Oil Hub of Fujairah Thriving Amid Rising Geopolitical Risk

Oil Hub of Fujairah Thriving Amid Rising Geopolitical Risk
Fujairah has seen incremental investment as a port that bypasses the Strait of Hormuz which Iran has threatened to block. (Photo: Gaurav Sharma)

Driving around the burgeoning Middle Eastern oil shipping and storage hub of Fujairah in the United Arab Emirates (UAE), you wouldn’t notice the region is on edge following simmering geopolitical tensions. Before drone strikes on neighbouring Saudi Arabian oil installations caught the world’s attention in September, the Emirati port was already in the news, though perhaps not for reasons it wanted to be featured for.

In May, four tankers were attacked off Fujairah’s coast in the Gulf of Oman. These included two Saudi Arabian registered oil tankers, a Norwegian registered oil tanker, and an Emirati registered bunkering ship; all of whom were anchored in UAE territorial waters for bunkering. In June, two more tankers were attacked in the same maritime corridor raising further alarm.

Akin to the drone attacks on Saudi facilities that followed, and despite claims by Yemen’s Houthi rebels that they were responsible, blame has been apportioned on Iran by the U.S. State Department, European Governments and Saudi Allies. It’s something Iran has denied with customary verbal belligerence and threats to close the Strait of Hormuz, Persian Gulf’s maritime artery through which over 30 percent of the world’s traded oil passes.

An oil tanker pulls into the Port of Fujairah, United Arab Emirates. The region is witnessing rising geopolitical tensions following a spate of attacks on oil shipping. (Photo: Gaurav Sharma)

But beneath the veneer of tension, Fujairah is eyeing opportunities ironically that very level of tension provides. From being a minor bunkering port in the early 1990s, investment at the turn of the current decade led to the establishment of large-scale shipping and storage operations.

They exist alongside a flourishing free-trade zone and ancillary services that have become thriving businesses in the Emirate; and all of it is underpinned by Fujairah’s strategic location. Being one of the seven emirates that make up the UAE, it’s the only one with a coastline solely on the Gulf of Oman and none on the contentious Persian Gulf.

The location coupled with close to ten years of incremental investment in infrastructure has given Fujairah the status of an insurance hedge. Conscious of potential flashpoints disrupting oil shipments and congestion in Gulf ports, sister emirates gave Fujairah a shot in the arm it had always craved – a pipeline to carry Emirati crude, backed by the Abu Dhabi government’s International Petroleum Investment Company (IPIC), in the shape of the Habshan–Fujairah project which went onstream in 2012.

Today the pipeline has a capacity of 1.5 million barrels per day (bpd) and Fujairah itself has the capacity to handle 70 percent of the UAE’s crude output. And as regional tensions rise, so does interest in the port. At the recent Gulf Intelligence Energy Markets Forum 2019 on October 1, Fujairah’s annual energy jamboree, every regional heavyweight from Saudi Aramco to Abu Dhabi National Oil Company (ADNOC) lined up to pledge investment and trading outposts in the city.

Ibrahim Al-Buainain, Chief Executive of Saudi Aramco’s energy trading unit, reaffirmed his interest in Fujairah whist declaring the company had “fully restored” output to “little bit higher” than 9.9 million bpd following the drone attacks.

ADNOC CEO Dr Sultan Al Jaber reaffirmed petrodollars too. His company is currently building what is being described by local experts as the world's biggest single-site underground oil storage facility in Fujairah, with a capacity to hold a whopping 42 million barrels.

ADNOC has also acquired a 10 percent equity stake in energy storage firm VTTI, which owns storage tanks globally and in Fujairah. From the port, when needed, ADNOC’s barrels could be dispatched using the port’s matrix manifold infrastructure. It is a facility that 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.

Dr. Sultan Al Jaber, CEO of Abu Dhabi National Oil Company (ADNOC) reaffirms his company's infrastructure investment in Fujairah at the Gulf Intelligence Emerging Markets Forum 2019 on Oct. 1, 2019. (Photo: Gulf Intelligence)

“Such a level of world class inter-terminal connectivity puts Fujairah at par with many global rivals in a region where, and at a time when, it is needed, even if assertions of overtaking hubs like Singapore are perhaps a bit premature,” said a VTTI spokesperson.

Furthermore, the port’s Fujairah Oil Industry Zone (FOIZ), which hosts the Middle East's largest commercial storage capacity for refined oil products, tied-up with S&P Global Platts to deploy blockchain solutions in 2018 that facilitate submissions of weekly oil storage data by market participants, improving transparency.

According to Dr. Carole Nakhle, Founder and Chief Executive Officer of energy consultancy Crystol Energy, add it all up and you’ll see Fujairah hunting opportunities in its own demure way in a “climate of geopolitical risk that might scare outsiders but is not alien to the Middle East.”

“The current situation in light of attacks on tankers and Saudi oil facilities might be new but regional flashpoints aren’t. What is apparent is that UAE is increasing its energy investment. Being cognizant of the latest tensions with Iran, it is giving Fujairah prominence so that the Emirati connection with global export markets is maintained in all circumstances,” Dr Nakhle told Rigzone.

And Fujairah looks set to play an even bigger role in the future of the UAE as an oil producing and trading hub, she added, since it allows to the country’s crude to bypass the Strait of Hormuz even if “sporadic attacks on tankers cannot be ruled out.”

That’s an advantage very few regional players have if you looked at a map of the Arabian Peninsula. But there were rumblings and anecdotes at the Energy Markets Forum of shipping and maritime insurers charging “war risk premiums” in the waters around Fujairah in the wake of recent attacks, at rates previously reserved for transit through the Persian Gulf, given Iran’s threats of blocking maritime passages and its recent detainment of selected tankers, including that of UK-flagged, Sweden-owned Stena Impero seized in July.

But Dr Nakhle said such premiums were hardly surprising and not something regional operators cannot handle. “Recent regional history illustrates the Middle East has never been a very peaceful place. When you come to this region, you expect the unexpected.

“Evidence of these premiums has more to do with maritime insurers seeking a circumstantial uptick in price, rather than how Fujairah can or cannot cope with the current situation. From an investment dollars perspective, it remains in a unique place to benefit.”

Gaurav Sharma is an independent oil and gas analyst with over 15 years of experience. He provides regular market commentary for events, publishers and broadcasters. Follow him on Twitter @The_Oilholic or email at gaurav.sharma@oilholicssynonymous.com


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