Saudi Aramco, the world's largest oil exporting company, is studying an expansion of its East-West pipeline and the establishment of new export routes as the "maritime blockade" by Yemen's Houthi rebels squeezes access through the Red Sea.
The actions of the Iran-backed group in the Bab Al Mandeb strait have increased pressure to find alternative shipping routes after Iran's closure of the Strait of Hormuz.
"Our engineering team is looking at how we can not only expand what we have, but at the same time identify other routes that we can capitalise on," Aramco's president and chief executive, Amin Nasser, said during an investor call, after the release of the company's second-quarter earnings. "This is all under work."
Aramco currently exports crude through three routes – the Strait of Hormuz, through the Bab Al Mandeb strait to the Red Sea, and to the Mediterranean through Egypt's Sumed pipeline and Suez Canal. The Mediterranean route adds 20 to 25 days to voyages compared with Bab Al Mandeb, Mr Nasser said.
Saudi Arabia has already increased flows through the East-West Pipeline, which runs from the kingdom's eastern oilfields to the Red Sea port of Yanbu, to reach its full capacity of seven million barrels per day. The kingdom is seeking to reduce reliance on Gulf terminals.
Mr Nasser spoke after Aramco reported second-quarter net profit of $32.7 billion, up 42 per cent from a year earlier as higher crude prices offset lower output.
Houthi embargo
Iran closed the Strait of Hormuz, historically the route for most of Saudi Arabia's crude exports, five months ago. The Tehran-backed Houthis declared a "maritime blockade" of Saudi ports in late July, threatening the Red Sea route that Aramco has relied on to reach customers in Asia.
Mr Nasser said the disruption had not affected operations on Aramco's west coast facilities, from where the company continued to export about five million bpd of crude. He declined to comment on reported strikes on Aramco facilities, including the Abqaiq processing plant, Jizan refinery and Yanbu port.
"We don't comment on matters related to military and security incidents," he said. Production, exports and domestic fuel supplies remain intact, and Aramco had not drawn on its strategic reserves, he added.
Mr Nasser said Aramco could restore damaged facilities six times faster than the industry average, referring to third-party verification. The company has maintained that capability since attacks on its infrastructure began in 2019, he added, allowing it to isolate damage and restore operations without disrupting overall production.
He said Aramco could return to pre-conflict production within days once conditions allow and restore its full maximum sustained capacity – the highest crude output level the company can maintain over an extended period, currently 12 million barrels a day – within three weeks if required. "But it all depends on things normalising in the Strait of Hormuz," he added.
High oil prices, higher income
Adjusted net income, the measure Aramco highlights as its preferred gauge of performance, rose 33 per cent in the second quarter to $33.4 billion. Capital spending in the second quarter was $13.2 billion, up from $12.3 billion a year earlier.
Free cash flow reached $12.3 billion, and the board declared a base dividend of $21.9 billion. Gearing rose to 6.2 per cent from 4.8 per cent at the end of the first quarter, although Aramco said it remained the lowest in the industry.
For the first half as a whole, net income rose 34 per cent to $65.2 billion from $48.7 billion a year earlier. Adjusted net income was $67.2 billion. Cash flow from operating activities reached $56.2 billion, with free cash flow of $30.9 billion, while capital expenditures totalled $25.3 billion. Return on average capital employed on a 12-month rolling basis stood at 22.1 per cent, up from 20.3 per cent a year earlier, while the average realised crude oil price rose 26 per cent to $90.10 a barrel from $71.50.
Hydrocarbon production averaged 9.46 million barrels of oil equivalent a day in the second quarter, down from 12.61 million in the previous quarter after the Strait of Hormuz closure reduced output. Higher prices partly offset lower volumes, with realised crude prices rising 62 per cent year on year to $108.10 a barrel in the second quarter, helped by a premium of more than $10 a barrel over Brent, Mr Nasser said.
About 600 million barrels of global commercial inventories had been drawn down since the conflict began, leaving "the only remaining buffer in the system", Mr Nasser added. Restoring inventories to pre-crisis levels would require an additional 2.1 million barrels a day of demand sustained for up to 18 months, before accounting for new storage capacity governments are now planning.
