Damage caused to energy infrastructure in Gulf states would cost $58 billion to repair, Rystad Energy estimated this week, suggesting the fallout of the war between the U.S. and Israel, and Iran is more severe than futures market-focused observers would assume, because just two weeks ago, Rystad had calculated the damage at less than half that amount.
According to the International Energy Agency’s head, Fatih Birol, more than 80 oil and gas facilities in Gulf states have been damaged in U.S. and Israeli attacks on Iran’s oil and gas facilities and in Iran’s retaliatory attacks on states housing U.S. bases. Some of these have suffered such extensive damage that it could take years to repair, Birol warned.
Rystad, for its part, noted that the minimum repair bill would come in at $34 billion, but it could end up being much higher once the extent of the damage has been fully calculated. Not only this, but the equipment needed to repair the infrastructure damaged in the war is going to stress the global supply chain, a senior Rystad Energy analyst said.
The bill would be the highest for Iran, coming in at $19 billion worth of repairs. Next is Qatar, whose Ras Laffan LNG hub Iran targeted in response to Israeli attacks on its half of the South Pars/North Field gas deposit that the two countries share. QatarEnergy calculated in March that the damage would take between two and five years to repair and cost $20 billion in lost revenues.
The fact that this infrastructure damage could cost almost $60 billion to repair is not only a money problem, however. It is also a supply problem because the longer oil and gas facilities cannot operate normally—or at all—the longer supply of oil and gas from the biggest producing region would remain compromised. This does not appear to have been factored into prices right now.
“I think everybody is trying to assess what oil markets will look like in ‘the day after,’ but to be honest, everyone is flying blind,” the chief analyst of Gulf Oil, Tom Kloza, told MarketWatch this week.
The ripple effect of the war could therefore spread well beyond the wellhead and the Gulf refineries, which appear to have suffered the most extensive damage in terms of estimated repair costs. For the repairs to be conducted, contractors and equipment would need to be moved from other locations, resulting in potential delays to other oil and gas projects, Satwani explained. This means that the supply disruption will continue for much longer than many would hope.
“The $58 billion bill is the headline, but the knock-on effects on energy investment timelines globally may prove just as significant,” Rystad’s Satwani warned. MarketWatch, meanwhile, quoted other analysts as suggesting that it could take until the end of the year to get some upstream facilities up and running again—and that’s if a lasting peace is agreed by the warring parties this month. If they cannot agree on a peace deal, repairs would take even longer, extending the squeeze in oil, gas, and refined products and ultimately reshaping energy markets for many years to come.
Source: Oilprice