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Israeli pipeline could boost Europe-Asia crude supply options

Petróleo

Platts Global Alert - Oil

Israeli pipeline could boost Europe-Asia crude supply options

Destaques

EAPC eyes broader crude transit role

600,000 b/d crude line offers Suez, SUMED alternative

Middle East incidents see producers reassess supply routes

London — Expanding Israeli pipeline and storage operations between the Mediterranean and Red Sea could benefit from changing crude and product flows and heightened security of supply issues across the Middle East.

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As Middle Eastern oil producers assess strategies to lessen export dependence on the Strait of Hormuz -- most notably Saudi Arabia's planned East-West pipeline capacity expansion to 7 million b/d from 5 million b/d in the coming months -- an Israeli pipeline company is angling to shift the perception that it is just a local infrastructure operation.

Ashkelon-based EAPC operates a 600,000 b/d crude pipeline that runs between the Mediterranean port and Eilat on the Red Sea. It changed the meaning of its acronym earlier this year to the Europe-Asia Pipeline Company, previously standing for the Eilat-Ashkelon Pipeline Company.

The oil pipeline company was set up as joint venture by Israel and Iran in 1968 before ties were cut after the Iranian Revolution. Now EAPC is looking at growing its international presence. In addition to its traditional business of crude oil transport and storage services offered to Israeli and international customers, EAPC provides infrastructure services in areas such as LPG, oil products and coal. EAPC also operates a receiving terminal for natural gas from Israeli and external sources.

EAPC is now shifting focus to connect crude cargoes from Black Sea ports, the Caspian Sea and "shortly" from the US Gulf to key Asian buyers, it told S&P Global Platts in an interview. The pipeline can pump crude in both directions and EAPC has nearly doubled its storage capacity to support moves to expand crude flows.

The EAPC system comprises two oil ports and terminals, seven berths, four pipelines and total storage capacity of more than 3.7 million cu m (23 million barrels) for crude and products.

The company expanded oil product storage capacity due to the lack of capacity in the Mediterranean basin and with a view to contributing to Israel's energy security. It is now taking steps to further increase crude storage capacity at Ashkelon and Eilat.

EAPC's storage capacity at Ashkelon is 2.3 million cu m and 1.4 million cu m at Eilat, with planning approval to add 800,000 cu m on the Mediterranean side.

"The geopolitical risks in the Persian Gulf region only increase the attractiveness of the EAPC system," EAPC deputy manager in commerce and marketing Effie Milutin said. Incidents around the Strait of Hormuz -- which transports around 20% of all global oil supply -- have increased the oil and shipping industry's concerns over security of supply, withshipments via the Red Sea's Bab el-Mandab commodity chokepoint seen as an alternative route.

OIL TRANSIT RIVALS

EAPC's crude line can be used to load and unload crude shipments on to VLCCs at the ports either end. It offers an alternative to the Suez Canal -- which is limited by tanker size -- and the SUMED pipeline in Egypt that only carries oil in one direction, from the Red Sea terminal at Ain Sukhna to Sidi Kerir on the Mediterranean. And sending crude around the Cape of Good Hope is much slower and more expensive.

The Suez Canal and the SUMED pipeline are strategic routes for Persian Gulf crude, products, and LNG shipments to Europe and North America. Total oil flows through the Suez Canal and the SUMED pipeline accounted for about 9% of total seaborne traded petroleum in 2017, and LNG flows through the Suez Canal and the SUMED pipeline accounted for about 8% of global LNG trade, according to the latest EIA data available.

Pipelines and storage across the Middle East have become talking points since a series of tanker attacks in the Gulf of Oman and attacks on Saudi pipelines. Saudi Arabia, the UAE and Iraq have functional bypass pipelines to move oil to terminals outside the Persian Gulf. In addition to the 2 million b/d that Saudi Arabia now pumps through the East-West pipeline, Iraq ships 500,000 b/d via a northern route through Turkey with capacity of around 700,000 b/d. The UAE moves around 600,000 b/d through the 1.5 million b/d Habshan-Fujairah pipeline.

"Global oil movements are changing and we are seeing ever-increasing movements from west to east, not just as a result of increased production but also due to refining capacityin South Asia and the Far East," Milutin said, who was tight-lipped on actual flows through the EAPC pipelines, due to commercial considerations.

If the EAPC gains traction, this latest twist to security of oil supply through the Middle East could become an even bigger source of conversation.

-- Paul Hickin, paul.hickin@spglobal.com

-- Eleni Pittalis, eleni.pittalis@spglobal.com

-- John-Laurent Tronche, john-laurent.tronche@spglobal.com

-- Edited by James Burgess, james.burgess@spglobal.com