The impact of political tensions in the Middle East and North Africa could be fast and far reaching, particularly for the tanker sector.
For example, the situation in Egypt has escalated faster than anticipated. Recent activities in the country suggest that the unrest will not abate in the near-term.
Tempers have been flared during what is traditionally a time of unity throughout the region while political allies around the world are starting to re-evaluate their positions as a result of these developments, McQuilling Services said in an analysis of the world’s ‘hot spots’.
These actions are all the more relevant to the global economy and the tanker industry, due to Egypt’s vital role in the world’s energy market.
According to the US Energy Information Administration (EIA) the Suez Canal and the Sumed pipeline accounted for 7% and 13% of seaborne trade of oil and LNG in 2012, respectively. According to Suez Canal Authority, around 1.4 mill barrels per day of crude oil transited the Suez Canal in 2012, while the Sumed pipeline pumped around 2.4 mill barrels per day from the Red Sea to the Mediterranean.
As the situation in Egypt has the potential to worsen, the disputes could move closer towards these installations. Potential threats include sabotage to the pipeline, industrial action, or any degree of disruption to transportation activity at the Suez Canal.
For the purpose of this report, McQuilling assumed that about 800,000 barrels per day of crude oil was sent through the Suez Canal to North America and the balance around the Cape of Good Hope. For Europe, the consultancy estimated that 1.5 mill barrels per day currently transits the Suez Canal.
If there were any disruptions to these canal transits, an additional 35 VLCCs would be required, under the assumption of a round trip voyage at 13 knots and five port days, to these regions.
Any such disruptions would not be limited to crude oil movements and would impact a range of trades and vessel classes and tighten global tonnage availability. At present, Egypt is providing some 80,000 troops to ensure that security remains tight around the Suez Canal.
The situation in Libya is another area of rising concern. Following the revolution in 2011 and the drastic fall in oil output, the rebound to pre-war production levels was rapid and returned to around 1.6 mill barrels per day last year.
However, since the start of 2013, various groups within the country appear to be in conflict, leading to a steady disruption of operations at ports, refineries and oil fields. Reports from Libya’s National Oil Company (NOC) indicate that the country’s oil production could have dropped to as low as 200,000 barrels per day. The latest production area to be disrupted from protests is the El Feel field.
In recent weeks, industrial action at oil terminals including Ras Lanuf, Es Sider, Zueitina and Marsa al Hariga have continued to hamper exports. The employees of the company that operates these terminals, which is a subsidiary of the NOC, are demanding better working conditions and higher compensation.
At the end of last week, exports from Brega resumed, with the Aframax ‘Vallesina’, reportedly sailing to Italy with a cargo of crude oil.
The first VLCC shipment is scheduled to load around the end of this month. Meanwhile, Es Sidir, Ras Lanuf, Hariga and Zueitina remain shut. There have even been reports that a tanker was fired at while attempting to load a cargo earlier this month.
Libya is an important market for Aframaxes in the Mediterranean and the impact of the recent industrial action is clear, as McQuilling’s proprietary data shows a 70% decline in fixture activity thus far in August.
Libya’s petroleum product balance should also start coming under pressure as only three out of its five refineries are operating, with a combined capacity of only 150,000 barrels per day. The country’s largest refinery, Ras Lanuf, with a capacity of 220,000 barrels per day remains closed. However, the port closures could impact heavily on products trades..
In Iraq, continued strikes on pipeline infrastructure are reducing export volumes through Kirkuk in the North of the country. This lower export capacity, which is shipped through the Turkish port of Ceyhan, will impact Suezmax and Aframax loading schedules.
According to the EIA, Iraq exported 2.4 mill barrels per day last year, with roughly 300,000 barrels per day moving through Ceyhan. Through May, the EIA put Iraq’s exports at 2.9 mill barrels per day.
Iraq’s exports from its two single point moorings at Basrah will also be interrupted in the coming weeks, perhaps by up to 500,000 barrels per day, due to connecting new metering systems to the manifold platform. Throughout September exports from Basrah could be 1.79 mill barrels per day, which would be the lowest level since February 2012.
No time frame has been given for the upgrade completion, but reports indicate that it could last up to six months. A government representative stated that tankers in Iraqi waters will be re-routed to existing export infrastructure, as other installations will take turns being shut down and reconnected in an effort to minimise export disruptions.
Owners of large tankers should find some comfort in the fact that output should rise by 400,000 barrels per day for the balance of the year, as the Majnoon field is set to come on stream. As Iraq continues to rebuild, and sectarian tensions are on the rise, stability is anything but guaranteed.
Syria is also a country that could have a significant impact on a variety of markets. Although the country has been mired in a civil war for nearly three years, the recent revelation that chemical weapons were used against its population, again, is almost certain to result in international action.
Although Syria’s role in the energy markets is of little significance, a serious conflict in the country has the potential to wreak havoc and inflame other regional tensions, McQuilling warned.
In terms of world oil output, the Middle East accounted for 35% in 1Q13, according to the IEA..