Saudi Arabia is examining the expansion of the capacity of the crude oil transport pipeline toward its western coasts on the Red Sea, according to five sources familiar with the matter and cited by Reuters, in a move that will allow the kingdom and potentially neighboring countries to transport larger quantities of oil without passing through the Straits of Hormuz.
The East-West pipeline was constructed in the early 1980s and has acquired critical importance following the outbreak of the war with Iran in February and the subsequent disruption of navigation through the Straits of Hormuz.
Capacity to transport up to 7 million barrels daily
The pipeline can currently transport up to 7 million barrels of crude oil per day (bpd) toward the port of Yanbu on the Red Sea.
Approximately 2 million barrels daily supply the refineries on the western coasts of the country, while approximately 5 million barrels daily are destined for exports, according to the chief executive officer of the state-controlled oil company Aramco, as he had stated in May.
Discussions with neighboring countries to increase capacity
Riyadh is in preliminary talks with certain neighboring countries regarding a potential increase in the capacity of the pipeline by up to 2 million barrels daily, according to the sources.
It is not clear whether the planned increase in capacity by Aramco will involve an upgrade of existing infrastructure or the construction of a new pipeline.
One of the sources mentioned that the expansion could also include a smaller second pipeline for the transport of petroleum products.
Gulf countries seek alternative routes
Kuwait, Bahrain, and Qatar do not currently possess routes that bypass the Straits of Hormuz, while the pipeline of Iraq toward Turkey, which has faced disputes and repeated operational shutdowns, is moving far below its maximum capacity.
"We are in discussions with our brothers in Saudi Arabia and the Emirates to examine how we can expand the pipeline system they possess, so that it can transport quantities of Kuwaiti oil," stated the chief executive officer of the Kuwait Petroleum Corporation, Sheikh Nawaf al-Sabah, at the Atlantic Council Global Energy Forum last month.
The expansion could involve from 1 to 2 million barrels daily, according to two of the sources, while the transport of refined products is also being examined.
The project, however, would require several years to be completed, would cost billions of dollars, and would require changes to the pricing mechanism of Saudi crude oil, according to another source.
The blockade of Hormuz revealed energy vulnerability
The blockade of the Straits of Hormuz by Iran forced the Gulf producers to limit their production by up to 12 million barrels daily, causing a sharp rise in oil prices.
Flows have been partially restored following a preliminary US-Iran agreement last month, however they remain lower than the levels before the war.
The production of Iraq collapsed from 4.3 million barrels daily to less than 1.5 million barrels daily in May, Kuwait declared a state of force majeure in March, while the Sitra refinery in Bahrain was hit several times by Iranian missiles.
"The recent discussions for new pipeline corridors with the participation of Saudi Arabia, Kuwait, and Qatar reflect a broader strategic reality. The conflict forced the countries of the region to realize the risks of exclusive reliance on the Straits of Hormuz," stated Zaid Belbagi, managing partner of the London-based Hardcastle Advisory.
Aramco declined to comment, while the government communication offices of Saudi Arabia and Bahrain, the Ministry of Oil of Iraq, and QatarEnergy did not respond immediately to requests for comment.
Qatar seeks alternatives for LNG exports
Qatar, which exports mainly liquefied natural gas (LNG), faces greater technical difficulties and is examining several potential alternative solutions, among them a route through Saudi Arabia, according to three sources.
The United Arab Emirates is the only other Gulf country with a significant capability to bypass the Straits.
Abu Dhabi has completed half of a new West-East pipeline, which when put into operation next year will double the capacity of transporting crude toward Fujairah. The existing pipeline of Abu Dhabi can transport up to 1.8 million barrels daily.
New race between Saudi Arabia - UAE for oil dominance
An expansion of the pipeline by Saudi Arabia "suggests that after the war the next phase of the competition between Saudi Arabia and the United Arab Emirates may be a race to the top in oil production and, consequently, a race to the bottom in prices," stated an oil industry source.
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