Storage companies are expanding their facilities in Fujairah with crude and petroleum product capacity set to grow 75 per cent by 2020.
Fujairah, which has a strategic location outside the Strait of Hormuz, is benefiting from the oil price drop, which is encouraging firms to store oil and oil products to exploit any rebound.
The contango market, where spot prices are lower than future prices, is driving investment in the sector.
Fujairah tank storage capacity is expected to touch about 8 million cubic metres by year-end and is forecast to rise to 14 million cubic metres by 2020, according to UAE officials.
This expansion will “increase trade flows and cement the UAE as a major oil storage hub”, said Ali Al Yabhouni, the UAE Opec governor at the Fujairah Bunkering and Fuel Oil Forum.
Fujairah’s location south of the Strait of Hormuz has attracted a slew of investments into its port storage facilities aimed at turning the city into one of the world’s great oil trading ports, such as Singapore. It is also the world’s third-largest bunkering hub after Singapore and Rotterdam.
Fujairah port is also the terminus for Qatari natural gas via Dolphin Energy’s pipeline from Taweelah. In addition to the storage expansion, there are also plans to build a refinery capable of handling 200,000 barrels per day, plus liquefied natural gas re-gasification facilities.
“In the current environment, it is attractive for people to buy oil at very low prices and then store it in the hope that prices will recover. Therefore the demand for bunkering and storage facilities is very high right now,” said Vince Cook, the chief executive of National Bank of Fujairah.
Fujairah Oil Terminals, a joint venture between Singapore-based Concord Energy, a subsidiary of China’s Sinopec and the Fujairah government, this month launched tank storage facilities with a capacity of a 1.17 million cubic metres.
The tank operator Vopak Horizon Fujairah will add 480,000 cubic metres to Vopak’s current 2.1 million cubic metres capacity by the summer of next year.
Vitol Tank Terminals International Fujairah (VTTI), a joint venture between the oil trader Vitol and the Malaysian shipping company MISC, is planning to add 430,000 cubic metres in the second quarter of next year, which will increase its capacity to 1.7 million cubic metres to meet demand.
“We believe it’s an opportunity for traders to increase their own volume with the lower [oil]price,” said Siavash Alishahpour, managing director of VTTI Fujairah.
GPS Chemoil, a joint venture between the Singapore-listed marine fuel supplier and trader Chemoil Energy and Gulf Petroleum Supplies, may add 200,000 to 300,000 cubic metres to its existing 700,000 cubic metres capacity.
“Fujairah’s location has a huge impact there. You can see up to 2020-25 the demand is shifting toward the Far East and South East, and all the cargo will move towards that side,” said Dhananjoy Mishra, terminal manager of GPS Chemoil.
The Port of Fujairah is keen to increase crude oil storage because it will bring in more revenue. Already Fujariah is the location of a 380-kilometre pipeline connecting oil production at Habshan, which allows Gulf crude exports to bypass the waterway Iran has in the past threatened to close.
“We have a limit on land. The priority for this land will be given to crude oil storage because crude oil produces more throughput which helps the port recover investments,” said Salem Khalil, technical adviser to the government of Fujairah.
For this end, the port is building a jetty for Very Large Crude Carriers (VLCCs) to cater to rising demand for crude oil storage.
The booming crude and crude oil products storage business has been a boon to National Bank of Fujairah (NBF).
“Regarding NBF’s financing facilities for Fujairah port and related marine activities, I would say certainly it is in excess of Dh1 billion dirhams,” said Mr Cook. “This includes letters of credit for trading, derivatives for hedging oil prices or other commodity prices. There may also be short-term trade and loan finance and long-term lines for construction facilities.”
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