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Saudis To Boost Oil Pipeline Capacity To Bypass Strait of Hormuz

Saudi Arabia is looking to raise the capacity of its east-west oil pipeline to 7 million bpd in two years from the current 5 million bpd, the Kingdom’s energy minister Khalid al-Falih told Reuters on Thursday.

Saudi Arabia, the world’s top crude oil exporter and the largest oil producer in OPEC, is one of the few oil producers in the Middle East that have some alternative to the narrow Strait of Hormuz between Iran and the UAE and Oman in the Persian Gulf.

In 2018, the Strait of Hormuz was the daily transit chokepoint of 21 million barrels of oil per day, or the equivalent of some 21 percent of global petroleum liquids consumption, and there aren’t many ways around this.

But there are three operational oil pipelines—two in Saudi Arabia and one in the UAE—that can bypass the risky Strait of Hormuz.

The Petroline, or the East-West pipeline in Saudi Arabia stretching from the oil fields in the east to the Yanbu port on the Red Sea in the west, has the capacity to carry 5 million bpd of oil. In 2018, the throughput on the pipeline was just 2.1 million bpd, leaving 2.9 million bpd capacity unused, according to EIA estimates based on data from ClipperData and from a Saudi Aramco bond prospectus.

Based on tanker tracking data by ClipperData, Saudi Arabia currently moves the most crude oil and condensate through the Strait of Hormuz, most of which is exported to other countries, with less than 500,000 bpd transiting the strait in 2018 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea.

Related: Saudis To Oil Buyers: Protect Your Oil Tankers In Strait Of Hormuz

Speaking to Reuters today, al-Falih said that Saudi Arabia hoped to raise the East-West pipeline capacity to 7 million bpd, but that it would take two years.

Last month, as tensions escalated in the Middle East, Saudi Aramco’s chief executive said that the Kingdom’s oil giant was ready to continue shipping crude oil even if maritime transport through the Strait of Hormuz is disrupted.

“We are increasing our readiness. We can supply through the Red Sea and we have the necessary pipelines and terminals,” Amin Nasser told Bloomberg in an interview at the end of June.

Since the end of June, tensions have further spiked in the Persian Gulf after Iran seized a British-flagged oil tanker in the Strait of Hormuz last week in apparent retaliation for Gibraltar detaining an Iranian tanker in the Mediterranean earlier this month on suspicion of violating EU sanctions on Syria.

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By Tsvetana Paraskova for Oilprice.com

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