April 23 (Bloomberg) -- Abu Dhabi will ship 5 million barrels of crude next month from the United Arab Emirates’ port of Fujairah, as the state oil company boosts shipments loaded outside the Strait of Hormuz chokepoint, an official said.
The May shipments would equate to about 160,000 barrels a day, or 11 percent of the capacity of the $4 billion pipeline that began sending oil to the eastern emirate in July.
“We are increasing exports from Fujairah on a gradual basis each month,” Sultan Al Mehairi, marketing and refining director at Abu Dhabi National Oil Co., said today. “We’ll be exporting about 5 million barrels from Fujairah in May alone.”
Abu Dhabi, capital of the U.A.E. and holder of most of the Persian Gulf nation’s crude, completed the overland link last year to bypass Hormuz, a passage for a fifth of the world’s traded oil at the mouth of the Gulf. Iran has threatened to block the strait because of economic sanctions targeting its nuclear program. Even with the new pipe, Abu Dhabi ships most of its crude from a port and offshore fields inside the Gulf.
“When it was opened, it came at a time when there was a need for more security for Middle Eastern crude exports, so at the time it had a big significance,” said Abhishek Deshpande, a London-based oil markets analyst at Natixis SA. “It looks a great investment, but if the situation with Iran is resolved then it suddenly wouldn’t carry much significance.”
Adnoc, as the state company is known, has already shipped at least 11 crude cargoes from Fujairah since July, according to four people with direct knowledge of the sales. Adnoc sold at least seven of those cargoes, or at least 5 million barrels, to refiners in Japan, South Korea and China, said the people, who asked not to be identified because the shipments are confidential. That tally doesn’t include any crude planned for May shipment.
The other four previous shipments comprise an initial July cargo and three others loaded after tests on the pipeline.
Adnoc sells crude loaded at Fujairah for the same price it charges at Jebel Dhanna, its port inside the Gulf, the four people said. That means Adnoc is covering the cost of the pipeline without charging a premium for Fujairah deliveries.
Abu Dhabi sets retroactive prices for its Murban crude blend produced at its onshore fields, announcing the price in dollars for the previous month’s sales. The emirate sold Murban for $109.95 a barrel in March, Adnoc said April 2. The grade gained 56 cents, or 0.6 percent, to $102.29 a barrel in spot trading as of 10:47 a.m. London time today.
The pipeline is flowing at less than full capacity because it’s still being tested, Al Mehairi said today in an interview at the Middle East Petroleum and Gas Conference in Abu Dhabi. He didn’t say who would be buying the May cargoes. The pipe is designed to transport as much as 1.5 million barrels a day from Abu Dhabi’s main onshore fields to Fujairah.
That capacity is equivalent to roughly 9 percent of the 16 million to 17 million barrels that pass through Hormuz each day, said Deshpande of Natixis. “It does ease tensions in the case of the Strait of Hormuz being shut,” he said.
The U.A.E. was the sixth-largest oil producer in the 12-member Organization of Petroleum Exporting Countries last month, trailing Saudi Arabia, Iraq, Venezuela, Kuwait and Iran, according to data compiled by Bloomberg.
BP Plc and Royal Dutch Shell Plc are among Abu Dhabi’s partners in the oilfield concession that produces Murban, the blend that can be sent through the pipeline to Fujairah for export. David Nicholas, a BP spokesman, and Jonathan French, a spokesman for Shell, declined to comment from London yesterday.
Shell was in talks to secure as much as 1 million cubic meters of crude-oil storage at Fujairah, in what would be the region’s first such crude-tank deal with foreign companies. Shell may lease the space from tank operators that are expanding their storage, Salem Khalil, technical adviser for Fujairah’s government, said in a Feb. 28 interview, reported by Bloomberg on March 11.
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