We were surprised there wasn’t any Sunday and Monday oil market discussion on the Saturday night fire at Saudi Aramco’s SAMREF (Saudi Aramco Mobil Yanbu Refining Company. JV with Exxon Mobil) 400,000 b/d refinery at Yanbu on Saudi Arabia’s Red Sea coast. Rather, news from St. Petersburg from OPEC/non-OPEC monitoring committee and Saudi Arabia dominated oil markets and led to WTI being up $0.66 to close at $46.43/b on Monday and trading higher this morning. The lack of attention to the refinery fire was also helped by Saudi authorities stating that the Yanbu refinery fire did not affect operations. But the key reason is oil markets must believe the Saudi explanation that the fire “happened due to hot weather” and not the Houthis version that it was the result of a successful long range H-2 Burkan missile hitting the refinery. If markets believed the Houthis, WTI would have been much higher than $46.43/b on Monday.
Yanbu is the major Saudi Arabia oil refinery, pipeline and oil export terminal on the Red Sea. Yanbu is probably the 2nd most important oil infrastructure area in Saudi Arabia following its Ras Tanura oil export terminal in the eastern province. The EIA Country Analyst Brief Saudi Arabia Sept 2014 [LINK] notes the extensive Saudi oil infrastructure in Yanbu in addition to the SAMREF 400,000 b/d refinery. The EIA notes there is another Saudi Aramco 250,000 b/d refinery, Yanbu Aramco Sinopec Refining Company (YASREF) JV with Sinopec that is 400,000 b/d refinery, and Saudi Aramco’s main export terminal on the Red Sea at Yanbu that can handle 1.3 million b/d. Plus there is the major Petroline oil pipeline that move oil to the Yanbu export terminal with a capacity of 3 million b/d. And the parallel 290,000-bbl/d Abqaiq-Yanbu NGL pipeline.
Saudi Arabia major oil and natural gas infrastructure
Source: EIA
The Saudi Arabia version is the refinery fire was “due to hot weather” and the fire did not affect refinery operations. We should be clear that refinery fires happen and happen everywhere including major US refineries, and can be caused by a variety of reasons. It has been hot (40c) but this isn’t unusual, rather this is the hottest time of the year in Saudi Arabia. As of 7 am mountain time today, the key Saudi Arabia news sites have had zero or minimal reporting on the refinery fire ie. we could not find stories on Saudi Gazette or Saudi Press Agency on the refinery fire. However, Al Arabiya reported [LINK] on Sunday “Saudi refinery operations not affected by transformer fire. The Saudi Aramco Mobile Refinery at Yanbu is operating normally after a fire hit a power transformer at the gate of the facility. The Saudi Aramco Mobile Refinery (SAMREF) at Yanbu is operating normally after a fire hit a power transformer at the gate of the facility on Saturday, a spokesman for a Saudi government body was quoted as saying on the state news agency. Operations are ongoing and have not been affected by the incident, which happened due to hot weather, Abdulrahman Al-Abdulqader, the spokesman for the Royal Commission for Jubail and Yanbu, which manages and operates industrial cities in Saudi Arabia. The fire broke out at 21:22 local time, according to the spokesman. SAMREF is a joint venture between Saudi Aramco and US Exxon Mobil which operates the 400,000 barrel per day (bpd) crude oil refinery in Yanbu on the Red Sea coast of Saudi Arabia. A SAMREF spokesman could not be immediately reached for comment.”
The Houthis version is that a long range missile hit the refinery and caused the fire. It wasn’t hard to find stories on Yemen news or even Iranian news on the refinery fire. The cause of the fire is very different from the Houthis side. Yemen News Agency (SABA) reported [LINK] “Ballistic missile hits Saudi oil refinery. The army and popular forces fired on Saturday night a long-range ballistic missile on Saudi oil refinery in Yanbu, a port city on the Red Sea coast of western Saudi Arabia, a military official told Saba. The missile, H-2 Burkan, hit the target accurately.” The below satellite map shows the SAMREF refinery and the close proximity to other Yanbu oil infrastructure including the oil export terminal. The Mersad News Agency reported [LINK] “Burkan H2, Long Range Missile Targeting Yanbu Refineries Western Saudi Arabia” and “The Artillery and missile forces of the army and popular committees launched the long-range ballistic missiles of type ,Burkan H2, on the refineries in Yanba province of Saudi Arabia, and the missile hit his target with high accuracy, the source confirmed. The oil refineries in Yanbu are the second oil region in Saudi Arabia, as well as Saudi Arabia has three oil complexes in the same province of Yanbu, refining capacity in the three complexes, one million and fifty thousand barrels per day, the source pointed out. It is expected that the missile force will deploy the specifications of the new ,Burkan H2, at a later date.” It was an interesting last reminder that the Houthis supposedly have more Burkan H2 long range missiles.
Saudi Aramco’s SAMREF Refinery And Yanbu Crude Oil Export Terminal
Source: Google Maps
If it was a missile, we understand why Saudi Arabia prefers a different explanation. The recent Houthis missile attacks have been short range missiles at southern Saudi regions far from Saudi Arabia oil fields and infrastructure, or at Saudi controlled positions in Yemen. The only long range missiles that we have noted recently were in March. The distance implies those missile attacks were also likely Burkhan H2 missiles. Our March 19, 2017 Energy Tidbits noted the reports [LINK] of the March 17 Houthi’s missile targeted at Saudi Aramco facilities in Dhahran in the eastern province, and the March 18 missile targeted at the King Salman air base in Riyadh [LINK]. There was no Saudi Arabia confirmation of these missile attacks until March 22 when the Saudi Press Agency reported [LINK] on the missile attacks but that the Saudi Arabia missile defense system (Patriot missiles) was successful in downing all the Houthis missiles before reaching their targets. The delay in commenting on the March missile attacks does not prove the Houthis are right. And we don’t know which side is telling the truth on the cause of the Yanbu refinery fire. But this missile attack, if true, could have more significant potential implications to Saudi Arabia. If the Houthis are correct, then it means the Burkhan H2 was able to accurately hit a target at a distance of ~1,380 km and also made it thru Saudi Arabia’s Patriot missile defense system. The Burkan H2 missile is believed to have a range of 1,400 km. The missile launch location wasn’t disclosed, but to show the range circle, we have used Sanaa as the approximate launch location, which would just include reaching the major Saudi Arabia Ras Tanura export terminal on in the Persian Gulf. If it was a missile, it’s a good thing it hit the refinery and not 1 km to the south at the Saudi Aramco oil export terminal. Lastly, the refinery fire may have been caused by hot weather, but on Monday and Tuesday, SABA had multiple reports [LINK] that, in sum, noted the dozens of Saudi Arabia airstrikes against multiple targets in Yemen, including the capital Sanaa.
Approx 1,400 Km Range Circle For Burkhan H2 Missile
Source: Google Maps, Stream Asset Financial
Al Qaeda’s 2006 attack on Abqaiq facility spiked oil prices $3.43/b. Abqaiq is ~50 km southwest of Dhahran in the eastern province and is Saudi Arabia’s largest oil processing facility with a capacity of >7 million b/d and is pipeline connected to the Ras Tanura export terminal. Abqaiq was the site of an al Qaeda attack in 2006 that spiked oil prices $3.43/b. Al Qaeda attacked this facility on Feb 24/2006 and that was a well reported real terrorist attack involving two pick up trucks, each with suicide bombers. The bombers reportedly tried to drive thru a side gate at the Abqaiq oil facility, security guards opened fire on them, and the bombers detonated their bombs and so they did not cause any major damage to the oil processing facilities. WTI spiked $3.43/b that day moving from $58.03/b to $61.46/b. Oil prices were in the “peak oil” fear world, which helped lead to the oil price spike, whereas today, OPEC still sees OECD commercial crude oil inventories being 250 million barrels above the 5-yr average.
Was the Saudi Aramco Yanbu refinery fire caused by hot temperatures or by a Houthi missile attack? It may well be a normal refinery fire that happens around the world. A transformer fire at an oil refinery caused by hot temperatures that has not affected refinery operations is a non-event for oil markets, even if it is a 400,000 b/d refinery in Saudi Arabia. But a refinery fire caused by a 1,380 km missile strike that penetrated Saudi Arabia’s Patriot missile defense is something that should add some geopolitical risk premium to oil prices even if more in the out years (WTI strips are $48.89/b in 2019, $50.08 in 2020, and $51.47 in 2021). We recognize Sunday and Monday were all about St. Petersburg, but oil markets should at least be asking the question on what caused the SAMREF refinery fire. The good news is that we should get some added commentary this week. The only one outside Saudi Arabia who knows the answer today is likely the SAMREF JV partner, ExxonMobil and it holds its Q2 earnings call on Friday July 28.