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Pushed by Security Concerns and Trump, Germany Weighs a New Fuel

Westlake Legal Group 08sp-lng-inyt-4-facebookJumbo Pushed by Security Concerns and Trump, Germany Weighs a New Fuel Wilhelmshaven (Germany) Uniper SE Ships and Shipping Pipelines natural gas Germany

WILHELMSHAVEN, Germany — A jetty here juts out nearly a mile into the Wadden Sea from Germany’s low-lying northern coast. Now used by a chemical plant, the pier could become the site of the country’s first liquefied natural gas terminal.

Wilhelmshaven, a port city of about 80,000 people founded as a naval base, is celebrating its 150th anniversary. Now it is among a handful of candidates for a project, supported by the German government, that would open Europe’s largest economy to liquefied natural gas, known as L.N.G.

The fuel, which is created by chilling natural gas to a liquid form, is increasingly traded globally like oil. It is loaded onto enormous specialized ships, some more than 1,000 feet long. These vessels can go anywhere there is a terminal and deliver a substantial transfusion of fuel into a country’s gas network to keep the lights on and factories humming.

For Germany, Europe’s largest consumer of natural gas, an L.N.G. terminal would provide an alternative to its dependence on fuel piped from Russia, its largest supplier, and give the country a way to receive supplies from Qatar or the United States or elsewhere if an alternative were needed.

Uniper, a German energy provider, and other companies have considered building an L.N.G. facility in Wilhelmshaven for decades, holding on to the site since the 1970s. Earlier plans, including an effort to import the fuel from Algeria, have failed to come to fruition. Now, executives at Uniper say, the right moment may have arrived.

“The timing in the market is a very good one to develop such a facility,” Niels Fenzl, the company’s vice president for transportation and terminals, said in an interview.

Uniper recently held an “open season” to gauge the interest of potential suppliers, with encouraging results. Exxon Mobil, the American energy giant, has already reached a preliminary deal to use the terminal.

Germany has long relied on natural gas from Russia, Norway and other countries. Pipeline gas tends to be cheaper than L.N.G., which has higher processing and transportation costs.

In 2018, more than half of Germany’s gas imports came from Russia, according to the BP Statistical Review of World Energy. But although the German establishment appears to be comfortable with Russia and its main gas provider, Gazprom, there are increasing reasons for the country to explore L.N.G. as an alternative.

In 2009, a price dispute led to a nearly two-week disruption in Russian gas shipments through Ukraine, raising concerns about European reliance on Russian supplies. And the Netherlands, another large supplier to Germany, faces the prospect of declining output from the Groningen field, not far from the German border. Its production is expected to decline and eventually cease because of earthquakes triggered by gas production. An L.N.G. facility could help compensate for those losses.

President Trump has also leaned on Europe, including Germany, to import more natural gas from shale deposits in the United States, which have produced a bounty of fuel that is now flowing into exports in the form of L.N.G. The administration has criticized a new pipeline, Nord Stream 2, being built from Russia to Germany, while promoting fuel from new export facilities in Louisiana and Texas.

Earlier this year, Peter Altmaier, the German economics and energy minister, announced support for constructing an L.N.G. terminal in return for the United States toning down its opposition to the new pipeline with Russia.

For years, German politicians and industry leaders have shrugged off warnings about relying on Russia. Northwest Europe has other terminals, which until recently were little used. L.N.G. supplies instead went to destinations like Asia, where buyers were willing to pay higher prices.

Now the energy security arguments appear to be making headway, and the market for L.N.G. looks stronger. Utilization rates of terminals in northwest Europe have risen sharply. Uniper, which has an agreement to take L.N.G. from a facility in Freeport, Tex.., said that the shiploads of fuel traded by the company more than tripled from 2017 to 2018, from 40 to 135.

At a visitor’s center for the Wilhelmshaven port, Mr. Fenzl said that to keep costs down, the company is leaning toward using a floating vessel, rather than an onshore facility, as its terminal. The vessel, which would be provided by Mitsui O.S.K. Lines, would be tied to an extension of the existing jetty. L.N.G. vessels would tie up alongside and discharge their frigid cargo through flexible hoses.

Mr. Fenzl said the company has not made a final decision to move ahead and was weighing commitments from other suppliers to use the facility, as well as potential government support. He estimated the cost of the project at 500 to 650 million euros. “For us, as Uniper, this is a lot of money,” he said. “It is not an easy task to get if off the ground.”

Building an L.N.G. terminal would not guarantee that Germany would import fuel from the United States. “The German stance is that they are going to take the most competitive L.N.G. supply that they can. If that happens to be the U.S., that is a bonus,” said Murray Douglas, an analyst at Wood Mackenzie, a market research firm.

Mr. Douglas said the United States would need to compete with Qatar, a major exporter, as well as planned projects in East Africa. Russia is also increasingly competing in the L.N.G. market.

Other German ports, including Stade, have also joined the competition for a terminal. In Brunsbuettel, the state-owned Dutch gas distributor and partners are considering a terminal in part to make up for lost supplies from the quake-rattled Groningen field. All three of these cities are near Hamburg, the thriving commercial and maritime hub in northern Germany.

Of course, local and environmental opposition to liquefied natural gas could grow, as it has in other ports. The Wadden Sea is considered a unique area of mud flats and shallows, and environmentalists say that putting a terminal there might cause pollution, while the big ships could damage the sea bottom.

In addition, some activists question whether Germany, which has halted the drilling process known as fracking, in which water is injected into gas wells to break up rock and increase their production, should be building a terminal to import gas from the United States produced by this process.

“It is extremely hypocritical that Germany forbids the use of this technology but allows the import of the same type of gas,” said Antoine Simon, a campaigner against fossil fuels at Friends of the Earth Europe in Brussels.

Andy Gheorghiu, a campaigner in Germany for Food and Water Watch, a group that opposes fracking, said opposition to the L.N.G. terminals had been relatively small but was growing. “I am pretty confident we can kill these projects,” he said.In Wilhelmshaven, some civic leaders see an L.N.G. terminal as a boost to the city’s efforts to build up local port activities. “Now it looks like we come to the end of a long, long story,” joked John H. Niemann, president of the Wilhelmshaven Port Association, noting that various versions of the project had been under discussion for 40 years.

The town was heavily damaged by bombing in World War II and revived, first as an oil terminal and, more recently, as a container port. Port traffic dropped sharply during the financial crisis beginning in 2008 but is gradually regaining momentum and attracting new businesses, Mr. Niemann said.

Mr. Fenzl said that part of the appeal of Wilhelmshaven, which has greater than 10 percent unemployment — twice the national average — is that the area is hungry for jobs and new businesses.

Tourism is also important to the region. People come to see the coastline and a nearby nature reserve, as well as attractions including a maritime history museum and an aquarium. On warm evenings, diners sit outside restaurants along a romantically lit canal. There is even a hulking vintage air raid bunker with a restaurant next door.

Tourists, Mr. Fenzl said, also like to watch the huge container vessels going in and out of the port. The L.N.G. carriers, some of the largest ships in the world, might also prove an attraction, he said. “I think they are quite a sight.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Israel’s Energy Dilemma: More Natural Gas Than It Can Use or Export

TEL AVIV — For decades, Israel was an energy-starved country surrounded by hostile, oil-rich neighbors.

Now it has a different problem. Thanks to major offshore discoveries over the last decade, it has more natural gas than it can use or readily export.

Having plenty of gas is hardly a burden, and it offers a cleaner-burning alternative to Israel’s longtime power sources. But it presents challenges for a country that wants to extract geopolitical and economic benefits from a rare energy windfall, including building better relations with its neighbors and Europe.

Part of the problem is timing. Just as Israel prepares to produce and export large amounts of gas, the United States, Australia, Qatar and Russia are flooding the market with cheap gas. The other is math: Israel’s 8.5 million people use in a year less than 1 percent of the gas that has been found in the country’s waters.

“We have a surplus of gas,” Energy Minister Yuval Steinitz said in an interview. “Israeli waters are swimming in gas, and what we have discovered is only the beginning.”

Noble Energy, a Houston-based company that made its first discovery of gas in Israel in 1999, has found more than 30 trillion cubic feet of gas off the country’s coast over the last decade. Some experts say new discoveries could double that.

ImageWestlake Legal Group merlin_157490415_f1d7669e-6bfd-4504-8147-1f659ba9572f-articleLarge Israel’s Energy Dilemma: More Natural Gas Than It Can Use or Export Solar Energy Pipelines Oil (Petroleum) and Gasoline Offshore Drilling and Exploration Noble Energy Inc natural gas Israel International Trade and World Market Greenhouse Gas Emissions

A platform under construction in the Leviathan natural gas field, which should be connected to the mainland by the end of the year.CreditTamir Kalifa for The New York Times

As a result, Israel is phasing out diesel and coal-fired electricity, replacing it mostly with gas-fired generation and some solar power. Prime Minister Benjamin Netanyahu’s cabinet is considering banning the import of gasoline and diesel cars starting in 2030 and gradually switching to vehicles fueled by compressed natural gas or electricity.

Israel is also stepping up exports to neighbors like Jordan and Egypt. There are even plans to supply gas to a power plant in the West Bank for Palestinian customers.

Yet these efforts will make only a dent in the country’s reserves.

“We want to export,” said Jacob Nagel, former head of Israel’s National Security Council. “The question is: How much will it cost? Is it possible? How much time will it take?”

For decades, Israel depended on Russia and other sources for fuel, while its industries and homes relied on coal and oil power plants that blanketed its cities with smog. The switch to gas has helped clear the air in cities like Tel Aviv and Haifa that have converted diesel-fueled plants.

CreditTamir Kalifa for The New York Times
The Orot Rabin power plant in Hadera relies on Russian coal transported by ship.CreditTamir Kalifa for The New York Times

Israel’s biggest coal plant — in Hadera, a coastal city — will be converted over the next three years, cutting national coal consumption by 30 percent. Officials say they expect to eliminate coal use in 11 years.

In Hadera, improvements are already noticeable after gas replaced oil in one part of the plant and officials installed a scrubber, an exhaust-cleaning device. The beach is no longer caked with sticky black tar, and a yellowish tinge on the horizon is gone.

Guy Stansill, a 38-year-old vegetable farmer at the nearby Sdot Yam kibbutz who can see the plant’s chimneys from his kitchen window, hopes it’s for good. His 5-year-old son, Tayo, has asthma but is breathing better now that the plant is reducing its emissions.

“Reducing the coal industry will be better for the air and health,” he said, though he worries about a possible spill from drilling and gas processing offshore.

But his wife, Lee Kush, thinks the country ought to be investing more in renewable energy. “We have so much sun,” she said. “Why use gas at all?”

Tayo Stansill, right, has asthma, but his condition has improved since one part of the nearby power plant switched to natural gas and officials installed an exhaust-cleaning device.CreditTamir Kalifa for The New York Times

Israeli officials acknowledge that the gas will compete with cleaner solar energy. But they argue that the plentiful supply of electricity from gas-fired power plants will encourage the use of electric vehicles, reducing pollution.

“Electric cars are a big market for electricity, so at the end of the day it’s a big market for gas,” said Ofer Bloch, president of Israel Electric, the state utility.

The Israeli government says it is committed to the Paris climate accord, and is close to getting 10 percent of its electricity from renewable sources by next year. Environmentalists say the country could do better.

The Leviathan field, Israel’s largest, will be connected to the mainland by pipeline by the end of the year, and that should speed the use of gas in transportation, which has been minimal so far. Fifteen garbage trucks in Haifa are running on compressed natural gas. The country has imported 59 such buses from China, and has ordered another hundred or so.

CreditTamir Kalifa for The New York Times
Israel has begun switching to buses and trash trucks that run on compressed natural gas, a possible prelude to a ban on the import of cars powered by gasoline and diesel.CreditTamir Kalifa for The New York Times

But because it has a small industrial base and its residential use of gas is limited because of mild winters, Israel needs to export more to take advantage of its energy bounty.

There are many hurdles.

Last year Noble and the Israeli company Delek Drilling signed a 10-year deal to deliver gas to Egypt by pipeline beginning later this year. Some of that fuel may be re-exported from two Egyptian terminals.

Energy executives say they are optimistic that Egypt’s growing population, now 100 million, will make it a big market, and that gas can bring the two neighbors closer even as Egypt, with its own recent large-scale finds, becomes a bigger producer.

The importance of the Egyptian market was underscored by a trip to Cairo in January by Mr. Steinitz, the first official visit by an Israeli minister since the 2011 unrest that shook the Arab world. He and representatives of five other Mediterranean countries and the Palestinian Authority had met to form an association to coordinate regulations on gas pipelines and trading.

Still, officials acknowledge that doing business with Egypt is risky. A gas pipeline between the countries was sabotaged in 2012.

Israel could seek to sell gas to Asia, where demand is growing, but public opposition has blocked plans for an export terminal on the small, densely populated shoreline.

That leaves pipelines as the best option.

Concrete barriers help protect an Israeli gas pipeline. Houston-based Noble Energy and the Israeli company Delek Drilling signed a 10-year deal to deliver gas to Egypt by pipeline beginning later this year.CreditTamir Kalifa for The New York Times

Israeli policymakers long favored a proposal to build a pipeline to Europe through Turkey. But relations with President Recep Tayyip Erdogan have deteriorated in recent years, closing that option, at least for now.

The most ambitious proposal is to build the world’s deepest and longest gas pipeline, to Italy through Cyprus and Greece. That project has the support of the European Union, Cyprus and Greece, but investors are reluctant to invest the estimated $6 billion to $7 billion it would cost.

“There is a question mark on the financials of this pipeline and the returns for its shareholders,” said Mathios Rigas, chief executive of Energean, a Greek energy company that produces gas off Israeli shores.

Mr. Rigas said he favored building a terminal in Cyprus connected to Israeli and Cypriot fields. But that would be costly and take up to a decade. It would also probably face opposition from Turkey, which is drilling in waters claimed by Cyprus.

“The gas needs someplace to go,” Wesley Johnson, Noble’s Leviathan asset manager, said at a recent conference in Houston.

But some Israeli experts doubt that the country will become a big exporter and would be happy to see the gas remain at home.

“I don’t see anything wrong with leaving the gas for future generations,” said Gal Luft, a former Israeli military officer and an energy expert. “We’re talking about deepwater gas in the most volatile region in the world. So let’s be humble.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Tanker Attacks in the Strait of Hormuz Could Affect Oil Prices

The Strait of Hormuz, sometimes described as the world’s most important oil choke point, is a gateway for almost a third of all crude oil and other petroleum products carried by tanker.

But it is also an increasingly dangerous place because of recent attacks on tankers, raising fears that the route is vulnerable to assaults that could threaten and destabilize oil prices.

After the apparent attack on Thursday on two tankers just outside the strait, tanker operators were quick to voice concerns.

“We have people of every nationality and vessels of every flag transiting that crucial sea lane,” said Paolo d’Amico, chairman of International Association of Independent Tanker Owners. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”

ImageWestlake Legal Group merlin_156389934_4c7179ca-0b51-4123-bfa1-f856f46e9f2b-articleLarge How Tanker Attacks in the Strait of Hormuz Could Affect Oil Prices Strait of Hormuz Ships and Shipping Pipelines Oil (Petroleum) and Gasoline Iran Gulf of Oman Fujairah (United Arab Emirates)

An oil tanker after it was attacked at the Gulf of Oman.CreditIranian Students’ News Agency, via, Reuters

The oil-producing countries around the Persian Gulf, including Kuwait, Saudi Arabia, Iraq and Iran, are crucial for supplying the world oil market. Most of their exports, around 18 million barrels a day or about 20 percent of world demand, must travel through the Strait of Hormuz.

The strait, separating the United Arab Emirates, Oman and Iran, is 21 miles wide at its narrowest point, but the width of the shipping lane in either direction is only two miles wide, according to the United States Energy Information Administration. Dozens of ships a day move through the passage.

The bulk of this traffic heads for Asian markets like China, India and Japan. Large volumes of liquefied natural gas, an increasingly important fuel, follow the same route from the tiny emirate of Qatar.

But this area has been rocked by instability in recent weeks. In May, there were reports that four oil vessels were attacked near the Strait of Hormuz, heightening concerns over rising tensions between Iran and the United States. A day later, a drone strike on oil pipelines, claimed by Houthi rebels, forced the Saudis to suspend the flow of oil to the western side of the country.

On Thursday, two more tankers were rocked with explosion and fire near the strait. At least one vessel was set ablaze, and crews were forced to abandon ship.

The carrier Abraham Lincoln in the Gulf of Oman in May. Experts doubt that the Strait of Hormuz could be completely shut down, in part because of the United States Navy’s presence in the region.CreditMatt Herbst/US Navy, via Agence France-Presse — Getty Images

Iran’s coastline covers much of the east side of the gulf, and analysts say that, as the United States tightens sanctions on Iran, Tehran would be well placed to harass shipping with small boats, missiles, mines and other weapons. Experts doubt that the Strait of Hormuz could be shut down, in part because the United States Navy maintains a robust presence in the region.

Helima Croft, global head of commodity strategy at RBC Capital Markets, an investment bank, notes that the Iranians have been mentioned as possible suspects behind the attacks and that they may consider such tactics an appropriate response to the sanctions, which “are viewed from Tehran as economic warfare designed to elicit regime change.”

Analysts say that whoever was behind the recent attacks may be trying to make the point that there is no way around the gulf routes. The reports of attacks in May on four ships occurred in waters off Fujairah, an important port on the Gulf of Oman with facilities designed to bypass the straits.

Read more about the recent attacks
Tankers Are Attacked in Mideast, and U.S. Says Video Shows Iran Was Involved

June 13, 2019

Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption

May 17, 2019

Saudi Arabia does have a safety valve in case the strait became too dangerous: an East-West pipeline that could carry crude to the port of Yanbu on the Red Sea coast. But the drone attack claimed by the Houthi rebels managed to briefly shut that route down.

The other Gulf producers, including Iran, are more dependent on the strait for their exports although Abu Dhabi has an oil pipeline to Fujairah.

A port in the Gulf emirate of Fujairah.CreditKarim Sahib/Agence France-Presse — Getty Images

So far, the oil markets have largely taken the attacks in stride, although “the fact that we have had a second series of incidents has definitely heightened concern,” said Richard Mallinson, an analyst at Energy Aspects, a market research firm.

Prices for Brent crude rose about 3.5 percent on Thursday to more than $61 a barrel but remain well below their recent highs of about $72 a barrel in mid-May.

Analysts say that traders are probably betting that the smoldering tensions will not burst into a full-blown conflict. Another factor is that slowing growth in the world economy, weighed down by trade tensions between the United States and China, has weakened demand for oil.

And then there is the American resurgence in production to consider. There is a sense, Ms. Croft said, that the shale oil boom in the United States, where oil production grew an extraordinary 17 percent last year, can compensate for any jolts in world oil supply.

Ms. Croft worries that a major conflict or a cyberattack that shuts off a large portion of Gulf exports could prove a rude awakening. “There is no way the market is insulated from that because of U.S. shale,” she said.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Tanker Attacks in the Strait of Hormuz Could Affect Oil Prices

The Strait of Hormuz, sometimes described as the world’s most important oil choke point, is a gateway for almost a third of all crude oil and other petroleum products carried by tanker.

But it is also an increasingly dangerous place because of recent attacks on tankers, raising fears that the route is vulnerable to assaults that could threaten and destabilize oil prices.

After the apparent attack on Thursday on two tankers just outside the strait, tanker operators were quick to voice concerns.

“We have people of every nationality and vessels of every flag transiting that crucial sea lane,” said Paolo d’Amico, chairman of International Association of Independent Tanker Owners. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”

ImageWestlake Legal Group merlin_156389934_4c7179ca-0b51-4123-bfa1-f856f46e9f2b-articleLarge How Tanker Attacks in the Strait of Hormuz Could Affect Oil Prices Strait of Hormuz Ships and Shipping Pipelines Oil (Petroleum) and Gasoline Iran Gulf of Oman Fujairah (United Arab Emirates)

An oil tanker after it was attacked at the Gulf of Oman.CreditIranian Students’ News Agency, via, Reuters

The oil-producing countries around the Persian Gulf, including Kuwait, Saudi Arabia, Iraq and Iran, are crucial for supplying the world oil market. Most of their exports, around 18 million barrels a day or about 20 percent of world demand, must travel through the Strait of Hormuz.

The strait, separating the United Arab Emirates, Oman and Iran, is 21 miles wide at its narrowest point, but the width of the shipping lane in either direction is only two miles wide, according to the United States Energy Information Administration. Dozens of ships a day move through the passage.

The bulk of this traffic heads for Asian markets like China, India and Japan. Large volumes of liquefied natural gas, an increasingly important fuel, follow the same route from the tiny emirate of Qatar.

But this area has been rocked by instability in recent weeks. In May, there were reports that four oil vessels were attacked near the Strait of Hormuz, heightening concerns over rising tensions between Iran and the United States. A day later, a drone strike on oil pipelines, claimed by Houthi rebels, forced the Saudis to suspend the flow of oil to the western side of the country.

On Thursday, two more tankers were rocked with explosion and fire near the strait. At least one vessel was set ablaze, and crews were forced to abandon ship.

The carrier Abraham Lincoln in the Gulf of Oman in May. Experts doubt that the Strait of Hormuz could be completely shut down, in part because of the United States Navy’s presence in the region.CreditMatt Herbst/US Navy, via Agence France-Presse — Getty Images

Iran’s coastline covers much of the east side of the gulf, and analysts say that, as the United States tightens sanctions on Iran, Tehran would be well placed to harass shipping with small boats, missiles, mines and other weapons. Experts doubt that the Strait of Hormuz could be shut down, in part because the United States Navy maintains a robust presence in the region.

Helima Croft, global head of commodity strategy at RBC Capital Markets, an investment bank, notes that the Iranians have been mentioned as possible suspects behind the attacks and that they may consider such tactics an appropriate response to the sanctions, which “are viewed from Tehran as economic warfare designed to elicit regime change.”

Analysts say that whoever was behind the recent attacks may be trying to make the point that there is no way around the gulf routes. The reports of attacks in May on four ships occurred in waters off Fujairah, an important port on the Gulf of Oman with facilities designed to bypass the straits.

Read more about the recent attacks
Tankers Are Attacked in Mideast, and U.S. Says Video Shows Iran Was Involved

June 13, 2019

Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption

May 17, 2019

Saudi Arabia does have a safety valve in case the strait became too dangerous: an East-West pipeline that could carry crude to the port of Yanbu on the Red Sea coast. But the drone attack claimed by the Houthi rebels managed to briefly shut that route down.

The other Gulf producers, including Iran, are more dependent on the strait for their exports although Abu Dhabi has an oil pipeline to Fujairah.

A port in the Gulf emirate of Fujairah.CreditKarim Sahib/Agence France-Presse — Getty Images

So far, the oil markets have largely taken the attacks in stride, although “the fact that we have had a second series of incidents has definitely heightened concern,” said Richard Mallinson, an analyst at Energy Aspects, a market research firm.

Prices for Brent crude rose about 3.5 percent on Thursday to more than $61 a barrel but remain well below their recent highs of about $72 a barrel in mid-May.

Analysts say that traders are probably betting that the smoldering tensions will not burst into a full-blown conflict. Another factor is that slowing growth in the world economy, weighed down by trade tensions between the United States and China, has weakened demand for oil.

And then there is the American resurgence in production to consider. There is a sense, Ms. Croft said, that the shale oil boom in the United States, where oil production grew an extraordinary 17 percent last year, can compensate for any jolts in world oil supply.

Ms. Croft worries that a major conflict or a cyberattack that shuts off a large portion of Gulf exports could prove a rude awakening. “There is no way the market is insulated from that because of U.S. shale,” she said.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Tanker Attacks on a Skinny Waterway Could Affect Oil Prices

The Strait of Hormuz, sometimes described as the world’s most important oil choke point, is a gateway for almost a third of all crude oil and other petroleum products carried by tanker.

But it is also an increasingly dangerous place because of recent attacks on tankers, raising fears that the route is vulnerable to assaults that could threaten and destabilize oil prices.

After the apparent attack on Thursday on two tankers just outside the strait, tanker operators were quick to voice concerns.

“We have people of every nationality and vessels of every flag transiting that crucial sea lane,” said Paolo d’Amico, chairman of International Association of Independent Tanker Owners. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”

ImageWestlake Legal Group merlin_156389934_4c7179ca-0b51-4123-bfa1-f856f46e9f2b-articleLarge How Tanker Attacks on a Skinny Waterway Could Affect Oil Prices Strait of Hormuz Ships and Shipping Pipelines Oil (Petroleum) and Gasoline Iran Gulf of Oman Fujairah (United Arab Emirates)

An oil tanker after it was attacked at the Gulf of Oman.CreditIranian Students’ News Agency, via, Reuters

The oil-producing countries around the Persian Gulf, including Kuwait, Saudi Arabia, Iraq and Iran, are crucial for supplying the world oil market. Most of their exports, around 18 million barrels a day or about 20 percent of world demand, must travel through the Strait of Hormuz.

The strait, separating the United Arab Emirates, Oman and Iran, is 21 miles wide at its narrowest point, but the width of the shipping lane in either direction is only two miles wide, according to the United States Energy Information Administration. Dozens of ships a day move through the passage.

The bulk of this traffic heads for Asian markets like China, India and Japan. Large volumes of liquefied natural gas, an increasingly important fuel, follow the same route from the tiny emirate of Qatar.

But this area has been rocked by instability in recent weeks. In May, there were reports that four oil vessels were attacked near the Strait of Hormuz, heightening concerns over rising tensions between Iran and the United States. A day later, a drone strike on oil pipelines, claimed by Houthi rebels, forced the Saudis to suspend the flow of oil to the western side of the country.

On Thursday, two more tankers were rocked with explosion and fire near the strait. At least one vessel was set ablaze, and crews were forced to abandon ship.

The carrier Abraham Lincoln in the Gulf of Oman in May. Experts doubt that the Strait of Hormuz could be completely shut down, in part because of the United States Navy’s presence in the region.CreditMatt Herbst/US Navy, via Agence France-Presse — Getty Images

Iran’s coastline covers much of the east side of the gulf, and analysts say that, as the United States tightens sanctions on Iran, Tehran would be well placed to harass shipping with small boats, missiles, mines and other weapons. Experts doubt that the Strait of Hormuz could be shut down, in part because the United States Navy maintains a robust presence in the region.

Helima Croft, global head of commodity strategy at RBC Capital Markets, an investment bank, notes that the Iranians have been mentioned as possible suspects behind the attacks and that they may consider such tactics an appropriate response to the sanctions, which “are viewed from Tehran as economic warfare designed to elicit regime change.”

Analysts say that whoever was behind the recent attacks may be trying to make the point that there is no way around the gulf routes. The reports of attacks in May on four ships occurred in waters off Fujairah, an important port on the Gulf of Oman with facilities designed to bypass the straits.

Read more about the recent attacks
In Gulf of Oman, Tankers Are Struck Again, Raising Fears of Wider Conflict

June 13, 2019

Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption

May 17, 2019

Saudi Arabia does have a safety valve in case the strait became too dangerous: an East-West pipeline that could carry crude to the port of Yanbu on the Red Sea coast. But the drone attack claimed by the Houthi rebels managed to briefly shut that route down.

The other Gulf producers, including Iran, are more dependent on the strait for their exports although Abu Dhabi has an oil pipeline to Fujairah.

A port in the Gulf emirate of Fujairah.CreditKarim Sahib/Agence France-Presse — Getty Images

So far, the oil markets have largely taken the attacks in stride, although “the fact that we have had a second series of incidents has definitely heightened concern,” said Richard Mallinson, an analyst at Energy Aspects, a market research firm.

Prices for Brent crude rose about 3.5 percent on Thursday to more than $61 a barrel but remain well below their recent highs of about $72 a barrel in mid-May.

Analysts say that traders are probably betting that the smoldering tensions will not burst into a full-blown conflict. Another factor is that slowing growth in the world economy, weighed down by trade tensions between the United States and China, has weakened demand for oil.

And then there is the American resurgence in production to consider. There is a sense, Ms. Croft said, that the shale oil boom in the United States, where oil production grew an extraordinary 17 percent last year, can compensate for any jolts in world oil supply.

Ms. Croft worries that a major conflict or a cyberattack that shuts off a large portion of Gulf exports could prove a rude awakening. “There is no way the market is insulated from that because of U.S. shale,” she said.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Tanker Attacks Are Threatening the World’s Most Important Oil Route

The Strait of Hormuz, sometimes described as the world’s most important oil choke point, is a gateway for almost a third of all crude oil and other petroleum products carried by tanker.

But it is also an increasingly dangerous place because of recent attacks on tankers, raising fears that the route is vulnerable to assaults that could threaten and destabilize oil prices.

After the apparent attack on Thursday on two tankers just outside the strait, tanker operators were quick to voice concerns.

“We have people of every nationality and vessels of every flag transiting that crucial sea lane,” said Paolo d’Amico, chairman of International Association of Independent Tanker Owners. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”

ImageWestlake Legal Group merlin_156389934_4c7179ca-0b51-4123-bfa1-f856f46e9f2b-articleLarge Tanker Attacks Are Threatening the World’s Most Important Oil Route Strait of Hormuz Ships and Shipping Pipelines Oil (Petroleum) and Gasoline Iran Gulf of Oman Fujairah (United Arab Emirates)

An oil tanker after it was attacked at the Gulf of Oman.CreditIranian Students’ News Agency, via, Reuters

The oil-producing countries around the Persian Gulf, including Kuwait, Saudi Arabia, Iraq and Iran, are crucial for supplying the world oil market. Most of their exports, around 18 million barrels a day or about 20 percent of world demand, must travel through the Strait of Hormuz.

The strait, separating the United Arab Emirates, Oman and Iran, is 21 miles wide at its narrowest point, but the width of the shipping lane in either direction is only two miles wide, according to the United States Energy Information Administration. Hundreds of ships a day move through the passage.

The bulk of this traffic heads for Asian markets like China, India and Japan. Large volumes of liquefied natural gas, an increasingly important fuel, follow the same route from the tiny emirate of Qatar.

But this area has been rocked by instability in recent weeks. In May, there were reports that four oil vessels were attacked near the Strait of Hormuz, heightening concerns over rising tensions between Iran and the United States. A day later, a drone strike on oil pipelines, claimed by Houthi rebels, forced the Saudis to suspend the flow of oil to the western side of the country.

On Thursday, two more tankers were rocked with explosion and fire near the strait. At least one vessel was set ablaze, and crews were forced to abandon ship.

The carrier Abraham Lincoln in the Gulf of Oman in May. Experts doubt that the Strait of Hormuz could be completely shut down, in part because of the United States Navy’s presence in the region.CreditMatt Herbst/US Navy, via Agence France-Presse — Getty Images

Iran’s coastline covers much of the east side of the gulf, and analysts say that, as the United States tightens sanctions on Iran, Tehran would be well placed to harass shipping with small boats, missiles, mines and other weapons. Experts doubt that the Strait of Hormuz could be shut down, in part because the United States Navy maintains a robust presence in the region.

Helima Croft, global head of commodity strategy at RBC Capital Markets, an investment bank, notes that the Iranians have been mentioned as possible suspects behind the attacks and that they may consider such tactics an appropriate response to the sanctions, which “are viewed from Tehran as economic warfare designed to elicit regime change.”

Analysts say that whoever was behind the recent attacks may be trying to make the point that there is no way around the gulf routes. The reports of attacks in May on four ships occurred in waters off Fujairah, an important port on the Gulf of Oman with facilities designed to bypass the straits.

Read more about the recent attacks
In Gulf of Oman, Tankers Are Struck Again, Raising Fears of Wider Conflict

June 13, 2019

Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption

May 17, 2019

Saudi Arabia does have a safety valve in case the strait became too dangerous: an East-West pipeline that could carry crude to the port of Yanbu on the Red Sea coast. But the drone attack claimed by the Houthi rebels managed to briefly shut that route down.

The other Gulf producers, including Iran, are more dependent on the strait for their exports although Abu Dhabi has an oil pipeline to Fujairah.

A port in the Gulf emirate of Fujairah.CreditKarim Sahib/Agence France-Presse — Getty Images

So far, the oil markets have largely taken the attacks in stride, although “the fact that we have had a second series of incidents has definitely heightened concern,” said Richard Mallinson, an analyst at Energy Aspects, a market research firm.

Prices for Brent crude rose about 3.5 percent on Thursday to more than $61 a barrel but remain well below their recent highs of about $72 a barrel in mid-May.

Analysts say that traders are probably betting that the smoldering tensions will not burst into a full-blown conflict. Another factor is that slowing growth in the world economy, weighed down by trade tensions between the United States and China, has weakened demand for oil.

And then there is the American resurgence in production to consider. There is a sense, Ms. Croft said, that the shale oil boom in the United States, where oil production grew an extraordinary 17 percent last year, can compensate for any jolts in world oil supply.

Ms. Croft worries that a major conflict or a cyberattack that shuts off a large portion of Gulf exports could prove a rude awakening. “There is no way the market is insulated from that because of U.S. shale,” she said.

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Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption

Updated June 13, 2019: On Thursday, two oil tankers were attacked in the Gulf of Oman, raising fears of wider conflict.

Across the Arabian peninsula, thousands of miles of pipes run above and below the desert in one of the world’s most sophisticated production lines for pumping oil from the ground and distributing it around the world. This vast system of oil fields, refineries and ports has largely run like clockwork despite political turbulence across the region.

Then a drone strike claimed by Houthi rebels on May 14 forced the Saudis to temporarily halt the flow of a crucial oil artery to the western side of the country. The assault came a day after mysterious incidents damaged two Saudi tankers and two other ships in a key port in the United Arab Emirates.

These were perhaps the most serious attacks on the kingdom’s oil infrastructure since Al Qaeda militants were thwarted trying to blow up a key Saudi facility at Abqaiq in 2006.

While American officials are still trying to determine whether Iran was behind these incidents, the question for the oil market is how well the Saudi and Persian Gulf infrastructure is protected and whether, with tensions building in the region, it could survive a conflict with Iran.

Analysts and executives of Saudi Aramco, the national oil company, say the kingdom has spent heavily to protect the industry that is its lifeblood. Key Saudi installations are tightly guarded and protected by missile batteries and other weaponry.

“Security systems were bulked up in the 2000s amid the Al Qaeda threat, including the 2006 attack on the Abqaiq facility,” said Ben Cahill, manager for research and advisory at Energy Intelligence, a research firm. “The country’s oil fields, refineries and pipelines are blanketed by surveillance and remote sensing.”

In light of that security effort, Mr. Cahill and other analysts concede that it was eye-opening, even shocking, that a drone apparently launched from as far as 500 miles away in Yemen, managed to cross deep into Saudi Arabia and cause damage.

It was also worrisome and even embarrassing that someone managed to damage tankers in waters off Fujairah, a vital port in the United Arab Emirates where ships take on fuel and provisions on their way in and out of the Gulf.

Despite the security spending of the last decade, rapid changes in technology may mean that the Saudi infrastructure is more exposed than previously thought, analysts say. United Nations experts have estimated, for instance, that drones used by the Houthis have a range of nearly 1,000 miles, allowing them to reach well into Saudi Arabia.

“The simple fact that they managed to reach tankers and a pipeline” is meaningful, said Riccardo Fabiani, a geopolitical analyst at Energy Aspects, a market research firm. “It means they could strike at the heart of Saudi interests if they wanted to.”

Iran is well-placed for inflicting pain in the no-war-no-peace existence in the region. Analysts say it is proficient at using relatively cheap unconventional weapons like drones and speedboats, and at covering its tracks. It can also make use of proxies including the Houthi rebels, who claimed responsibility for the pipeline attack.

ImageWestlake Legal Group merlin_139208199_2ae968de-9f7b-4222-b34f-645b592a4068-articleLarge Saudi Oil Infrastructure at Risk as Small Attacks Raise Potential for Big Disruption United Arab Emirates Saudi Aramco Saudi Arabia Pipelines Oil (Petroleum) and Gasoline Middle East Iran Houthis Fujairah (United Arab Emirates) Drones (Pilotless Planes) Defense and Military Forces Cyberwarfare and Defense Al Qaeda

Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia.CreditAhmed Jadallah/Reuters

Analysts say that drones could prove to be a nuisance for producers like the Saudis. It would be difficult if not impossible to protect an entire pipeline system, and even concentrating air defense units around key points like pumping stations, which were hit in the May 14 drone strikes, would mean taking these defenses from somewhere else.

Drones may also be able to evade the kingdom’s main air defenses, which are intended to repel missiles and aircraft rather than smaller objects.

Jeremy Binnie, a Middle East and Africa defense specialist at Jane’s Defense Weekly, said that satellite imagery showed that the key Saudi export terminal at Ras Tanura was guarded by batteries of sophisticated United States-made Hawk surface-to-air missiles. But these weapons “might not be able to engage the UAVs (drones) that Iran has developed with small radar cross sections,” he said.

Another concern is that Iran, which is regarded as skilled in digital hacking, could use cyber warfare to damage the petroleum infrastructure of Saudi Arabia and its neighbors.

At Saudi Aramco, activities like drilling wells, pumping oil to the surface, and loading the fuel on tankers can all be monitored and managed remotely. Such sophistication, though, may also create openings for attack.

“A lot of those movements are run out of a central command center at Saudi Aramco headquarters,” said Phillip Cornell, a fellow at the Atlantic Council, a Washington-based research institution, who previously worked at Aramco as a senior corporate planning adviser.

Mr. Cornell said that Aramco officials suspected that Iran was responsible for a cyber attack earlier in this decade and that “there has been a lot of investment to reinforce those cyber security defenses.”

However, analysts say the cyber vulnerabilities remain a major worry. “I think cyber is the really underappreciated risk,” said Helima Croft, an oil analyst at RBC Capital markets, an investment bank.

Cyber attacks, for instance, could play a surprisingly large role in the event of conflict, gumming up the oil system or even causing damage.

“Iran has significant cyber capabilities and in the event of a significant U.S. military action against Iran, one could expect that they might deploy these capabilities against the U.S. and its allies,” said John MacWilliams, who was an associate deputy secretary and chief risk officer in the Department of Energy in the Obama administration.

Mr. MacWilliams said the Pentagon monitored Iran’s cyber skills and probably had plans to counter them. “It is one more important reason that containing military action from spreading quickly to a larger conflict may prove difficult,” he said.

The evidence, so far, is that the market and the oil industry can take some bumps in stride. Oil prices ticked up slightly in the week of the two attacks, to $72 a barrel for Brent crude, but still remained below the high of nearly $75 a barrel in late April.

“What the market thinks is that although these incidents are important and noteworthy, they have so far not had any impact on actual production or exports,” said Neil Atkinson, head of the oil industry and markets division of the International Energy Agency, the Paris-based multinational group.

Analysts also say that oil installations are resilient, with most damage easily and quickly repaired. The Saudis have been through a series of wars in the Gulf and have rejiggered their installations with potential threats in mind. “They don’t have a prayer,” said Sadad I. Husseini, a former executive vice president of Aramco, speaking of the possibility of serious disruptions of the kingdom’s oil exports.

In the event of a major conflict, some analysts figure that the large presence of United States military forces in the area would mean that Iran would have only limited success if it tried to stop oil flows from the Gulf.

“Iran is still a very limited military power if things escalate,” said Anthony H. Cordesman, a Gulf defense expert at the Center for Strategic and International Studies in Washington. Mr. Cordesman added that the consequences of a conflict in the region “would be higher prices and limited flows, not a prolonged closing of the Gulf.”

With territory along most of the eastern side of the Gulf, including the vital Strait of Hormuz, Iran is well positioned to cause trouble. Mr. Binnie said that in a war situation Iran could fire anti-ship missiles with radars that fasten onto large targets. “Tankers would be extremely vulnerable in that scenario,” he said.

Iranian personnel could also harass commercial and military ships with small boats equipped with missiles or torpedoes, and by dropping mines in the Strait. Nearly a fifth of the world’s crude oil travels the sea lanes through that gauntlet, which at its narrowest point is just 21 miles wide.

Wars are unpredictable, the analysts said, and the outcome of a conflict between Iran, the United States, Saudi Arabia and other Gulf producers would carry substantial risks.

Washington’s sanctions on Iran have already more than halved the country’s oil sales. As they continue to fall, Tehran may be tempted to take greater risks.

“The Trump administration really needs to understand what it is doing by clamping down on Iran,” said Jim Krane, an energy fellow at Rice University’s Baker Institute. “If Iran does not have any exports, it has a lot less to lose.”

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