Cover story: Enormous repository
During a site tour of the GCC's largest private crude oil and refined products storage complex, management executives from the Fujairah Oil Terminal talk about how the northern emirate's strategic location is fuelling the company's expansion
As you drive along the rugged yet scenic coastline of Fujairah, you realise why the UAE’s only emirate located by the strategic Gulf of Oman has blossomed into a major oil storage and trading hub over the years. Giant crude and refined products storage and blending tanks, owned by various midstream companies, lie along both sides of the corniche road and within close proximity to the Port of Fujairah.
But the one among those multiple storage and blending terminals that would draw your attention the most is the newest of them all. The whole of the Fujairah Oil Terminal (FOT) was commissioned all at once in February 2015 – unlike other such storage facilities, which expand in phases – with a combined crude and blended products storage capacity of almost 1.2mn cubic metres (mcm). By virtue of this mammoth holding capacity, split evenly between crude oil and refined commodities, FOT today is the largest privately-owned, third-party crude storage terminal in the whole of the GCC, its commercial director tells Oil & Gas Middle East.
“FOT’s core service is to offer world-class liquid bulk storage services to its customers, in cooperation with the Port of Fujairah, to provide the marine infrastructure and the connectivity to neighbouring terminals in Fujairah,” M. Malek Azizeh says.
As Fujairah continued to boom as a pivotal midstream destination through the mid-90s and the 2000s, away from the diplomatic tussles over the Strait of Hormuz in the Gulf, it attracted investments from multiple international energy players – particularly Asian and European majors – who were charmed by the prospect of unhindered storage and transport operations out of the emirate. FOT was the result of such an espousal between China’s Sinopec and Singapore-based Concord Energy, which approached the Government of Fujairah with the idea of creating the Gulf’s first crude oil plus refined products terminalling facility.
The emirate’s government expressed unconditional support for the project, since it would entail diversifying Fujairah’s predominantly refined-products storage base by building the first third-party crude oil storage tanks, Azizeh tells me during an exclusive tour of the sprawling 300,000sqm complex, and was convinced by the zeal and expertise of the two partners. FOT was thus formed, with Sinopec owning a majority 50% of the stake and Concord another 40%, while the Government of Fujairah acquired the remaining 10%. Concord Energy, however, sold its share in FOT eventually to Prostar Capital – an Australian infrastructure fund specialised in long-term investments into oil and gas assets worldwide – for undisclosed “business reasons”, although Azizeh says the company continues to invest in other terminal projects in Fujairah.
“The Fujairah Oil Terminal FZC was created with the purpose of bringing something new to Fujairah’s already well-established oil storage market. Fundamentally, Fujairah’s third-party liquid bulk storage market has been focussed on refined products. FOT’s shareholders, including the Government of Fujairah, were keen to offer the full spectrum of oil storage services. Hence, FOT set off to design and build the first third-party independent crude oil storage terminal in the GCC,” he says.
“It was indeed a bold move, as crude wasn’t a naturally traded commodity out of Fujairah, unlike the refined products. Therefore, the first mover advantage was also faced, with a great risk of introducing something new to an already established and active market. Nevertheless, the visionary overview of FOT’s founders was proven to be well placed, and today FOT enjoys 100% occupancy of its crude and products tanks, leased on a long-term basis to international oil majors,” which include Unipec, Vitol and Mercuria, Azizeh tells me.
FOT’s managing director, Sunny Xiaoxu Liu, while showing me around the facility, says the complex has 36 small and large storage tanks – with the big ones containing customers’ crude oil and the smaller ones holding blended products such as gasoline and gasoil. The tanks are connected to the Port of Fujairah through a well-engineered pipeline, Liu points out on a map of the terminal, which helps FOT’s clients transport crude oil and refined material from ships and very large crude carriers (VLCCs) to the storage tanks, and back onto the vessels for export, mainly to consumers in Asia. The maintenance of this pipeline is an important aspect and is managed jointly by the Port entity and users such as FOT, he says.
The management aspires to expand the Fujairah Oil Terminal’s capabilities, within just a year and a half of operation, and already has plans for growth. “We are investing further into upgrading and expanding our infrastructure. We are in the planning stage of adding 90,000cm of gasoil tanks in order to respond to the needs of our customers. In addition, we are studying the feasibility of connecting directly to the VLCC berth, which will be officially inaugurated by the Port of Fujairah by the end of August 2016,” Azizeh tells this magazine. “Moreover, we are always considering [adopting] the latest technologies into oil blending and homogenisation, in order to meet the product mixing [requirements] of our clients with the highest efficiency and within a short period of time.”
When asked about the VLCC berth being commissioned by the Port, Azizeh says, “This is a world-class VLCC jetty, with a draft of 26m, and can handle up to 330,000DWT (deadweight tonnage) fully-laden vessels. This is a major infrastructure that will hugely contribute to Fujairah’s role as an international oil hub.”
Azizeh categorically states that the management of FOT do not wish to enter the trading arena of crude and refined products, and intends to remain as a storage and bunkering services provider to its customers. He explains why, despite the MD having been an experienced trader earlier in his career (in London with Unipec, the trading arm of Sinopec), FOT chooses to differ from most of its rivals in Fujairah: “The minute FOT becomes a trader, we might lose the trust of our customers, for the simple reason that the customers themselves are traders. They come to us and give us their oil to store because they know that we are an independent, third-party, purely storage company. If you are both a storage entity and a trader, you have a vested interest. Storage and bunkering is truly our bread and butter and it will remain that way.”
South-bound crude oil prices have barely spared a single energy entity across the segments, and it would be tempting to assume that the bulk storage sector hadn’t escaped unscathed. Azizeh argues otherwise, however.
“As a matter of fact, low oil price is good for liquid bulk storage companies. When the future oil price outlook is predicted to be higher than the current price (‘contango scenario’), traders look for tanks to store their cargoes until the market recovers, to achieve the desired margins. On the other hand, if today’s price is higher than the forecasted future physical price (‘backwardation scenario’), traders get more active in selling their current stocks, which creates a higher throughput for the terminals, as it is a crucial part of the supply chain to complete the physical purchase of allocated cargoes.”
The promise of Fujairah
The Fujairah Oil Terminal’s executives seem clearly motivated by the northern emirate’s development story and are assured of the company’s prosperity as it is aligned with the emirate’s own growth trajectory as a global midstream hub. They say that FOT’s prospects are bright, as Fujairah – much like its global peers such as Singapore and Rotterdam – will continue to lure international energy stakeholders with the promise of peaceful and efficient storage and transport operations.
Azizeh elaborates: “Fujairah started as a bunkering hub but managed within a decade to transform itself to a regional trading hub where activities such as breaking and making bulk for regional and international distribution is one of the daily core activities of the terminals and the port. Furthermore, Fujairah has achieved a total throughput of more than 80mn tonnes in 2015. This large volume of traded oil products, in addition to the strategic location Fujairah enjoys outside the Strait of Hormuz, and the growing infrastructure in terms of jetties and terminals, triggered the first paper trading activity, which was conducted under the supervision of DME (Dubai Mercantile Exchange) and Platts. This will put Fujairah on the map as not just a bunkering hub, but also as an international trading hub for physical and paper trading.
“In this current environment of low oil prices, every penny counts and makes a difference. Hence, efficiencies in every link of the supply chain are crucial to achieve competitive advantages,” Azizeh continues, when asked about the midstream credentials of Fujairah.
“The Government of Fujairah has realised that early on and made some major investments in new logistics infrastructure, as well as updating existing ones. For instance, the Port of Fujairah rapidly grew from four oil jetties to the current nine oil jetties, all with the capability of handling up to Suezmax ship sizes and partly-laden VLCCs. In addition, the Port has recently made a large investment in building a dedicated crude oil jetty to the highest international standards. Furthermore, Fujairah’s liquid bulk storage capacity grew from 2.5mcm in 2011 to 9mcm today, in a matter of five years, and it is firmly planned to grow up to 14mcm by 2018.” As a comparison, Singapore’s total current capacity today is about 13.6mcm.
“Major oil hubs worldwide, such as Fujairah, Rotterdam and Singapore, are safe havens for oil traders to survive fluctuating oil prices by utilising those facilities to hedge and control their paper trading exposure during a contango or backwardated pricing structure. In addition, they can buy and sell in future contracts, knowing they can rely on their stocks at their respective terminals to ensure timely delivery.”