Adnoc expands reach with Saudi Arabia service stations

Twenty outlets to open in kingdom as oil company seeks profits beyond UAE.

Saudi Arabia will have 20 Adnoc-branded service stations across the kingdom, kicking off the oil company's expansion beyond the UAE's borders, where the subsidised price of petrol holds back profitability for operators.

The first phase of the 15-year franchise agreement with Saudi-based Al Olaibi Group includes the operation of service stations at key locations in Riyadh, Mecca and Medina under the trademark and brand name Adnoc Distribution Global Company (ADGC), a statement from ADGC said yesterday.

The deal expands on Adnoc’s role agreed two years ago to provide technical and engineering consultancy services to Al Olaibi, which already distributes and transports petroleum products in the kingdom. Adnoc will now also provide retail, training, marketing and customer services expertise.

“Saudi Arabia is one of the most significant and strategic markets in the region. This agreement also marks a positive step in our efforts to strengthen cooperation among our companies working in the area of petroleum product distribution and service station management in Saudi Arabia,” said Abdulla Salem Al Dhaheri, the chairman of ADCG.

Mr Al Dhaheri said last year that Saudi wanted to upgrade its service stations, with 15 licences for 15 different operators up for grabs.

As well as an expansion across the Emirates, Adnoc has also been looking at opportunities in Iraq, Libya and North Africa because of demand.

Since the price of petrol is subsidised in the UAE, operators are working to generate better profit margins from other businesses, such as retail and food and beverage.

However, the returns from these areas do not fully compensate for the losses on the sale of fuel.

While petrol prices in Saudi Arabia are lower than in the UAE – 16 cents a litre compared to 47 cents according to globalpetrolprices.com data this week – the subsidy is absorbed by the national oil company Saudi Aramco.

The UAE's Enoc expanded into the kingdom in 2012 after closing service stations in the Northern Emirates to reduce losses.

Follow us on Twitter @Ind_Insights