.3bn project won’t
be ready until at least April, one of them said.

Abu Dhabi, holder of the UAE’s oil reserves, had planned to
start exports in January 2011 through the pipeline to a port outside the
strait, Dieter Blauberg, the project’s former director, said in May 2009.

The 1.5 million barrel-a-day link would ensure the UAE can
export crude without risking a blockade at Hormuz, where fully laden tankers
exit the Gulf with one-fifth of the world’s traded oil. The chance that Iran
might try to close the waterwa
y intensified as Europe prepares to follow
tougher US sanctions on the country.

“That pipeline would carry pretty much all of Abu Dhabi’s
oil,” Robin Mills, an analyst at Manaar Energy Consulting in Dubai, said Jan 5.
“It’s a critical bit of infrastructure, and it is remarkable it hasn’t been

The strait, 21 miles wide at its narrowest point, has 14
crude tankers passing through it each day on average, according to the US Energy
Information Administration.

Most of the oil exports from Saudi Arabia, OPEC’s biggest
producer, as well as crude from Iraq, Kuwait, the UAE, Qatar and Iran itself
must pass through the waterway, making Hormuz the world’s most important
chokepoint with a daily flow of 17 million barrels a day last year, according
to EIA data.

An official at International Petroleum Investment Co., the
pipeline’s owner, declined to say when the project would start when asked by
Bloomberg on Jan 3 and the company didn’t respond to an earlier email seeking

China Petroleum Engineering & Construction, the
pipeline’s contractor, didn’t respond to a fax seeking comment on Dec 15, and a
spokesman for its parent China National Petroleum Corp. declined to comment
when Bloomberg contacted him that day by phone.

An official at Abu Dhabi Co for Onshore Oil Operations, or
ADCO, the state company assigned to operate the pipeline, referred all
inquiries to IPIC, speaking by phone on Jan. 6.

Abu Dhabi National Oil Co, or Adnoc, which owns 60 percent
of ADCO, did not respond to questions emailed on Dec 21 and public relations
officials had no immediate response when contacted by phone that day and on Dec
22 and Jan 3.

Among ADCO’s minority shareholders, Royal Dutch Shell Plc
declined to comment in a Dec. 21 e-mail, as did Exxon Mobil Corp. while BP Plc
declined to comment in a Jan. 3 e-mail and a Partex Oil and Gas official
declined to comment by phone on Jan. 4. Total SA didn’t respond to Dec. 21
e-mail seeking comment.

Once ready, the pipeline will transport crude from Habshan,
the collection point for Abu Dhabi’s onshore oil fields, over 230m of desert
and razorback mountains to the port of Fujairah, on the UAE’s eastern coast,
facing the Gulf of Oman.

The project’s declared aim is to “offset reliance” on Gulf
terminals while reducing shipping congestion, according to IPIC, the Abu Dhabi
government-run owner.

The line terminates at a kilometer-long site containing
eight white storage tanks and pipes stacked four high over the length of a
football field, nestled at the foot of the Hajar Mountains.

Tankers will also save two days sailing time, worth about
$38,000, by loading at Fujairah instead of Abu Dhabi, according to data provided
by Clarkson Research Services.

IPIC initially planned to begin filling the pipeline in
September 2010 then load cargoes the following January, Blauberg said in 2009.
It later pushed back the start without explanation, saying in a bond prospectus
on Oct. 19, 2011, that it expected to deliver first oil in “early 2012.”

The US tightened economic sanctions against Iran over its
nuclear program on Dec. 31, and the European Union is weighing a ban later this
month on purchases of Iranian crude. Iran held 10 days of naval maneuvers east
of Hormuz ending Jan. 3 and warned it would block the strait if prevented from
selling its oil, according to Iranian state-run news agencies.

A potential Hormuz blockade “still remains the ultimate fear
in the oil market,” Barclays said in a Jan. 5 note.

Should the Hormuz be closed to ships, the pipeline alone
won’t prevent price rallies because most of the oil from the Gulf would still
be stopped, Kamel al-Harami, an independent oil analyst said by phone from
London on Jan 6.

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