Demand for oil storage facilities rises

04 November 2013

With political tensions threatening shipping through the Strait of Hormuz, opportunities to increase oil storage capacity are arising in Fujairah and Oman due to their strategic locations

Storage provides a key midstream link between the upstream and downstream sectors of the Middle East’s oil and gas sector, allowing producers more flexibility in producing and exporting crude oil and refined products.

Companies engaged in oil and gas storage serve a variety of customers, including oil refiners, distributors and traders, storing crude as gas oil, jet fuel, naphtha, diesel, kerosene, liquefied natural gas (LNG), liquefied petroleum gas (LPG) and petrochemicals. According to the global market leader, Netherlands-based Vopak, the world oil storage market is estimated to be about 226 million cubic metres.

Storage hub

Fujairah, on the east coast of the UAE, has become the world’s third-largest oil storage and bunkering hub, after Rotterdam in the Netherlands and Singapore.

The port is located next to the world’s most strategic choke point for shipments of oil, refined products and LNG, the Strait of Hormuz. Over a third of seaborne oil exports, and about 20 per cent of all oil traded worldwide, pass through the narrow strait between Iran and Oman’s Musandam peninsula. Political tensions between Tehran and the US (and its GCC allies) have made it a strategic advantage for oil produced in the Gulf to be stored on the Gulf of Oman side of the Strait of Hormuz.

In the same line of thinking, Abu Dhabi has built a major cross-country pipeline to allow it to ship onshore oil from Fujairah without passing through the strait, although this is far from running at its full capacity of 1.8 million barrels a day (b/d).

In addition to oil, the world’s largest LNG exporter Qatar exports the vast majority of its shipments through the strait, making up about 20 per cent of global LNG trade.

Fujairah’s storage capacity has grown significantly in recent years. The port’s capacity is expected to increase to about 10.5 million tonnes by the end of 2014, up from 4.8 million tonnes in 2012.

The increase will be driven by eight separate expansions and grassroots projects. These include 1.3 million cubic metres of new capacity being added by VTTI Fujairah Terminals and 855,000 cubic metres by Vopak Horizon Fujairah, both of which have Dutch shareholders.

In addition, the local Primestar Energy is to establish a 640,000-cubic-metre terminal in 2013, while Singapore-based oil trader Concord Energy plans to build a 1.1 million-cubic-metre facility by 2014. Further expansions are proposed by Dubai-based Emirates National Oil Company, US-based Chemoil, Sharjah-based Gulf Petrochem and the Azerbaijani-Swiss joint venture Socar Aurora.

The rise of Fujairah has meant spending on oil storage projects in the UAE has, by far, outstripped investment in any other country in the Middle East and North Africa (Mena) region over recent years. Between 2008 and 2013, an estimated $19.6bn was spent on engineering, procurement and construction (EPC) contracts for Mena oil storage schemes, according to regional projects tracker MEED Projects.

The UAE represented 42 per cent of this investment ahead of its neighbour Saudi Arabia, with 19 per cent. Other major spenders on oil storage capacity were Iraq (13 per cent), Kuwait (7 per cent), Iran (6 per cent) and Jordan (5 per cent).

The political risk associated with the Strait of Hormuz has also put Oman in a good position to benefit from its Gulf of Oman coastline. The sultanate’s Oil Tank Terminal Company (OTTCO) is planning what will be the Middle East’s largest oil terminal, a facility with the capacity to store 200 million barrels of oil at Ras Markaz on Oman’s central coastline.

OTTCO received expressions of interest on 22 August for the project’s front-end engineering and design (feed) and project management consultancy contracts. “We [hope] to award the contracts in mid-December,” said a source at OTTCO in September.

The terminal will be built in phases over 1,600 hectares and will include marine facilities for loading and unloading crude oil. The first phase is expected to be operational by 2017. OTTCO is 90 per cent owned by Oman Oil Company (OOC) and 10 per cent owned by the local Takamul Investment Company, which is itself 90 per cent owned by OOC.

Oil pipelines

The Ras Markaz Crude Oil Park will be connected to the main line at Nahada through a 440-kilometre pipeline as part of an agreement with the Oil & Gas Ministry. There is also expected to be a pipeline between the terminal and the planned Duqm Refinery, which will be located 70km north of Ras Markaz on the Al-Wusta coast.

Oman’s plans for Ras Markaz to be the biggest crude storage facility in the Middle East will see it playing the same role as Singapore in Asia and Rotterdam in Europe. The Ras Markaz project, along with the planned export terminal and refinery and petrochemicals complex at Duqm, could see Al-Wusta emerge as a key hub for the global oil industry by the end of this decade.

Another major project in the pipeline is Iraq’s State Company for Oil Projects (Scop) planned crude storage facilities in the south of the country. The estimated $2bn scheme covers the construction of 29 storage tanks, each with a capacity of 6,000 cubic metres of oil or about 370,000 barrels. Seven of these will be located at the Nasiriyah oil depot and 22 at the Bin Umar oil depot.

While the Nasiriyah project looks likely to proceed, there are concerns the larger Bin Umar scheme may be delayed and its configuration changed, according to a source at one bidding firm.

Iraq plans to increase its oil storage capacity to 60 million barrels, from the current 6.2 million barrels, with the expansion of its five existing facilities and the construction of five new depots by 2015. Three of these are located in the south of the country, while the K-3 and IT1-A storage depots are in the north of Iraq. When complete, the facilities will give the country the ability to cope with possible outages at its southern export facilities. There are currently only enough tanks to store three to four days’ worth of production.

Jordan’s plans

Away from the Gulf, Jordan is also planning a major storage project operated by the Ministry of Energy & Minerals Resources (MEMR). The petroleum strategic reserves terminal will be constructed east of Amman and will be used to store refined products.

The capacity will be 250,000-300,000 tonnes of white products, which consist of gasoline, kerosene, jet fuel and diesel, and 8,000 tonnes of LPG.

In addition to the strategic reserves terminal, MEMR is planning an LPG terminal at the port of Aqaba. The ministry has prequalified EPC contractors for the project, which is expected to be tendered by the end of the year.

Saudi Arabia intends to expand the storage infrastructure on its west coast with the construction of a facility in Shoaiba. Saudi Aramco is planning a marine terminal and tank farm that will be able to store 400,000 barrels of gasoline, benzene and diesel, which will be shipped from refineries at Yanbu and PetroRabigh before being distributed along the south-west coast.

US-based Mustang Engineering is completing the feed phase of the project, with Saudi Aramco expected to tender the main contract in the first quarter of 2014.

Growing demand

The need for oil storage capacity is set to rise in the Mena region along with oil production. The recovery of the oil sector in Iraq, together with potential rebounds in Iran and Libya, should drive demand for third-party storage companies. Meanwhile, political tension with Iran will continue to create opportunities for oil storage in Fujairah and Oman, with the sultanate banking on robust demand for its ambitious Ras Markaz terminal.

Key fact

Capacity at Fujairah port is expected to increase to about 10.5 million tonnes by the end of 2014

Source: MEED

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