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Tuesday, November 13, 2018

Pipelines – major long-term threat to tankers

Pipelines have for years been a significant competitor of oil tankers. The 2.4 mbd SUMED pipeline running from Ain Sukhna to Alexandria provides a shorter route to the West for Middle East oil in VLCCs, compared to running via the Cape of Good Hope. So does the 1.8 mbd Iraqi pipeline from Kirkuk to Ceyhan, where tankers pick crude oil up in the Mediterranean to carry it to the West instead of performing a voyage AG/West via the Cape. But this has been sabotaged and has not functioned at proper capacity since Iraq was invaded in 2003.  

Pipeline projects to bypass the congested Bosporus Straits have been headline news for years. However, for a long time Russia has been working on projects to export oil eastwards. The route and the destination of the Far East oil pipeline, and more importantly the project itself, have now become somewhat more certain since it was decided that environmental concerns are not sufficiently serious to route this oil just north of the LadogaSea. A pipeline from Russia to China is also being discussed as an alternative eastward pipeline project. 

One million barrels per day of Russian oil in this pipeline to the Far East, backing out oil from the Middle East in tankers, could potentially reduce VLCC demand by between 15 and 20 units. In addition, the already-established pipeline between Kazakhstan and China and this pipeline is projected to increase capacity from its current 200,000 bbls/day. Some 0.2 mbd is also shipped from Russia to China using the rail system.  

Contact: Erik Ranheim