Following an Iranian attack on U.S. forces stationed in Iraq late Tuesday further ratcheted up tensions, natural gas and oil pipeline operators across the United States are on guard against potential threats, including from cybersecurity efforts.
Recent escalation in the Middle East has not resulted in specific threats to pipeline operators in the United States, but Stan Chapman, the newly appointed chairman of the Interstate Natural Gas Association of America (INGAA) said, “Our antennas are up. We have processes and procedures in place to timely detect any threats that may come at any time.”
Chapman, who also chairs TC Pipelines GP Inc., said Tuesday that INGAA has asked member companies “to participate in some sort of a review or certification process” of their cybersecurity efforts with the Department of Homeland Security’s Transportation Security Administration (TSA). TSA sent a letter late last year to pipeline trade associations and pipeline operators asking they provide certification, according to INGAA CEO Don Santa.
“INGAA’s members are working to respond to that in a timely fashion,” Santa told reporters in Washington, DC.
The missile attack on two Iraqi military bases that house U.S. forces followed a drone attack last week by the United States, which killed Iran’s Quds Force commander Qasem Soleimani. The deadly strike, which also killed Iranian military leaders, was in response to a strike on Dec. 31 at the U.S. embassy in Baghdad, which Iran is accused of orchestrating.
Crude oil surged to nearly a four-month high early Wednesday after the Tuesday attack, but prices quickly grinded lower. The Energy Information Administration said Wednesday U.S. crude inventories rose a stout 1.2 million bbl week/week to 431.1 million bbl, above market expectations. Brent crude oil March futures settled Wednesday at $65.44, down $2.83 day/day, after hitting a high of $71.75/bbl earlier in the day.
In a speech to the nation Wednesday morning, President Trump said “no Americans were harmed” in Tuesday night’s attack. “We suffered no casualties. All of our soldiers are safe, and only minimal damage was sustained at our military base.”
Trump also touted the U.S. position in the global oil and gas marketplace. “We are now the No. One producer of oil and natural gas anywhere in the world. We are independent, and we do not need Middle East oil.”
The lack of casualties Tuesday was believed to have been intentional, serving as a face-saving measure for Iran’s domestic audience, according to Enervus and other observers. “Iran even gave Iraq’s prime minister advance warning of the attacks, likely with the understanding that he would then pass word to the United States,” Enverus analysts said.
Trump said “Iran appears to be standing down,” which may have quelled market fears of a supply disruption. However, given the quick price retreat that crude experienced following last week’s attack, as well as the Abqaiq attacks in Saudi Arabia last September, industry executives and analysts said any perceived fears of a supply hit may be unfounded.
Speaking Tuesday to CNBC’s Brian Sullivan on the sidelines of the Goldman Sachs annual energy conference in Miami, Chevron CEO Michael Wirth said, “We saw the attack last year on critical infrastructure in Saudi Arabia. And pretty quickly, the market reverted” to a price range “where it had been before. We continue to be in a pretty well supplied market.
“And this event, while certainly newsworthy, didn’t fundamentally strike energy infrastructure or change the supply and demand dynamics in the market.”
Chevron has removed U.S. contractors working in Iraq following last week’s incident, which Wirth said was “relatively normal” as the company “takes security measures on an ongoing basis as we see risks evolve around the world. We have good people on the ground still in Iraq…And at some point as the situation clarifies itself, and we view the security position as proper, we’ll see people return.”
Marathon Oil Corp. CEO Lee Tillman told CNBC the dampening effect on the recent price rallies is reflective of the U.S. energy renaissance. “We make up about 8% of the global supply today. And those are reliable, highly secure barrels that the market is counting on, and I do believe that’s reduced this risk premium from returning back into the market.”
Enverus’ Sarp Ozkan, director of energy analysis, said global oil demand is still struggling, and new fields around the world have added to the growth from the United States. There is also spare capacity from countries including Saudi Arabia to fill a potential gap, “although the size of the gap that can be filled on a sustainable basis is debated.” Furthermore, the United States can “throw more money” at the drillbit quickly if free cash flow improves because of higher prices.
There are a couple of ways in which supplies could be disrupted, the most dire of which would be an attempted full-on closure of the Strait of Hormuz. “Some have estimated that oil prices could get to triple figures again if this happens given that it is the path of 21 million b/d,” Ozkan said. “At this point in time, however, there would likely be some military retaliation as such a jump in prices would have worldwide impact on demand and economies.”
A short closure in the strait could be navigated by drawing down stocks, bringing on spare capacity from the Organization of the Petroleum Exporting Countries and ally Russia, as well as limited rerouting. However, if tankers or oil and gas infrastructure were to be targeted, the impact is unlikely to be long lasting, as was the case last September.
“None were lasting enough in a time where supply is resilient, stocks are above average and spare capacity exists,” Ozkan said.
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