KUWAIT - Oil P/Ls Bypassing Hormuz.

Every day, about 20-30 oil tankers pass through the narrow Strait of Hormuz, which separates Iran from the UAE and Oman at the mouth of the Persian Gulf. The tankers account for about 88% of all petroleum exported from the Gulf - about 20% of the world's total oil supply. New crude oil pipelines are to be built to bypass the strait.

At its narrowest point, the strait measures just 50 km, and ship navigation is limited to two three-km-wide channels - one for inbound shipping, the other for outbound traffic. While the strait has never been shut down, the energy world is acutely sensitive to events which could see it obstructed. And with international tension mounting over Tehran's nuclear ambitions, the issue is at the forefront of many people's minds, particularly after Iran's Supreme Leader Ayatollah Ali Khamenei warned last summer that oil exports from the Gulf could be under threat if Washington made a wrong move over Iran.

A trans-Arabia crude oil pipeline bypassing the strait has been floated since the 1980s as a solution to the Gulf's ongoing dilemma over energy security. Now this project has been revived, despite the high cost. The Dubai-based Gulf Research Centre (GRC) puts the cost of a 5m b/d GCC pipeline at $2-4 bn. There are six possible routes, depending on the number of committed states. The first five originate in Saudi Arabia and either cut through the UAE to access the Arabian Sea or Yemeni ports, or bypass the UAE entirely to trade directly from either Oman or Yemen. The sixth is the ambitious trans-GCC pipeline, originating in Kuwait, with a possible connection to Iraqi oilfields, and running through Saudi Arabia to the UAE, with a possible outlet at Fujairah, Oman or Yemen.

Mustafa al-Ani, Iraqi-born programme head for security and terrorism studies at the GRC, says: "Doing something now makes sense. The cost is not necessarily the major issue. We now have the GCC co-operating on electricity and gas, so why not pipelines? There is room to spend this money, but politically it is another issue". He says much of the momentum for a pipeline hinges around Saudi participation. But with Saudi Aramco already investing heavily in its kingdom-wide pipeline network, the East-West pipeline, al-Ani says any commitment would have to come direct from Riyadh.

The East-West pipeline carries about 5m b/d of Saudi Aramco's crude through an outlet on the Red Sea, ensuring no disruption to supplies to the US and European markets. With plenty of spare capacity on the pipeline, this would be the first recourse for Saudi crude oil in the event of shipping problems.

Abu Dhabi-owned International Petroleum Investment Co. (IPIC) is having a 1.5m b/d crude oil pipeline to be built through a 360-km route from Habshan oilfields in Abu Dhabi to the port of Fujairah. IPIC, through its state-owned parent Abu Dhabi National Oil Co (ADNOC), along with a host of other significant GCC producers, had been nervously watching the escalating tension between the West and Iran.

The Paris-based IEA says the Abu Dhabi decision to finance the project and the wider Fujairah complex shows the impact on regional thinking of Iranian President Ahmadi-Nejad's 2006 references to the "oil weapon". Catherine Hunter of the IEA's Global Energy Dialogue says: "While some interpreted this as a threat to cut off Iranian supplies, others saw it as a threat to all Gulf oil supplies shipped via the Hormuz Straits".

Kuwaiti Export Capacity Expanding: An expansion of oil storage facilities and other logistics at Mina al-Ahmadi will enable KPC to export 3m b/d of crude oils by June 2008. Kuwait's oil refining sector will have a big upgrade to improve as well as increase the range of products (see down23KuwtRefJun4-07).

The $1.5 bn exports and storage facility at Mina al-Ahmadi is being built by Huyndai Heavy Industries of South Korea under a contract awarded in 2005. The new terminal will include 11.4m barrels of crude oil storage capacity consisting of 19 tanks, plus a set of pipeline including marine lines and an offshore mooring facility. Parsons of the US has done the front-end engineering and design (FEED) for the whole project.