Fujairah, the UAE’s most eastern emirate, has long lived in the shadows of oil-rich Abu Dhabi and the glitz of Dubai. While their economies grew exponentially during the boom years of 2003-2008 on the back of higher oil prices and, in the case of Dubai, a speculative real estate bubble, Fujairah saw only modest growth, and was seen as something of an underachiever within the federal union.

Key fact

There are $4.5bn of schemes planned or under way to expand Fujairah port’s oil storage and export facilities

Source: MEED

Despite having 3 per cent of the UAE’s population, it generated just AED9bn ($2.5bn) of the country’s AED93.4 trillion gross domestic product in 2008, or 1.1 per cent of total economic output, according to government figures.

Strategic location

In 2007, Fujairah’s non-oil trade surplus was AED1.2bn, scarcely more than the AED1.1bn generated by Ajman, the union’s second-poorest state. By contrast, Abu Dhabi, widely seen as over dependent on its vast hydrocarbon riches, generated AED45.7bn, while resource-poor Dubai made AED219.9bn at the height of its economic growth.


UAE Foreign Trade Volume January 2010 (percentage of non-oil exports
Abu Dhabi 8 86
Dubai 86 8
Ras al-Khaimah 3 3
Fujairah 2 2
Sharjah/Ajman 1 1
Source:  UAE Federal Customs Authority    


Subsidies from the federal government contribute a large portion of Fujairah’s state budget, and most other government receipts come from mining for basic minerals, cement production and tourism. Only a fraction of its income is raised through oil and gas production.

Despite this, there is growing talk that Fujairah could become the UAE’s new growth centre, as a hub for oil supply and exports. The reason for this interest is simple: The emirate’s location.

The actual travel time … is less of an issue. It’s … avoiding congestion at the loading terminals once you are in

Richard Quin, Wood MacKenzie

Fujairah is the only emirate in the UAE not to border the Gulf, from which ships have to pass through the heavily congested Strait of Hormuz, which ferries 40 per cent of the world’s seaborne crude oil through its waters, according to the US’ Energy Information Administration.

At its narrowest point, the strait is a mere 21-miles wide. Fujairah, however, borders the Gulf of Oman, providing easy access to the Indian Ocean, one of the most widely used trade routes in the world, bridging Europe and Africa on one side and Asia on the other.

With deep waters, which allow access to ships of up to ultra-large crude carrier size – 500,000 dead weight tonnes – the port of Fujairah’s natural assets have enabled it to become the world’s second-largest ‘bunkering’ destination for cargo ships to refuel, restock on vital supplies and even wait between jobs without having to pass into the Gulf and sit at its notoriously congested ports.

“The actual travel time around the Strait of Hormuz is less of an issue,” says Richard Quin, lead Middle East and North Africa analyst at UK consultancy Wood MacKenzie. “It’s more a question of avoiding congestion at the loading terminals once you are in.”

This has drawn some of the world’s largest fuel trading and supply companies to Fujairah. They have invested heavily to develop the port’s fuel storage and transfer facilities. According to regional projects tracker MEED Projects, there are currently some $4.5bn of schemes either planned or under way to expand the port’s capacity and boost its supply of oil. The government of Fujairah says these projects will more than double the volume of storage facilities at the port to 7.5 million cubic metres, from current capacity of about 3.1 million cubic metres.

Among the companies building new facilities are India’s Chemoil, the US’ Agean Petroleum and the Netherlands’ Vitol, all major players in international fuel markets. And more are set to join.

“We have definitely looked at Fujairah as a trading post in the past,” says a senior executive at one European energy firm. “And when the opportunity is right, we will be very interested to set up some kind of trading facilities there.”

However, the government of Fujairah has yet to see major returns from the port, where it is a service provider and operator. As Dubai learnt to its cost during the first decade of the new millennium, building a service and trade hub does not necessarily mean that government revenues increase.

“Even if we see additional volumes of crude and fuel being traded out of Fujairah, that will do very little in and of itself for Fujairah,” says Samuel Ciszuk, Middle East analyst at US consultancy IHS Global Insight.

Upcoming projects

But three new projects could be set to change the nature and status of both the emirate and its port.

The first is the construction of a $3bn crude oil pipeline linking Abu Dhabi, the world’s eighth-largest oil producer, with storage and export facilities at Fujairah. The second project is a new highway to Dubai. And the third is a rail network, which will link the UAE’s seven emirates and later connect with railways being planned in the other GCC member states.

The [Abu Dhabi] government isn’t about to shut down half of its crude export facilities in favour of its neighbour

Engineering executive close to the Adcop project

In the planning since 2006, the Abu Dhabi Crude Oil Pipeline (Adcop) project is being overseen by local investment firm International Petroleum Investment Company (Ipic).

In 2008, Ipic awarded contracts to China Petroleum Engineering & Construction to build a 380-kilometre, 48-inch pipeline from Abu Dhabi’s central Habshan oil processing and distribution hub to the eastern port. Italy’s Belleli was commissioned to build new storage tanks and export facilities capable of holding up to 12 million barrels of crude oil.

Once completed later this year, the pipeline will be able to transport 1.5 million barrels a day (b/d) of crude oil from Abu Dhabi to Fujairah, bypassing the Strait of Hormuz.

Much has been made in the local media of the pipeline’s capacity and the difference it will make to the logistics of crude exports in the UAE and the economy of Fujairah. However, project insiders and analysts remain cynical as to how much it will be used in the near- to medium-term.

Long-term insurance

“If you look at Abu Dhabi’s current output on the basis of its Opec quota, take away domestic consumption and refining, and make the fairly easy assumption that the government isn’t about to shut down half of its crude export facilities in its own backyard in favour of its neighbour, then it is quite a while before Adcop becomes really significant in terms of the trade it attracts,” says one engineering executive with close ties to the project.

Abu Dhabi produces more than 90 per cent of the UAE’s oil output, which averaged 2.9 million b/d in 2008, according to the Statistical Review of World Energy, published by the UK’s BP.

But as an Opec member, since September 2008, the UAE has been required to keep production to a quota of 2.2 million b/d. Given that domestic consumption totalled 467,000 b/d in 2008, and that the UAE fed as much as 670,000 b/d of oil into refineries in the same year, it seems unlikely that Abu Dhabi will be exporting 1.5 million b/d through Fujairah any time soon.

“This is a much longer-term project focused on insuring against a war in or against Iran and diversifying the export routes available for future capacity additions, so as not to totally congest the Strait of Hormuz,” the executive adds. “It certainly isn’t for pumping two thirds of its oil through Fujairah tomorrow.”

“I perceive [the pipeline] as an insurance policy for the remote chance that export routes are interrupted through the Strait of Hormuz, rather than to be utilised at full capacity,” says Wood MacKenzie’s Quin.

Abu Dhabi wants to raise its total production capacity to 3.5 million b/d over the next decade, and should be able to reach this target by about 2018. Once this target is hit, the boost to Fujairah’s economy should be significant, especially if oil demand returns to levels seen before the financial crisis of 2008 and 2009 cut global consumption.

“There is no reason why this should be considered different from any other terminal in Abu Dhabi [in the long term],” Quin says. “Having alternative transport options is a part of the strategy to bring up oil production.”

From the outset, Ipic planned to build a refinery in Fujairah to complement the Adcop project, but its development was put on hold in 2008, as refining margins were hit hard by the crisis. The scope of the project has since been reduced from 500,000-b/d to a 300,000 b/d plant, but Ipic may move ahead with the scheme in 2011, if the global economy shows strong signs of growth, according to sources close to the firm.

Ipic had also planned to attach a petrochemicals complex to the refinery. Senior port of Fujairah officials still see the move further downstream as essential to the future growth of the emirate, but it is unclear when this scheme will get off the ground.

In the short term, the Adcop project will serve as a contingency route in the event that the Strait of Hormuz – through which 16-17 million b/d passes – becomes severely congested or entirely cut off.

This could be caused by anything from a major accident or oil spill to military intervention in or a pre-emptive strike from Iran – widely seen as the most likely cause for a blockage of the waterway.

In 2008, reports emerged that the Iranian Republican Guard had made detailed plans for the best way to shut off the strait if the country was under attack or felt itself to be under threat. Current wrangling with the US and other Western states over Iran’s nuclear programme has seen the likelihood of this plan being put in to place rise.

“There is clearly a risk and that risk is somewhat higher than it was 10-15 years ago,” says IHS Global Insight’s Ciszuk. “It is reasonable to think of the pipeline as a hedge against this, although we shouldn’t get too carried away – Fujairah isn’t that far away from the Strait of Hormuz.”

Other trade routes

Meanwhile, the road and rail projects are being undertaken by federal bodies – the Ministry of Public Works and Union Railway. The former is due for completion in early 2011 and is aimed at promoting tourism in Fujairah. The new highway will link Dubai with Fujairah, cutting average journey times by more than half to about 45 minutes. The road could also serve as an import/export route should access to Dubai’s Jebel Ali port be restricted.

The $11bn UAE rail network is due to be completed in 2016. It could also serve as an alternative cargo route and, once the rest of the GCC network is completed, would facilitate the transportation of goods across the region.

Fujairah’s boom years may be further away than some suggest, but the next couple of decades could well see the emirate emerge from the shadows.