Saudi Arabia is considering expanding the capacity of its crude oil pipeline to the western Red Sea coast, five sources close to the matter said, enabling the kingdom and possibly neighbours to transport more oil without crossing the Strait of Hormuz.
The East-West pipeline was built in the early 1980s and has become crucial since the start of the Iran war in February and the resulting halt to shipping through the Strait of Hormuz.
It can transport up to 7 million barrels per day (bpd) of crude to the Red Sea port of Yanbu. About 2 million bpd feed refineries on the west coast and roughly 5 million bpd are for export, the CEO of state-backed oil company Aramco said in May.
In Talks with Neighboring Countries
The kingdom is in preliminary talks with some of its neighbours about the potential expansion of the pipeline's capacity by up to 2 million bpd, the sources said.
It was unclear if Aramco's planned capacity increase would involve upgrades to existing infrastructure or construction of a new pipeline. One of the sources said the increase would include a smaller second pipe for oil products.
Kuwait, Bahrain and Qatar all lack routes that can bypass Hormuz while Iraq's pipeline to Turkey, dogged by disputes and repeated shutdowns, runs well below capacity.
"We are in discussions with our brothers in Saudi Arabia and in the emirates to look at how to expand the pipeline system that they have to accommodate Kuwaiti barrels," Kuwait Petroleum Corporation CEO Sheikh Nawaf al-Sabah told the Atlantic Council Global Energy Forum last month.
The expansion could be for 1 million to 2 million bpd, two of the sources said, with refined products also under consideration. It would take years, cost billions of dollars and require changes to Saudi crude's pricing mechanism, another source said.
Iran's blockade of the strait forced Gulf producers to shut in as much as 12 million bpd, sending prices surging. Flows have resumed partially after a preliminary U.S.-Iran deal last month, but they remain below pre-war levels.
Iraqi output collapsed from 4.3 million bpd to less than 1.5 million bpd in May, Kuwait declared force majeure in March and Bahrain's Sitra refinery was struck by Iranian missiles several times.
"The recent talks about new pipeline corridors involving Saudi Arabia, Kuwait and Qatar reflect a broader strategic reality. The conflict has focused minds regionally on the perils of relying solely on Hormuz," said Zaid Belbagi, managing partner at London-based Hardcastle Advisory.
Aramco declined to comment while the Saudi and Bahraini government communications offices, the Iraqi oil ministry and QatarEnergy did not respond immediately to requests for comment.
Qatar, which mainly exports LNG, faces greater technical hurdles and is considering several potential alternatives, including via Saudi Arabia, three sources said.
The UAE, the only other Gulf state with meaningful Hormuz-bypass capacity, has completed half of a new West-East pipeline that will double crude capacity to Fujairah when it becomes operational next year. Its existing Abu Dhabi pipeline carries up to 1.8 million bpd.
An expansion by Saudi Arabia "suggests that after the war, the next phase of the Saudi-UAE rivalry could be a race to the top on oil production, and therefore a race to the bottom on prices," one industry source said.
(Reuters - Reporting by Yousef Saba in Dubai, Marwa Rashad in London and Timour Azhari in Riyadh, Editing by David Goodman)
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