The commissioning of the $3.3-billion (Dh12.11 billion) Habshan-Fujairah oil pipeline this year will be a game changer in crude oil transportation as it will give Abu Dhabi, the UAE's largest oil producing emirate, direct access to the Indian Ocean for its oil exports and the option of bypassing the critical Strait of Hormuz, experts say.
"Abu Dhabi would get access to an open sea — that's the strategic advantage the new pipeline provides," a well-placed oil industry source based in Abu Dhabi told Gulf News.
"In order to make the strategic option valid, both export points — Jebel Dhanna port and Fujairah port need to be operational," said the source.
The Strait of Hormuz handles 40 per cent of the world's seaborne oil.
The new pipeline will ensure safe flow of the UAE's crude oil exports in the event of any disturbance in the Strait of Hormuz, which Iran last year threatened to choke if Western powers resorted to military action in the context of the row over Tehran's nuclear programme.
As matters stand, pretty much all of Abu Dhabi's onshore crude output meant for export is loaded at the Jebel Dhanna port, while its offshore crude is loaded for export at Das Island.
Abu Dhabi controls more than 90 per cent of the UAE's crude oil reserves and exports more than 2 million barrels of oil per day.
According to Dalton H. Garis, associate professor of Economics and Petroleum Market Behaviour at Abu Dhabi's Petroleum Institute, the new pipeline "mitigates the continuing problem of shipping crude and clean products through the Hormuz Strait, especially as the political situation vis-a-vis Iran and the rest of the world is likely to deteriorate. It will lead to the promised and often delayed expansion of Fujairah port facilities and refining capacity."
The 370-kilometre pipeline, expected to be commissioned in the fourth quarter of this year, will carry around 1.5 million barrels per day of crude oil from the onshore Habshan field to the port of Fujairah.
The conceptual design of the pipeline was completed in 2006 and the construction related contracts were awarded in 2007. Construction of the pipeline started on March 19, 2008.
The pipeline is designed by WorleyParsons. Construction is managed by ILF Consulting Engineers and carried out by China Petroleum Engineering and Construction Corporation.
According to experts, the new pipeline will also lower shipping costs for the UAE's oil exports, as shippers charge a premium due to the war risk for entering the Strait of Hormuz.
During the first year of its operation, the pipeline will enable the Abu Dhabi Company for Onshore Oil Operations (Adco) to export roughly half its total production.
While Adco's total oil production capacity is a bit less than 1.4 million barrels per day (bpd), its current output is about 1.34 million bpd.
The Habshan-Fujairah crude oil pipeline is owned by the International Petroleum Investment Company, an investment arm of the government of Abu Dhabi. The crude, Murban blend, will be carried through a single 48-inch diameter pipeline.
The project comprises the pipeline, main oil terminal at Fujairah, offshore loading facilities and other associated facilities.
Under the plan, a strategic crude reservoir will be set up in Fujairah. From there, crude oil will be loaded aboard tankers anchored in safe waters.
The pipeline will also serve a planned refinery to be built in Fujairah by IPIC.
"No doubt, with increasing geopolitical uneasiness to our north and our growing reliance as a transshipment point for a world of goods travelling east and west, the port of Fujairah will only grow in strategic and commercial importance," said Garis