Med-Red Touts Israeli Pipe as Suez Canal Alternative

Emirati-Israeli firm Med-Red Land Bridge is promoting an Israeli pipeline as an alternative way for producers and traders to ship oil from Europe, Russia and the Caspian to Asia without passing through the Suez Canal. Despite rising tensions between Israel and Iran, geopolitical risks are "factored into the cost" Med-Red CEO Malachi Alper tells Energy Intelligence. The company's second crude shipment is scheduled to load later this month. Three Aframax tankers will discharge crude at Ashkelon on Israel's Mediterranean coast. It will then be carried via the pipeline to the Israeli port of Eilat on the Red Sea, where a very large crude carrier will lift the oil and transport it to Eastern markets (IOD Apr.5'21). Last month, the giant container ship Ever Given blocked the canal for almost a week, resulting in a massive backlog of ships, including crude and products tankers (IOD Mar.29'21). Egypt's Sumed pipeline system, running from Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean, is well known as an alternative to shipping crude via the canal. But Israel’s renamed Europe Asia Pipeline Co. (EAPC), which operates the Israeli pipeline, is less familiar to many. Diplomatic Breakthrough Med-Red was set up after diplomatic relations were established between Israel and the United Arab Emirates late last year (IOD Oct.20'20). The firm has an agreement with EAPC to transport and store crude oil and refined products on behalf of clients, which include oil traders, Indian oil firms and Chinese national oil companies. Med-Red's backers include Petromal, the oil and gas arm of Abu Dhabi-based National Holding, which is ultimately controlled by the United Arab Emirates. It is also backed by Israeli firm AF Entrepreneurship, which is owned by Yona Fogel and Malachi Alper. Indian company Lubber Line Logistics is another investor, while investment bank HSBC is also backing Med-Red. Asked if the recent escalation in tensions between Israel and Iran could prove difficult for the Emirati-Israeli start-up, Alper insists that geopolitical risk was always factored into the cost. Cargoes are insured by customers who are well aware that the pipeline operates in a "rough neighborhood," he says. The ports and pipeline facilities are ultimately insured by Israel as the owner of EAPC. "So I don't see any new risks," he says. Nevertheless, a suspected missile attack on an Israeli-owned cargo ship, Hyperion Ray, was reported on Tuesday by Israel's Channel 12 and Iran's Al-Alam TV. This was the third similar attack on Israeli and Iranian vessels since late February, with the Iranian ship Saviz targeted just last week. Bidirectional Flows The EAPC system's main selling point to traders is that the pipeline is bidirectional, allowing crude to flow from west to east and east to west, while Sumed can only flow crude from east to west. Moreover, most of Sumed's storage capacity is leased out to its national oil company shareholders such as Saudi Aramco and UAE sovereign wealth fund Mubadala, which each hold 15% in Sumed, as does the Kuwait Investment Authority. Qatar Petroleum owns 5%. The remaining 50% is held by the Egyptian government (IOD Feb.12'19). An industry source says that in the long term, Abu Dhabi National Oil Co. (Adnoc), might consider using the EAPC system to market its Murban crude grade in the Mediterranean market, where it would to compete with Kazakhstan's Caspian Pipeline Consortium (CPC) blend and Russia's Urals crude. "Currently there is no sense given the demand in the east and the arbitrage does not work. But if Abu Dhabi does increase its crude [production] capacity, I think they will definitely consider a Med hub for Murban," the source says (IOD Mar.29'21). Abu Dhabi plans to increase its production capacity to 5 million barrels per day from above 4 million b/d today. Crudes carried by the EAPC system have included CPC Blend, Azeri Light and Kurdish oil. While there is no problem segregating different crude grades within the pipeline system there are some limitations, and more "exotic" grades may require a higher tariff, says Alper. Using a combination of two Aframaxes and one VLCC on its first crude shipment recently, Med-Red argues that buyers can save over $1.00 per barrel in transport costs. "Everyone is looking at alternatives to supply the east," says Alper. Tom Pepper, London