Interpreting Middle East Economic News and Analyzing Market Trends

Fujairah set to become oil storage center

Fujairah, one of the seven Emirates that comprise the United Arab Emirates (UAE), is set to become the oil storage center for the Middle East.  The main reason is strategic.  Fujairah sits outside the Persian Gulf and the Strait of Hormuz.  It is also part of the UAE and the Gulf Cooperation Council (GCC); a six nation bloc of Arab oil producers (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE.

 

Map courtesy of the BBC

 

The timing couldn’t be been better.  Tensions between Iran and the US and GCC haven’t gone away and could escalate at any time.  Last year, Iran threatened to close the straight of hormuz if the US didn’t back down from its crippling sanctions.  There are currently several companies from China to Saudi Arabia involved in setting up storage facilities in the Emirate.  Here’s more from The National:

 

China Petroleum & Chemical is leading fuel producers and traders borrowing more than US$500 million (Dh1.83 billion) to build storage at the biggest oil port in the Arabian Gulf region outside the Strait of Hormuz.

Fujairah’s location on the Gulf of Oman about 160 kilometres south of the Strait of Hormuz enhances its appeal to international traders and tank operators such as Vitol Group and Royal Vopak. Iran threatened last year to close the waterway in retaliation for sanctions on its economy.

Investors are betting that demand for refined oil products in a region holding 48 per cent of the world’s crude reserves will boost their profits from storing fuel in Fujairah. The former fishing village, along with Singapore and Rotterdam, is now one of the largest ports for refuelling ships with so-called bunker fuel.

Gulf Petrochem, based in Sharjah, plans to expand a 412,000 cubic metre storage facility that it inaugurated last month, Prerit Goel, a company director, said on Tuesday.

“For at least the next two to three years, trading growth in Fujairah will be on the upside because of demand in the region,” Aamir Habib of Credit Europe Bank said on Monday.

“The market for storage in Fujairah is supported by trading in bunker fuel and refined products.”

Investors in fuel storage run the risk that a decline in demand or trading volumes could affect the market for tank space, driving down the fees tank operators can charge their customers.

These companies will probably pay more than Abu Dhabi National Energy, known as Taqa, which agreed in December to $2.5bn in credit at 75 to 100 basis points over Libor, said Mr Shitole of SJS. Taqa is controlled by the Government of Abu Dhabi, holder of 6 per cent of the world’s crude reserves. Storage projects announced already at Fujairah will double capacity for petroleum, diesel and other fuels to almost 9 million cubic metres within three years, Salam Khalil, a technical adviser to the emirate’s government, said last month.

Sinopec and Concord are building 1.16 million cubic metres of storage, and the Chinese oil producer will lease half of it.

Abu Dhabi has reinforced Fujairah’s importance as an energy hub by financing an oil pipeline, crude-storage facilities and power plants in the less wealthy emirate. The pipeline became operational last year and can transport 1.5 million barrels a day over 370 kilometres from Abu Dhabi’s onshore fields. Abu Dhabi National Oil Company opened a 1.3 million-cubic-metre tank farm for crude in July.

The world’s largest crude exporter, Saudi Arabian Oil, is the latest entrant seeking fuel storage in Fujairah. The company, known as Saudi Aramco, said this week that its trading unit for refined products will lease space at a facility run by Vopak Horizon Fujairah, a venture owned partly by Rotterdam-based Vopak and Emirates National Oil of Dubai.

Fujairah is now poised to become a regional storage centre for crude oil and not just refined fuel.

Royal Dutch Shell is in talks to secure as much as 1 million cubic metres of crude storage, in what would be the region’s first such crude-tank deal with foreign companies.

Read the full article from The National.

 

The trend of GCC oil producers storing oil outside the the Persian Gulf is on the rise.  Both the oil producers and users realize the need to reduce political risk in oil.  Abu Dhabi recently inked a deal to build a $6.76 billion oil storage facility in Malaysia, enough to store 60 million barrels of oil.  Not only does Abu Dhabi want to ensure it can deliver its oil, it also sees the need to be closer to its growing customers in Asia.