Kuwait Studies Pipeline Routes With Saudi, UAE to Bypass Hormuz

Key Points

1. Kuwait is pumping 2 million barrels a day, with spare capacity above that, an executive said.
2. Strikes hit some oil facilities but production units were unaffected, Kuwait Oil Company told CNBC Arabia.
3. Export logistics, not output, is the pressure point, with tanker rates up tenfold or more.

The latest:

Kuwait is in talks with Saudi Arabia and the United Arab Emirates on alternative outlets for its crude, Mohammed Al-Abdul Jalil, deputy chief executive for planning and innovation at Kuwait Oil Company, told CNBC Arabia. He said current output stands at 2 million barrels per day and that maximum capacity is higher. The main constraint, he said, is moving barrels out through the Strait of Hormuz.

Details:

• The output figure: Al-Abdul Jalil said Kuwait currently produces 2 million barrels per day, and that the country’s production capacity exceeds that level. He did not give a figure for maximum capacity or say whether Kuwait intends to lift output above the current rate.
• Damage assessment: The impact on Kuwaiti oil sector facilities from the attacks they were subjected to has been limited, according to the executive. He said the targeting of oil facilities did not affect production units, and that all Kuwaiti facilities are operating in terms of production capability.
• Repairs: Some of the targeted oil facilities were repaired quickly, Al-Abdul Jalil said, while others require a longer period of work. He did not identify which sites were hit, name the party behind the attacks, or give a timeline for completing the outstanding repairs.
• The real bottleneck: The largest effect on Kuwait’s oil sector is getting products out because of the Strait of Hormuz, the executive said. That framing places the problem downstream of the wellhead: barrels are being produced, but the single waterway carrying them to market is the constraint.
• Pipeline plans: Kuwait is studying opportunities to lay new pipelines to move Kuwaiti crude through Saudi Arabia and the UAE, Al-Abdul Jalil said. He added that Kuwait will take part in regional pipeline projects with the two countries, without naming a route, a cost, or a start date.
• Where the oil goes: The bulk of consumers of Kuwaiti crude are in Asia and East Asia, according to the executive, who said the company is working to keep deliveries flowing to customers worldwide. Asian buyers are reached almost entirely through the Hormuz corridor he identified as the choke point.
• Shipping costs: Geopolitical developments have multiplied oil tanker charter rates by 10 to 12 times, Al-Abdul Jalil said. The chartering cost of a tanker carrying 2 million barrels now reaches 30% of the value of the cargo itself, a level that reshapes the economics of every shipment.
• Market behavior: The shortage of available tankers combined with the surge in rates has pushed many to reconsider their decision before chartering, the executive said. He did not say whether Kuwait Oil Company itself has delayed or cancelled any cargoes as a result.

Between the lines:

The executive’s own numbers separate two stories. Production is intact and facilities are running, so the risk he describes is logistical rather than geological. With most buyers in Asia, charter rates up 10 to 12 times and freight at 30% of cargo value, the pipeline talks with Riyadh and Abu Dhabi read as an attempt to price Hormuz out of the equation rather than wait it out.

What’s next

Watch for a named route, cost or partner in the Kuwait-Saudi-UAE pipeline discussions, an updated production figure from Kuwait Oil Company, and whether tanker charter rates ease from the 10-to-12-fold increase cited.