Closure of Suez Canal would have minimal impact on US: EIA

Washington (Platts)--10Feb2011/257 pm EST/1957 GMT

A total closure of the Suez Canal and the Sumed Pipeline would have minimal impact on supply or crude oil prices, Richard Newell, Director of the US Energy Information Administration, told a House subcommittee Thursday.

Newell, testifying at a hearing on the effects of Middle East events on US energy markets, said a total shutdown of key routes for oil and liquid natural gas is highly unlikely. But in the worst case, diverting supplies would add a minimal number of days to delivery and $1 to $2/barrel to the price of crude.

EIA estimates that about 3.1 million b/d of crude oil passes through the Suez Canal or the Sumed pipeline, representing about 6% of all daily global waterborne oil movements. About 20% to 25% of all global LNG also pass through the canal, the EIA estimates.

"Even assuming a scenario where all 3.1 million barrels of crude and product that flow through the Suez Canal and Sumed daily were diverted around Africa, the increase in tanker requirements traffic would be modest in the context of current global oil shipment flows," Newell wrote in his prepared testimony. "Oil diverted around Africa could require an extra 6,000 miles and 12 days of transit, with the actual values depending upon the exact destination."

Newell said the tanker community has spare capacity of about 10%, or 4 million b/d to 5 million b/d. But even if tanker rates were to increase significantly as a result of a total closure, tanker rates constitute a small portion of the price of oil, Newell said.

"For example, tanker costs from the Persian Gulf to the Gulf of Mexico generally fall within the range of $1 to $2 per barrel, so even a major increase in tanker rates would have little impact on delivered oil prices," Newell wrote in his prepared testimony.

--Gary Gentile, gary_gentile@platts.com

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