A quick 1.2 million bpd addition to bypass capacity would ease some of the supply-risk premium built into crude, since it widens the route Saudi barrels can take around a disrupted Strait of Hormuz. The bearish oil price read is tempered by execution risk: the same corridor was knocked offline by a drone strike only last month, and Houthi attacks keep the Red Sea leg exposed. Port capacity at Yanbu is the bigger constraint for traders to watch, because extra pipeline volume only reaches the market if loadings can keep pace. Taken together, the plan signals that Riyadh expects disruption at Hormuz to persist, and that is supportive of prices over the longer run even if the near-term supply outlook improves at the margin.
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Earlier:
Big Monday recap … Oil gains on two fronts as Russia hits Ukraine and Saudi vows Houthi response
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Riyadh is reaching for the fastest lever it has to get more crude around Hormuz, though the real bottleneck may sit at the Red Sea port rather than in the pipe.
Summary:
Saudi Arabia is examining plans to raise pipeline crude export capacity to 10 million bpd, according to comments attributed to Energy Minister Prince Abdulaziz bin Salman
He said converting a gas pipeline to carry crude could add 1.2 million bpd within seven to eight weeks
The Energy Ministry has said reaching the full 10 million bpd target would take two to three years
The 7 million bpd East-West pipeline was shut in September after a drone strike launched from Iraq, and was carrying close to 6 million bpd by 6 October
Riyadh has been rerouting around 4 million bpd, roughly 4% of global supply, to Yanbu since the US-Iran war disrupted Hormuz shipments
Ship-tracking data suggest Yanbu can load only around 4.5 million bpd, a potential constraint on extra exports
Saudi Arabia is examining plans to raise its pipeline crude export capacity to 10 million barrels per day, with Energy Minister Prince Abdulaziz bin Salman saying the conversion of a gas pipeline to carry crude could add 1.2 million bpd within seven to eight weeks.
The comments point to a fast-track first step toward a longer-term goal. The Saudi Energy Ministry has said it expects lifting oil pipeline capacity to 10 million bpd to take two to three years, so the gas line conversion would deliver a meaningful increase well ahead of any full expansion.
The push reflects how central the East-West pipeline has become to Saudi exports. The line runs from fields and processing facilities near the Gulf to the Red Sea port of Yanbu and has a capacity of around 7 million bpd. Since the US-Iran war disrupted shipments through the Strait of Hormuz, Riyadh has been using it to reroute around 4 million bpd to Yanbu, according to Reuters, equivalent to about 4% of global supply.
That route has itself come under attack. The pipeline was shut in September after a drone strike launched from Iraq, which Saudi Arabia blamed on Iraqi militias. Argus reported, citing sources, that three of the line’s 11 pumping stations were damaged, one of them significantly, although the pipeline itself was not. On 6 October, Prince Abdulaziz said flows had recovered to close to 6 million bpd, with operations restarting within about a week of the attack. Separately, Aramco shut its 400,000 bpd Jizan refinery on the Red Sea coast after a Houthi attack in early September.
Expansion talk is not new. Reuters reported earlier, citing sources, that the kingdom was considering adding 1 million to 2 million bpd of East-West capacity, potentially including the ability to carry refined products.
Port capacity may prove the binding constraint. Ship-tracking data indicate Yanbu can load only around 4.5 million bpd, well below the pipeline’s nameplate capacity. Any additional pipeline volumes will therefore depend on matching gains at the terminal end.
The plan also suggests Riyadh is preparing for prolonged disruption at Hormuz, with markets now watching for details on which line would be converted, the timeline for terminal upgrades, and the security of a corridor that has already been struck once.
This article was written by Eamonn Sheridan at investinglive.com.
