Fujairah, UAE (Platts)--16Jul2012/551 am EDT/951 GMT

The UAE has shipped its first crude oil cargo from Fujairah, bypassing the Strait of Hormuz oil chokepoint that Iran has threatened repeatedly to shut down to oil traffic.

The first tanker carrying 500,000 barrels of Abu Dhabi crude left the port of Fujairah on Sunday, headed for Pakistan, officials said at a ceremony marking the official start-up of a pipeline linking Abu Dhabi's Habshan oil fields to Fujairah, one of the seven emirates that make up the UAE federation.

The $3 billion pipeline project, developed by the International Petroleum Investments Co., or IPIC, can carry 1.8 million b/d of crude oil and allow the OPEC producer to ship more than 70% of its crude oil directly to markets without transiting the narrow strait at the mouth of the Persian Gulf.

The crude is destined for the 100,000 b/d Pak Arab Refinery, or Parco, a joint venture between IPIC and the Pakistan government.

The 400 km (250 mile) pipeline will initially carry oil from onshore fields, mainly Murban crude, but may also include offshore crude such as Upper Zakum and Lower Zakum later on, officials have said previously.

IPIC CEO Abdullah al-Qubaisi said the pipeline would run at 1.5 million b/d capacity initially.

He noted that the port of Fujairah, one of the largest bunkering centers in the world, also had eight storage tanks each with capacity to hold 1 million barrels of crude that will pump crude to three offshore Single Point Mooring systems.

IPIC also plans to build a 200,000 b/d refinery in Fujairah to be completed by 2016, he added.

"From now on, it will be possible to bypass the Strait of Hormuz, which will result in shorter transit times and better economics for oil exports," he said.

The Habshan-Fujairah pipeline had been planned for some time. But IPIC, the cash-rich oil investment arm of the Abu Dhabi government, decided to proceed with construction in 2007 amid rising tensions in the region over Iran's nuclear ambitions and threats by Tehran at the time to close the strategic oil shipping lane in response to international sanctions.

It was initially scheduled to be operational in early 2011 but completion was delayed for technical reasons.

The inauguration of the pipeline, attended by oil minister Mohammed bin Dhaen al Hamli and other senior officials, was low key considering the strategic importance of the project that will allow Abu Dhabi, which produces more than 90% of the UAE's oil, direct access to its key Asian market and avoid congestion through the narrow strait flanked by Iran and Oman.

Although there was no mention of the political implications of the new export outlet, the first shipment coincided with a renewed threat by an Iranian naval commander to shut down the vital waterway, through which roughly 20% of the world's tradeable oil transits on its way to world markets.

The UAE, currently producing 2.6 million b/d of crude oil, previously relied almost exclusively on Persian Gulf ports for its exports.

But the new loading facilities at Fujairah, which lies on the Gulf of Oman, will boost oil export capacity as Abu Dhabi ramps up its oil production, which is targeted to increase to 3.5 million b/d by 2017 from an estimated 2.85 million b/d currently.

The pipeline will be operated by the Abu Dhabi Company for Onshore Operations, or Adco, a joint venture between the Abu Dhabi National Oil Company, or ADNOC, with 60%, ExxonMobil, Royal Dutch Shell, BP and Total, each with 9.5%, and Partex Oil & Gas, with 2%.

Adco produces 1.4 million b/d of crude oil, mostly Murban crude, or around 54% of total output. Murban's point of sale is Jebel Dhanna on the Western Abu Dhabi coast near Ruwais on the Persian Gulf.

"Exports from the new facilities will be at a rate of several hundred thousand barrels a day and will rise gradually in the next few months," ADNOC General Manager Abdullah Nasser al-Suweidi told reporters.

--Staff, newsdesk@platts.com
--Kate Dourian, kate_dourian@platts.com
--Edited by Jeremy Lovell, jeremy_lovell@platts.com

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