How will Saudi Arabia’s goal of pivoting its energy output to the Red Sea hold up amid massive storage capacity limitations? A 25-day countdown started a week ago — marking the time Middle East oil producers have before they run out of storage space. If the Strait of Hormuz remains closed beyond this window, producers may have to halt output entirely because there will be nowhere left to put the oil. Saudi Arabia began rerouting Asian energy shipments to Yanbu on the Red Sea last week — and we spoke to Antoine Halff (LinkedIn), cofounder and chief analyst at geospatial intelligence platform Kayrros, to break down the multifaceted issue of storage.

IN CONTEXT- Regional players are scrambling to identify an alternative path to Hormuz as the conflict continues and the closure of the strait weighs heavy on regional energy shipments. Rising costs tied to Hormuz — from higher ins. premiums to security risks — are forcing a major rethink of regional logistics.

ENTERPRISEAM: How ready is Yanbu's storage capacity to handle an increase in crude for export?

ANTOINE HALFF: Storage capacity at Yanbu is very large, though not quite as expansive as Ju’aymah’s. Yanbu al-Sinaiyah has a total capacity of around 26 mn barrels but only half of that is terminal storage, the other half is refinery storage. Yanbu Al Muajjiz has about 11 mn barrels of nominal capacity. However, if traffic is unimpeded in the Red Sea, then the disadvantage of smaller capacity is obviously more than offset by the ability to use the storage to support outbound flows, not simply to hold static inventories.

ENTERPRISEAM: Given that storage sites in the kingdom are filling up quickly — as per your recent coverage — would Yanbu be able to balance the current choke in crude flows?

ANTOINE HALFF: The key factor here is the exceptional degree of connectivity, optionality, and flexibility of the Saudi system. Saudi energy facilities are highly interconnected and form a uniquely dense and agile system.

This is not an absolute panacea in the face of such an event as the closure of the Strait of Hormuz — there is no miracle cure for that aside from clearing the Strait. But it gives the Saudi oil industry a remarkable degree of resilience and it is clearly a competitive advantage.

This was demonstrated at the time of the Abqaiq attack in September 2019, when the Saudi Energy Ministry and Saudi Aramco were able to weather the storm remarkably well. This time around the crisis is arguably more severe, but I think we are likely to be surprised by the ingenuity of the Saudi response in the face of adversity.

Background

Major crude oil storage sites in the kingdom are filling up quickly — as Saudi Arabia’s key export route through the Strait of Hormuz remains closed to shipping, Halff said on LinkedIn. Four out of six tanks at the Ras Tanura refinery are already full, and the Ju’aymah terminal on the country’s east coast is “quickly running out of space.”

ALSO- We did a deep dive on Saudi’s leading petroleum solution last week and Egypt’s potential role as a pipe-to-land bridge for the kingdom to the Mediterranean.

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