UAE delays oil pipeline to bypass Hormuz

Military personnel place a flag on a submarine during the Velayat-90 war games by the Iranian navy in the Strait of Hormuz in southern Iran December 27, 2011.

ABU DHABI (Reuters) - The United Arab Emirates has delayed the launch of a crucial oil pipeline to bypass the Straits of Hormuz to mid-2012, which analysts said would add to supply worries at a time when Iran threatens to block the strait for all the Gulf's oil.

Oil prices have remained elevated in recent weeks as Iran has threatened to block the strait should the West impose tougher sanctions on its oil industry as part of a standoff over Tehran's nuclear program.

The narrow strip of water that separates Oman and Iran is the world's most important oil shipping lane, which connects the biggest Gulf producers such as Saudi Arabia, Iran, Iraq and the United Arab Emirates with world markets.

Flows through the strait are estimated at around 15-17 million barrels per day (bpd), or just under a fifth of global supplies, and a new pipeline would bypass it to carry most of the UAE's oil, 1.5 million bpd, to global markets.

"The pipeline is almost complete. Hopefully it will be operational within six months, by May, June," the UAE's oil minister, Mohammed bin Dhaen al-Hamli, told reporters on the sidelines of an energy conference in Abu Dhabi.

The previous deadline for the Abu Dhabi Crude Oil Pipeline (ADCOP) project was set in April.

"There is delay; it is a lot of work. It is not only construction of the project. but it also has to be filled," Hamli said, adding that its capacity could go up to 1.8 million bpd.

The first tests have been done on the pipeline, industry sources said, adding that the first cargo from Fujairah was scheduled for May.

"Iran's announcement that it will carry out another round of military exercises in the Strait of Hormuz in February kept crude prices near two-month highs last week," said David Wech from JBC Energy consultancy, adding that news about the UAE's pipeline delay was "adding to supply concerns."

The pipeline would link state oil firm Abu Dhabi National Oil Company's Habshan oilfields to the port of Fujairah, one of the top three bunkering hubs and a major oil storage terminal outside the Straits and on the Gulf of Oman.

Abu Dhabi government-owned International Petroleum Investment Company (IPIC) is undertaking the project, and China Petroleum Engineering & Construction Corporation is the engineering, procurement and construction contractor (EPC).

(Reporting by Amena Bakr; Writing by Humeyra Pamuk and Dmitry Zhdannikov, editing by Jane Baird)