Saudi readies oil line to counter Iran Hormuz threat
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Kuwait Times - 29 June, 2012
http://gitm.kcorp.net/index.php?id=607027&news_type=Economy&lang=en

Saudi Arabia has reopened an old oil pipeline built by Iraq to bypass Gulf
shipping lanes, giving Riyadh scope to export more of its crude from Red Sea
terminals should Iran try to block the Strait of Hormuz, industry sources
say.

The Iraqi Pipeline in Saudi Arabia (IPSA), laid across the kingdom in the
1980s after oil tankers were attacked in the Gulf by both sides during the
Iran-Iraq war, has not carried Iraqi crude since Saddam Hussein invaded
Kuwait in 1990. Saudi Arabia confiscated the pipeline in 2001 to compensate
for debts owed by Baghdad and has used it to transport gas to power plants
in the west of the country in the last few years.

Iran in January threatened to block the Strait of Hormuz in retaliation for
US and European sanctions that target its oil revenues in a bid to stop Iran’s
nuclear program. A European Union ban on Iran’s oil starts on Sunday and
Israel has threatened military action against Iranian nuclear facilities if
Iranian talks with Western powers fail to stop uranium enrichment.

Alarmed, Saudi Arabia has now quietly reconditioned IPSA to carry crude,
test pumping along the line over the last four to five months, several
sources with knowledge of the project say. “The testing started because
Saudi Arabia wanted to secure alternative routes to export oil,” an industry
source in Saudi Arabia said.

Western industry sources said the tests through the 1.65-million
barrel-a-day line had delivered into storage facilities at Mu’ajjiz near
Yanbu on the Red Sea for at least four months. More than a third of the
world’s seaborne oil exports pass through the narrow Strait of Hormuz from
the oilfields of Saudi Arabia, Iran, Kuwait, Iraq, the United Arab Emirates
and Qatar. Qatar’s liquefied natural gas exports are all shipped through
Hormuz.

PETROLINE

Worried about its reliance on Gulf shipping, Saudi Arabia in 1992 increased
its capacity to pump oil from oilfields predominantly clustered in the east
across the country to the Red Sea to about 5 million barrels a day through
two parallel pipelines known as the Petroline.

Saudi crude exports run as high as 8 million bpd but rising demand for its
crude in Asia, shipped out of the Gulf, and falling demand from Europe,
usually sourced from Red Sea ports, meant Petroline’s pumping capacity was
never fully utilized. The smaller Petroline pipeline was converted to carry
natural gas from the east to booming industrial centers in the west a few
years ago, slashing Saudi’s east-west crude transport capacity to Red Sea
ports.

Saudi Red Sea industries are now reliant on gas fed from fields over 1,000
km away and the prospect of cutting them off to export crude through
Petroline during a Gulf shipping blockade is not an attractive option. Until
recently the Saudi government had considered the risk of such a disruption
in the Gulf too small and its western gas needs too great to switch
Petroline fully back to oil. But as tensions over Iran’s nuclear program
ratcheted up, Riyadh decided to put IPSA on standby to transport more crude
west in an emergency. The United Arab Emirates has built its own Hormuz
bypass pipeline, which is due to start exporting from the Gulf of Oman next
month.