IONS Seminar 2014 - Session 3 - Petroleum Supply and Trade Security Challenges in the Indian Ocean

Petroleum Supply & Trade Security Challenges in the Indian Ocean Maritime Economy

Dr. Rupert Herbert-Burns

Indian Ocean Naval Symposium, Perth, 27 March 2014

Agenda

1. What are the features that combine to make up the petroleum energy system in the Indian Ocean Maritime Economy?

2. What are the various challenges in trying to ensure the security of petroleum supply and trade in the Indian Ocean Region?

3. Examine oil and gas target vulnerabilities, and assess the threats to the petroleum sector at strategic, operational and tactical levels

4. Consider different possible futures & offer some recommendations

To put things in perspective…

• Indian Ocean has total surface area of 21.45 million sq nautical miles (or 73.56

million sq km) [some 20% of the planet’s total water surface area]

• The 36 states that comprise the IOR have approximately 35.4% of the world’s

population - over one third

• Between them, these states combined have 38.13% of all world’s coastline

• As is well known, the region also has the worlds most critical chokepoints – Bab

al Mandeb, Strait of Hormuz, Strait of Malacca and Suez Canal

• Proven oil reserves: 50.1% of global total

• Oil production capacity: 37.5% of global total

• Crude oil & products lifted through region: 42.5 % of global total

• Proven gas reserves: 49.6% of global total

• Gas production capacity: 28.0% of global total

• LNG lifted through region: 55.9% of global total

• Refining capacity: 18.1% of global total – almost a fifth

• Primary refining nodes: India, Saudi Arabia & Singapore

What comprises the petroleum energy system in the IOR?

Reserve Base

Exploration, Development & Production

Export Terminals &

Shipping

SLOCs/SPS [Petroleum

on the water]

Petroleum Gateways

Physical

Markets

• All of these features, or components, require security in order to ensure holistic systemic security in the IOR

• Some can only be ensured by state means such as Reserve Base, Physical Markets & Petroleum Gateways

• Some can only be ensured through international law [UNCLOS] and collective security, namely SLOCs

• Terminals & shipping requires both state & industry means

• Centres of E,D & P are a mix of state, industry and if necessary international assistance

Proven Crude Oil & Gas Reserve Base

Country Oil reserves as % of global total Strategic source volume indicator

Saudi Arabia 15.9 Exceptional – Global

Iran 9.4 Very High – Global

Iraq 9.0 Very High – Global

Kuwait 6.1 High – Global

UAE 5.9 High – Global

Qatar 1.4 Medium – Global

Country Gas Reserve as % of global total Strategic source volume indicator

Iran 18 Exceptional – Global

Qatar 13.4 Exceptional – Global

Saudi Arabia 4.4 Very High

UAE 3.3 Very High

Australia 2 Very High

Iraq 1.9 Medium

Indonesia 1.6 Medium

Egypt 1.1 Medium

Kuwait 1 Medium

0

10

20

30

40

50

60

70

80

90

100

11 12

49

13

1

13

1 1

95

3 2

Drilling rig count

Offshore Exploration, Development & Production

Source: Baker Hughes & Rigzone

Increases in drilling rigs

and subsequently

offshore production

units out to 2030

Offshore Exploration, Development & Production

Strategic Export Terminals in the IOR

Key Crude Oil Terminals - 37.5% of global total

Key LNG

Liquefaction

Terminals

55.9% of global total

Strategic Petroleum Streams [SPS]

• Based on long-established Sea

Lines of Communication

(SLOC), SPS are the world’s

crude, product, LNG & LPG super-

highways

• Security is underpinned by

combination of sovereign state

protection/monitoring (TW & EEZ);

inter-state co-op (e.g. Malacca) &

UNCLOS-Freedom of Navigation.

• The security of the vessels (and

the associated petroleum stream)

is considered of vital national

security to exporters &

consumers, and essential to

international economic security

• Historically, SPS have been

targeted by states, terrorist groups

& criminals (pirates) alike, though

for different motives

Continuous stream of oils & liquefied gases ‘on the water’ that must not stop

Chokepoints

Chokepoint Alternative Routes Volume of crude oil per yearApprox. number of tankers

per year

Suez Canal Additional 6,000 nm

transit via Cape Agulhas

for tankers; some oil can

be diverted through

Sumed

Approx. 1.64 billion barrels

(223,738,063 metric tonnes)

[Sumed – 2.5MBD]

1,398 (av. crude oil tanker

size in global fleet is

160,000 DWT)

Bab el

Mandeb

Additional 6,000 nm

transit via Cape Agulhas





160,000 DWT)

Strait of

Hormuz

Some oil can be diverted

via Petroline from

Abqaiq to Yanbu & via

ADCOP



[ADCOP = 1.5MBD]



160,000 DWT)

Malacca

Straits

VLCCs & ULCCs must re-

route via Lombok Strait;

smaller ships can transit

via nearer Sunda Strait





160,000 DWT)

Petroleum Hubs & Gateways

Requirements:• Strategic location• Massive tanker handling

capacity & roads• Storage capacity• Refining capacity &

flexibility• Product & distillate

redistribution network• Stable political

environment & robust national security

Security challenges & realities:• Security of SPS and routes to/from gateway• A vital security concern for all not just for state in which it is sited – collective security• Attractive target for sufficiently capable terrorist group• Critical node in time of war

A changed trading picture…

Changing petroleum trade logicIncreasing trend towards larger shipments of refined products & distillates to countries with limited/no refining capacity + value of cargoes has resulted in change in export trade patterns from massive regional refining hubs & petroleum gateways

Dominated by:• Saudi Arabia

(Abqaiq/RasTanura/Jubail: 1.11 million barrels per day

• India (Jamnagar) 1.24 million barrels per day

• Singapore: 1.35 million barrels per day (3 sites combined)

Petroleum Markets• Market security is a vital part of system. For the economic (and political) security of

producers/exporters to be ensured, security of market is essential to ensure its ability to purchase/consume – Phenomenon classically symbiotic

• Market security is ensured in the following ways: security of the shipping routes that lead to it; alliances and/or trade agreements with the producer (in the case of LNG); security of EEZ, littoral and territorial approach waters to national terminals/processing infrastructure; and, security of vessels themselves

• This reveals in a stark way the mutual dependency between producers & consumers not only in the IOME but also the wider Indo-Pacific region,

Suppliers• Saudi Arabia• UAE• Qatar• Australia• Iran• Iraq• Malaysia• Mozambique• Tanzania• Kenya• Somalia

Consumers• Kenya• Tanzania• Iran• Seychelles• Comoros• India• Sri Lanka• China• Philippines• PNG

Intermediate Consumers• India• Singapore

Challenges, targets & threats

Challenges to ensuing the security of the IOME

• Region is multifaceted: geographically & thematically• Dispersal of industrial activity – some emerging regions

do not have adequate resources to ensure offshore security

• Eclectic and unpredictable range of possible threats to security

• Mutable geopolitical and geostrategic realities• Complex state, intergovernmental organisations &

commercial sector cooperation• Considerable challenges to development of multi-

dimensional collective security architecture in absence of formalised cooperative/alliance structures

Mutable Geopolitical & Geostrategic realities & possibilities

• Increasing international O & G exploration investment in East Africa and IO SIDS – leading to extra-regional state interests (Europe, China & US)

• Expansion/extension of Indian naval power projection & influence throughout IOR

• Chinese expeditionary naval deployment & protection of its supply interests further westwards

• Potential reintegration of Iran into the regional and international arena – both politically & commercially

• Triangular power inter-relationship between Iran, Iraq & the GCC

• US ‘flexible response’ to the IOR amidst declining crude requirements from region

Threats to petroleum sphere: Past, present & future

Past• Tanker War• M/T LIMBURG• ABOT & KHAOT• M/T M.STAR• Balhaf Terminal• AQ attack on

Abqaiq• Piracy• Territorial

disputes• Sanctions

Present• Extant maritime

terrorist threat: AQAP, LeT

• Somali hijacking, piracy & armed robbery at sea

• Persian Gulf geopolitical fragility

• Intra-state conflict: Egypt, Iraq, Yemen & Somalia

• Territorial disputes – Iran & UAE

• Sanctions

Future• Somali piracy

resurgence• Non-Somali

piracy (Bay of Bengal)

• Intra-state conflict

• Inter-state conflict

• Sanctions & blockade

• Territorial disputes –Kenya & Somalia

Security threat & vulnerability convergences

This view reveals the

paradox of great separation

of activity in terms of time &

space juxtapose the

problem of threat & target

convergence

Risk: targeting complexity & consequence

VLCCProduct / chemical tanker

VLGC

Coastal processing facility (inc.refinery)

Offshore support vessel

Coastal terminal

Offshore terminal

MOPU (FPSO)

Inshore gravity

drilling rig

Co

mp

lexi

ty

Consequence

MODU

Seismic survey / sub-sea construction

Threat Examples: Strategic Level

Interstate war in major supply region – SPS, Chokepoint & tanker security impacted during the Iran-Iraq War

• Attacks against by both sides throughout war resulted in over 540 attacks, 324 merchant seamen killed & hundreds of millions of dollars in lost ships and cargo

• Tanker War was most intense assault on merchant shipping since the Second World War

• Targets: 58% - tankers 10% - LPG carriers• largest loss of life/most serious destruction occurred

when tankers were attacked at terminals [Kharg & Sirri]• Despite intensity of campaign, neither side managed to

achieve disruptive strategic effect upon shipping of oil they hoped for

• Despite ironic intensification of attacks following international intervention, introduction of convoys & US attacks against Iranian IRGC(N) saved vessels & ended war

• IRGC Pasadran units introduced/developed excellent asymmetric maritime attack tactics – proof of concept & still in use today

Threat Examples: Operational Level

Protecting Iraqi crude export terminals [ABOT & KHAOT] following AQ-I terrorist attack

• On 24 April 2004, an AQI maritime suicide attack cell detonated three WBIEDs close to Iraq’s only sea-based export terminals - Al Basra & Khor al-Amaya

• 2 US Navy sailors & US Coast Guardsman were killed

• No tankers berthed at the terminal or at anchorage at the time of the attack

• The attacked resulted in the considerable expansion of the operation to protect the terminals – CTF-158 and later CTF-IM

• Set the standard as to how this should be done –but required considerable resource

• This was the first maritime terrorist attack of this kind. Though it has not been duplicated since, it proves that an attack against the industry at this level is certainly possible for a suitably capable team .

• On 10 May 2012 the Aframax crude tanker M/V SMYRNI hijacked by Somali PAG in an SPS off coast of Oman

• Pirates armed with AK-47, RPG & 12.7 DShK HMG

• Value of vessel and crude approx. $170m• There was no armed security team embarked• Vessel was held off north coast of Puntland for

10 months until her release following payment of ransom

• At the time of release there were some 300 pirates on board

• Somali PAG skill-sets still very much alive

Threat Examples: Tactical Level

Terrorist attack against a VLCC Pirate hijack & release of VLCC

• At approx. 0030 local time 28 July 2010, VLCC M/V M.STAR was target of a 2-boat maritime attack group in a SPS west of Strait of Hormuz (26º27' N 56º14' E)

• Using WBIED, an Abdullah Azzam Brigades (AAB) cell executed exceptionally brazen & complex attack against tanker under cover of darkness & whilst full-away in approaches to world’s most vital petroleum chokepoint

• Had attack succeeded it would have been most spectacular & costly maritime terrorist attack in history

• Groups now of greatest concern: AQAP & LeT

Possible Futures & Recommendations

2020+ Future A: Resource imbalance & overstretch

Concurrent security crises

1. Resurgent piracy threat to

international shipping in the

HRA

2. Regular terrorist attacks

against terminals & visiting

tankers/VLGCs in Yemen

3. Terrorist & piracy threat to

evolving offshore sector in

Gulf of Aden/Somali Basin

4. Heightened inter-state

tensions in PG/GOO

requiring international naval

deployment

5. LeT activation of its

maritime cadre for offensive

terrorist operations in the

NW IOR

Resource challenges

• East African navies low on sufficient

long-range patrol vessels/corvettes &

MDA + lack of SAR capacity & aviation

• Yemeni coastguard desperately short on

numbers of suitably armed patrol

vessels, trained personnel & C3I

• Reduced numbers of warships

available to patrol IRTC/HOA & HRA

• Unspecific IOR region multi-national

naval alliance/coalition

• Limited number of replenishment at sea

vessels within region to support

expeditionary/long-term MSO

• Inability to properly monitor key

SPS, SLOCs as they converge

towards, hubs, chokepoints & vulnerable

coastlines

• Lack of robust oil spill response capacity

& coordination

2020+ Future B: Resource boost & collective security

Well-established regional resource-building

& assistance project

• Assistance to East African navies to acquire

long-range patrol vessels/corvettes & MDA

[utilisation of UAV as affordable force

multiplier]; estb. Of SAR & oil spill response

• International support to build and train robust

Yemeni coastguard & maritime C3I capacity;

-UAV/MDA support from neighbouring states

• Supporting multilateral provisions to ensure

extra-regional naval support in times of crisis

• Indian Ocean Region-led naval ,mission-

specific, coalition task forces

• Procurement programme by GCC for

‘shared’ replenishment at sea vessels that

can be deployed to support local naval

forces engaged in high-tempo MSO

• Adoption of greater development and

utilisation of navies in joint constabulary

roles for routine MSO in E. African EEZs

Concurrent security crises

1. Resurgent piracy threat to

international shipping

2. Regular terrorist attacks

against terminals & visiting

tankers/VLGCs in Yemen

3. Terrorist & piracy threat to

mature offshore sector in

Gulf of Aden Somali Basin

4. Heightened inter-state

tensions in PG/GOG

requiring international naval

deployment

5. LeT activation of its

maritime cadre for offensive

terrorist operations in the

NW IOR

Summary & Recommendations

• Defined the features of the IOME petroleum energy systemic • Examined the considerable challenges to ensuring the security of the IOME• Considered varied threats at strategic, operational & tactical levels• Posited possible variations on future IOR security environment

Recommendations• Build upon the work and fast accelerating legitimacy achieved by IONS• Encourage IORA to lead further in helping understanding of petroleum sector

security requirements• Include participation and expertise of shipping & offshore industry in developing

security capacity where it is limited• Embrace the regional security risk analysis and risk management approach

suggested at this symposium• Encourage major power strategic dialogue & confidence-building measures at top

level & bilateral ‘mission-specific’ security partnerships and secondary tier level• Understand and prepare for the addition of future target vulnerability

convergences in the GOA/HOA, Somali Basin, west coast of India & Bay of Bengal

IONS Seminar 2014 - Session 3 - Petroleum Supply and Trade Security Challenges in the Indian Ocean

Government & Nonprofit