Abu Dhabi, which pumps most of the United Arab Emirates’ (UAE) crude oil, increasingly appears to have had enough of Iranian belligerence and threats to close the Strait of Hormuz; Persian Gulf’s maritime artery through which over 30% of the world’s traded black gold passes.
In its bid to remove that vulnerability, the oil rich emirate’s state-owned Abu Dhabi National Oil Company (ADNOC) is counting on its petrodollars and a little help from its sister emirate – Fujairah; once a sleepy bunkering hub, but now a flourishing oil storage and shipping port complete with a free-trade zone.
And Fujairah certainly has all the kit and caboodle crude oil and product shippers would demand and then some, including a matrix manifold facility. To the uninitiated, that’s a facility which provides operators with the flexibility to buy and blend product from different tanks and terminals without the need for a mediator vessel using interconnected terminals.
But above it all – it’s all about location, location, and well location for Dr Sultan Al Jaber, Chief Executive Officer of ADNOC. For Fujairah is the only one of the seven emirates that make up the UAE with a coastline solely on the Gulf of Oman and none on the Persian Gulf that the Iranians are so fond of threatening to close.
To this effect, a pipeline backed by the Abu Dhabi government’s International Petroleum Investment Company’s (IPIC) – Habshan–Fujairah project – went onstream in 2012. It has a capacity to handle 1.5 million barrels per day (bpd). Furthermore, Fujairah itself can cope with dispatching close to 70% of the UAE’s total crude output, according to S&P Global Platts.
With rising regional tension, Al Jaber has notched things up considerably. At the recent Gulf Intelligence Energy Markets Forum (EMF) on October 1 in Fujairah, the ADNOC CEO “reaffirmed” his commitment to the port and its allied infrastructure.
Part of that reaffirmation is the construction of what is being described by local media as the world’s biggest “single-site underground oil storage facility” in Fujairah, with a capacity to hold 42 million barrels. To further secure its position in the storage markets, ADNOC has also taken a 10% equity stake in energy storage firm VTTI, which owns storage tanks in Fujairah and beyond.
Al Jaber also said Fujairah would play a key part in ADNOC’s “trading ambitions”. The company has teamed up with Italy’s ENI and Austria’s OMV to create a trading arm that is expected to start physical trading in the first quarter of 2020, according to all parties. In turn, ENI and OMV have taken stakes in ADNOC’s refining unit which has a processing capacity of about 900,000 bpd.
Meanwhile, India’s Ministry of Petroleum and Natural Gas has said ADNOC is supplying crude for storage for the country’s Strategic Petroleum Reserves which has ambitions of competing with regional rival China. Dispatches from Fujairah would certainly help with the endeavor.
Much of ADNOC’s downstream activity boost would be serviced by a planned uptick in production. Al Jaber told EMF: “ADNOC is on track to increase its oil production capacity to 4 million bpd by 2020 and 5 million bpd by 2030. We will invest $45 billion alongside partners to expand our downstream operations.”
That implies further petrodollars heading Fujairah’s way, according to Dr. Carole Nakhle, Founder and Chief Executive Officer of energy consultancy Crystol Energy. “Regional tension can serve as a catalyst but it is perhaps not ADNOC’s only driver. With a multi-billion dollar investment program, the company is being operationally prudent given an emboldened and increasingly belligerent Iran. Fujairah is not its only play but a strategic one that serves a vital function.”
Whatever ADNOC’s motives might be, Fujairah won’t care as long as the petrodollars keep coming in sync with its own expansion plans for one day rivaling hubs like Singapore as an oil shipping and storage hub.