Saudi plans gas-line conversion to add 1.2 million bpd of crude exports within weeks

Adding 1.2 million bpd of bypass capacity quickly would trim some of the supply-risk premium built into crude, since it would give Saudi barrels a wider set of routes around a disrupted Strait of Hormuz. Execution risk, though, tempers that bearish reading: the same corridor was taken down by a drone strike only last month, and Houthi attacks keep the Red Sea leg exposed. For traders, Yanbu's port capacity is the bigger constraint, because extra pipeline flow only counts when loadings keep pace. Taken together, the proposal suggests Riyadh expects Hormuz disruption to persist, which supports prices over the longer run even if the near-term supply outlook improves at the margin.

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Riyadh is turning to its quickest available option for getting more crude around Hormuz, though the real bottleneck may sit at the Red Sea port rather than in the pipe.

Summary:

• Saudi Arabia is studying an increase in pipeline crude export capacity to 10 million bpd, according to remarks attributed to Energy Minister Prince Abdulaziz bin Salman.
• A gas pipeline converted to carry crude could add 1.2 million bpd within seven to eight weeks, he said.
• Reaching the full 10 million bpd target would take two to three years, the Energy Ministry has said.
• In September, a drone strike launched from Iraq halted the 7 million bpd East-West pipeline; flows were near 6 million bpd by 6 October.
• Since the US-Iran war disrupted Hormuz shipments, Riyadh has been rerouting around 4 million bpd — roughly 4% of global supply — to Yanbu.
• Ship-tracking data suggest Yanbu can load only around 4.5 million bpd, which could limit additional exports.

Energy Minister Prince Abdulaziz bin Salman said a gas line switched over to crude could contribute 1.2 million bpd in seven to eight weeks, as Saudi Arabia examines plans to raise pipeline crude export capacity to 10 million barrels per day.

Those remarks point to a fast-track first step toward a longer-term goal. Since the Energy Ministry has said lifting oil pipeline capacity to 10 million bpd would take two to three years, the gas-line conversion would deliver a meaningful gain well before any full expansion.

The push underscores how central the East-West pipeline has become to Saudi exports. It runs from fields and processing facilities near the Gulf to the Red Sea port of Yanbu, with capacity of around 7 million bpd. Since the US-Iran war disrupted shipments through the Strait of Hormuz, Riyadh has used it to reroute around 4 million bpd to Yanbu, according to Reuters, equal to about 4% of global supply.

The route itself has also been attacked. A drone strike launched from Iraq, blamed by Saudi Arabia on Iraqi militias, shut the pipeline in September. Citing sources, Argus said three of the 11 pumping stations on the line were damaged — one of them significantly — while the pipeline itself escaped damage. Flows had recovered to near 6 million bpd by 6 October, Prince Abdulaziz said, with operations resuming about a week after the attack. Aramco, separately, closed the 400,000 bpd Jizan refinery on the Red Sea coast following a Houthi attack in early September.

There has been talk of expansion before. Reuters earlier cited sources saying the kingdom was weighing an addition of 1 million to 2 million bpd to East-West capacity, possibly including room for refined products.

Port capacity could turn out to be the binding constraint. Ship-tracking data show Yanbu can load only about 4.5 million bpd, well under the pipe's nameplate capacity. So any extra pipeline volumes will depend on the terminal side keeping pace.

The proposal also implies Riyadh is preparing for an extended disruption at Hormuz; markets are waiting for specifics on which line would be converted, when terminal upgrades might come, and how secure a corridor is that has already been struck once.