Mideast oil output will take months to recover
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Live Events as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel A framework agreement between the U.S. and Iran on terms to end their war and reopen the Strait of Hormuz sent oil prices tumbling, as traders anticipated the return of flows.But industry officials say a full return to pre-war production and refining levels is likely to take weeks, months or even years.The following explores the main energy implications of the tentative deal.WHAT DOES THE DEAL CHANGE IMMEDIATELY?U.S. President Donald Trump said the Strait of Hormuz, a major shipping route for global oil and gas supplies that Iran has effectively shut down for months, would open on Friday, and that he had ordered the end of a U.S. blockade of Iranian ports.Iran's deputy foreign minister, Kazem Gharibabadi, said a more expansive agreement on the wider conflict would be negotiated during a 60-day ceasefire period, including sanctions relief for Iran.HOW FAST CAN OIL PRODUCTION RESUME?Middle East producers including Iraq, Kuwait, Saudi Arabia and the United Arab Emirates shut down millions of barrels per day of crude oil output due to the effective closure of the Strait.The International Energy Agency's most recent report says that more than 14 million barrels per day of oil output is shut, or about 14% of world demand.Some production such as in Iraq can resume in less than a week of a decision to restart, an official familiar with the matter said.
Other fields will take much longer."Assuming operators choose a measured and controlled ramp-up, our analysis suggests the fields affected by the Strait's closure could get back to 70% of prior production within three months and to 90% within six months. The last 1 million bpd or so will take considerably longer," analysts at Wood Mackenzie said.WHY ARE OIL REFINERIES A BOTTLENECK?The Iran war had shut as much as 3.52 million barrels per day of refining capacity as of May 7, according to industry monitor IIR, about 3.5% of the global total, with some plants damaged.Returning plants that were simply shut as a precaution will take a couple of weeks, analysts say, but repairing damaged sites will take longer.Gulf refineries could reach about 90% to 95% of capacity within 40 to 60 days, Vitol Bahrain's head of research, Bader Nooruddin, said earlier this month.The Middle East's total repair spending is likely to average around $46 billion, with refining and petrochemical assets accounting for the largest share due to their complexity and extent of damage, according to Rystad Energy.WHAT ABOUT GAS, INCLUDING LNG?Early in the conflict, major liquefied natural gas facilities such as those in Qatar halted output or curtailed operations following attacks.Once a restart decision is taken, it will take around two weeks to turn gas into a super-chilled fuel and reach full capacity.In the liquefaction process - which turns gas into a liquid state by cooling it down to approximately minus 162 degrees Celsius (minus 260 degrees Fahrenheit) - the cooldown is the most critical step.
The BriefWire