The United Arab Emirates will begin pumping oil through a new pipeline in upcoming weeks that connects directly to its Indian Ocean port of Fujairah and enabling it to avoid the strategically important but potential flash-point Strait of Hormuz.
This eastern Emirati port glitters at night, creating the mirage of a far-off city at sea and giving a glimpse of what future will like when it turns into one of the world’s busiest maritime refuelling stations and become a vital new exit route for Arabian crude oil destined for global markets.
The work on the project is almost complete. The 480-km pipeline with a capacity of up to 2.5 million barrels per day runs through the mountainous emirate and will reroute bulk of the country’s oil exports around the Strait of Hormuz at the mouth of the Gulf, the waterway for a fifth of the world’s oil supply.
Iran has repeatedly threatened to close the strategic oil route if attacked by Israel or US, its chief ally in the world, in a bid to destroy its nuclear installations.
Gulf countries have taken very seriously the threat of a conflict that could block the route to market for their most lucrative resource. However, it is only the UAE and Oman that have coastlines on Indian Ocean side of the strait which enables them to go around the choke point by land. Saudi Arabia also can avoid Hormuz by switching its Gulf fields’ oil production to its Red Sea ports, but that would require an increase in the capacity of those ports and of pipelines running across the breadth of the country to handle its total output.
The UAE exports its oil via its Gulf ports and shipments pass through Hormuz. However, the situation will change once the new Habshan-Fujairah pipeline is up and running at full volume, which will allow the world’s fifth largest producer to get two-thirds of its peak oil production, about 10% of the total 17 million barrels of oil a day that currently goes through Hormuz, to market even if the strait is shut.
The UAE officials have not announced a firm starting date yet but some Emirati officials suggest exports could begin soon.
Energy Minister Mohammad bin Dhaen al-Hamli told a Paris conference last month the 4-foot-wide pipeline was finished and being tested.
Sheikh Hamad bin Mohammed Al-Sharqi, the ruler of Fujairah, told AFP last month the pipeline will be operational in June.
The pipeline is a way for Fujairah to solidify its standing as an emerging petroleum hub.
According to Ada Taib, editor at Bunkerworld, an online site that tracks the industry, about two dozen ships on average already pick up fuel for their own engines in Fujairah every day with port authority claiming it to be the world’s second-busiest maritime refuelling spot globally after Singapore.
Facts on the ground speak likewise. The waterfront around Fujairah port is dotted with more than 100 towering fuel silos, eight larger storage tanks each capable of holding 1 million barrels of crude, and the terminus for the new oil pipeline.
Even more energy infrastructure is on the horizon.
IPIC, the Abu Dhabi company building the crude pipeline, and Mubadala Development Co., are planning a $3 billion, 200,000 barrel-a-day refinery at Fujairah. Plans of developing a terminal at Fujairah to receive liquefied natural gas for domestic use were announced in March by both the companies.
“There’s a recognition that it’s a strategic asset having an outlet on the Indian Ocean,” said Mills, who added that the UAE is eager to get the crude oil pipeline running as soon as it can. “Tensions do come and go pretty quickly. You always want to have it ready.”