Escalating attacks raise risk on Saudi oil supply

Tensions over threats to oil flows from the Middle East escalated Tuesday after an attack halted flows through Saudi’s Arabia main oil transport pipeline to terminals and refineries on the Red Sea.

The drone attack, which came just days after one of the biggest attacks on oil tankers near the Strait of Hormuz, raising concerns that a new wave of threats has been coordinated to hit key oil infrastructure and transit routes in the Middle East.

Combined, the latest attacks have targeted the two main alternative supply routes for Saudi Arabia’s and the UAE’s oil exports outside of the Persian Gulf.

Saudi Arabia’s key oil and gas infrastructure

**Saudi Arabia, the world’s largest crude exporter, is currently producing around 9.81 million b/d and exporting around 7 million b/d.

**Saudi’s Arabia East-West Pipeline to the Red Sea has a nameplate capacity of about 5 million b/d, with current movements estimated at about 2 million b/d.

**Saudi Arabia ships about 10% of its total crude exports to Europe through the line to the Red Sea. The line is also critical to Saudi Arabia’s own Red Sea refineries, which are mainly supplied with crude oil produced in its eastern region shipped from the Persian Gulf.

**In the Persian Gulf, two Saudi Arabian oil tankers and two other vessels were the targets of sabotage attacks which caused hull damage on the weekend off the UAE port of Fujairah.

**Iran has issued threats to close or disrupt traffic through the Strait of Hormuz, a critical chokepoint through which 30% of the world’s seaborne oil transits, prompting the US to deploy warships and bomber aircraft to the region.

**Some 18.5 million b/d passed through the choke point in 2016 mainly to customers in East Asia, the EIA estimates. Japan, China, India and South Korea are the biggest buyers of the heavier sourer, or high sulfur, crudes the Middle East producers tend to supply.

**Saudi crude is generally a mix of heavy to medium sour oil, which is generally high in sulfur and yields a decent amount of residual fuel and vacuum gasoil.

**The oil is particularly popular with complex refineries in Asia, US and Europe which can crack heavy sulfurous crudes, and still yield distillate products due to the refiners having complex secondary units.

**The key export grades are Arab Heavy, Arab Medium, Arab Light and Arab Extra Light. Some of Saudi’s key oil fields are Ghawar, Khurais, Shaybah, Safaniyah, Qatif and Zuluf.

**Oil prices rose by more than 1% after the announcement of the Saudi pipeline attack with Brent trading 1.5% higher at $71.33/b at 1119 GMT.

**On Monday, news that four oil tankers were damaged by the attacks near Fujairah pushed up oil prices initially but subsequently gave up the gains, ending lower on the day amid renewed US-China trade conflict and demand concerns.

**Saudi Arabia’s East-West Pipeline, also known as the Petroline, is a 746-mile long 48-inch pipeline that runs from Abqaiq to the Yanbu Port on the Red Sea.

**The Strait of Hormuz is the key maritime transit route through which Persian Gulf exporters (Saudi Arabia, Iran, Iraq, Kuwait, Qatar, the UAE, and Bahrain) ship their oil.

**Almost a third of global LNG supplies also pass through the waterway. Qatar dominates LNG export flows through the Gulf with the UAE shipping smaller volumes. LNG transit volumes are 3.7 Tcf/year.

**The country’s largest oil export terminals are in the port of Ras Tanura which can handle about 6.5 million b/d, according to the EIA. All of Saudi’s key crude oil grades load from here along with condensate and products.

**The port comprises three terminals: Ras Tanura terminal, Ju’aymah crude terminal, and Ju’aymah LPG export terminal. The Ras Tanura crude terminal has a 33 million barrels storage capacity.

**The other key crude export terminal is the King Fahd terminal in Yanbu on the Red Sea, which has a loading capacity of 6.6 million b/d.

**Total crude oil storage capacity at the terminal is 12.5 million barrels. Only Arab Light crude oil grade is loaded at the Yanbu terminal.

**Saudi Arabia has other smaller ports, including Ras al-Khafji, Jubail, Jizan, and Jeddah.
Source: Platts