UAE Port Ramps Up Hormuz-Dodging Oil Flows

The United Arab Emirates has been ramping up oil exports from a vital port that lies outside the Strait of Hormuz, after some of the biggest crude loading infrastructure resumed operations following Iranian drone strikes earlier this month.

The largest crude operations by Abu Dhabi National Oil Co. in Fujairah are picking up after they had halted March 14. The port in the UAE’s east coast has a critical role as an outlet for oil bypassing the all-but shut Hormuz waterway, making it among the energy sites most frequently targeted by Tehran. After Saudi Arabia’s Red Sea port of Yanbu, it’s the biggest exit point for Persian Gulf crude circumventing the maritime chokepoint.

The return of much of Adnoc’s operations helped push up crude loading to about 1.9 million barrels a day over the March 20-24 period, according to tanker tracking data compiled by Bloomberg. That’s up 57% from the average flows of about 1.21 million barrels a day over the past year, as the UAE pushes to get more cargoes out through the route with Hormuz still largely blocked. 

The uptick compares with an average of 1.48 million barrels a day for the month through March 24. More recent exports still need to be verified as electronic jamming is widely blocking the transmission of satellite signals that allow tracking in the region.

Fujairah’s proximity to Iran — it’s about 80 miles (130 kilometers) south of Hormuz, nestled in the shadow of the Al Hajar mountains — makes it more vulnerable than Yanbu. Over the past four weeks, Tehran has attacked Fujairah at least seven times, destroying storage tanks and causing fires in a petrochemicals complex.

Besides crude oil, Fujairah also has large fuel-loading operations. Part of that system is still out of commission, after a key manifold was damaged in a strike more than three weeks ago. Most fuel is currently being loaded via an older section of the port, which connects directly to the ship berths without going via the manifold, according to people with knowledge of the situation. Refineries, including one run by a unit of Vitol Group, are still halted.

The latest crude oil export figures suggest a 252-mile (406-kilometer) Adnoc-owned pipeline — linking Habshan, the collection point for Abu Dhabi’s onshore fields, to the port — is operating close to its capacity.

It’s significantly smaller than Saudi Arabia’s East-West pipeline that can deliver as much as 7 million barrels a day — mostly for exports — to Yanbu. But the Adnoc conduit remains a vital alternative route. 

Shutting Hormuz has halted about 15 million barrels a day of crude shipments that normally leave the Persian Gulf for world markets. But without the pressure-release valves offered by Fujairah and Yanbu, oil prices are likely to have soared even higher. 

Fujairah — which became a refueling port for tankers during the Iran-Iraq war of the 1980s, before the construction of storage tanks at the turn of the century — exported its first crude in 2012.

“It took foresight to build a pipeline that bypasses the strait and was an effort to reduce dependence on a single chokepoint,” said Ben Cahill, director for energy markets and policy at the University of Texas at Austin’s center for energy. “At this point, every barrel matters.”

Still, Iranian attacks have deterred some shippers from calling at Fujairah, while loading systems and storage tanks — especially at the port’s product terminals — have been damaged. 

More importantly, those initial strikes damaged systems in the port, known as the Matrix Manifolds, which manage the flow of oil from each of the tank farms. Refined products are pumped through a complex web of piping arriving at a single point where the flows are then directed to any of more than a dozen ship berths.

A tank farm run by companies including Royal Vopak of the Netherlands and Dubai’s Emirates National Oil Co. halted loadings when the initial strikes crippled the manifolds, according to the people who asked not to be identified discussing operational issues. Loading from the Vopak Horizon terminal restarted late this week, according to a March 26 report from Inchchape Shipping Services.

Vopak and Enoc didn’t immediately respond to requests for comment.

Storage facilities run by VTTI, a venture including Vitol and Adnoc, have suspended operations. 

Now Fujairah is working to restore full export capacity for refined products from a vast network of storage tanks that can store up to 70 million barrels. 

Fujairah has also developed into one of the top three ports for bunker fuel — the propellant used by ships — although the effective closure of Hormuz has curbed demand.

Traders took a net 404,000 barrels of fuel out of Fujairah’s tanks in the week through March 23, representing a 2.8% decline in stocks, according to data from the Fujairah Oil Industry Zone and compiled by Platts, a unit of S&P Global Inc. 

While some terminal operators are trying to empty their tanks to reduce fire risks, others have been reluctant to load for fear that would make them a target, according to people familiar with the operations.

Adnoc resumed shipments a week ago after suspending operations on several occasions since the conflict started. During attacks on March 14 and March 16, two tanks at its storage facility were hit, along with pumping systems needed to load tankers.

The government-owned company declined to comment. The port of Fujairah did not immediately respond to requests for comment.