Why Fujairah is primed to capitalise on new forms of energy
The Murban oil futures contract allows users to trade Abu Dhabi’s benchmark crude grade and will be priced for delivery from Fujairah
Of the seven emirates comprising the UAE, Fujairah stands out geographically. Apart from some exclaves of Sharjah such as Khor Fakkan, which occupies all the country’s eastern Indian Ocean coast and is a major container trans-shipment port, the emirate and the country can capitalise even more on its strategic location.
Known for mountains, forts, resorts and diving, Fujairah’s importance as an energy hub may be underappreciated. Access to two seas is a crucial advantage for the UAE, one it shares with neighbours Saudi Arabia and Oman, but not enjoyed by the other GCC countries or Iraq. It diversifies import and export routes, and favours trade nexuses.
The use of Fujairah to avoid the Strait of Hormuz, including export of Abu Dhabi’s crude oil via the pipeline from Habshan, has been widely analysed. Some worrying attacks on and sabotage of GCC oil facilities last year and in the past week are a reminder of the importance of physical security.
With Singapore and Rotterdam, Fujairah is one of the world’s top three ports for bunkering, or ship refuelling. It is also a key point for oil storage.
It benefits from its location astride shipping routes between Asia, Europe and the Gulf via Hormuz and the Suez Canal. The International Maritime Organisation’s new regulation limiting pollution from marine bunkers, which came into force at the start of this year, created demand for low-sulphur fuels, and Fujairah has two refineries churning out the requisite cleaner product.
The new Murban oil futures contract, which allows users to trade Abu Dhabi’s benchmark crude grade, will be priced for delivery from Fujairah. This could make it a key node for traders to watch, similar to Cushing in Oklahoma, where US crude is priced, or Singapore, the hub for Asian refined oil products.
The recent announcement by Abu Dhabi’s Supreme Petroleum Council reaffirmed Adnoc’s work on a 42-million-barrel terminal carved into the mountains at Fujairah, intended to provide secure strategic storage.
Commercially, this year’s wild swings in oil demand and price have emphasised the value of being able to hold stocks to smooth out volatility. The emirate’s tanks reportedly filled entirely in April at the height of the world market glut.
Last August, Adnoc bought a 10 per cent stake in VTTI, a global operator of hydrocarbon storage terminals, which has about 10 million barrels of capacity at Fujairah and is 45 per cent owned by leading trading company Vitol.
The emirate’s government owns part of another company at the port, Fujairah Oil Terminal, which is expanding its capacity.
Brooge Petroleum, backed by Abu Dhabi investors, is a recent entrant with a large new terminal that it intends to expand to 28.3 million barrels of storage, making it the largest provider in Fujairah. It is building another refinery to provide low-sulphur shipping fuel.
When less favourable times for the storage industry come around, the increase in capacity will favour those operators whose storage plants are efficient, modern and well-connected to the port’s infrastructure. Because of the limited flat land where the Hajar mountains meet the sea, further expansions will be challenging, requiring millions of tonnes of rock to be blasted away.
And Fujairah’s role is not only confined to energy. It hosts wheat and rice silos, important for national food security. Work also continues on Etihad Rail’s second phase to link Dubai and Sharjah with the east coast.
Sohar, which is down the coast in Oman, has also picked up some of its bunkering business in recent years. Duqm, on Oman’s south-east coast, has a large refinery under construction between OQ, formerly known as Oman Oil Company, and Kuwait Petroleum, along with a potentially massive crude oil storage park.
Duqm will also have a pipeline to export Omani crude, as well as petrochemical terminals. It benefits from greater distance from Hormuz. However, it lacks Fujairah’s long-established familiarity and experience and easy accessibility to the rest of the UAE.
Fujairah’s future strategic importance rests on three areas. Firstly, the shipping industry is looking for cleaner fuels than heavy fuel oil. Liquefied natural gas is one possibility.
Major ports increasingly offer it: LNG bunkering at Rotterdam tripled in the first half of this year, Singapore expects its capacity to reach one million tonnes annually this year and Total is working on offering the fuel at Sohar.
Secondly, the ability to bring LNG into Fujairah for domestic use, not only for ships, would improve the country’s energy security. The only currently operational terminal, at Dubai’s Jebel Ali port, lies within the Gulf. A floating import terminal at Fujairah might not be used often as Adnoc’s plans for national gas self-sufficiency advance, but it could supply the important power and desalination plants there and in Sharjah in case of any interruptions in pipeline gas transport.
Thirdly, other ports, again including Rotterdam and Singapore, have ambitious plans to develop fuelling, import and export of “green” fuels such as hydrogen, ammonia and biofuels.
Electricity, for charging short-range battery-powered vessels, is another possibility. Rotterdam is seeking to manufacture hydrogen from a fleet of offshore wind turbines.
Businesses must surf the wave of decarbonisation, climate policy and new energy forms. Fujairah has a strong position to build on, and with the support of the rest of the UAE, the emirate can strengthen its offering for the new era.
Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis
Updated: December 1, 2020 10:42 PM