With Emirates LNG earlier this year receiving commercial proposals for the construction of a $2bn-$3bn liquefied natural gas (LNG) regasification and storage facility in Fujairah, the UAE port is set to burnish its credentials as one of the world’s top three bunkerage hubs alongside Singapore and Rotterdam.

The Port of Fujairah has invested heavily in expanding its crude and fuel oil storage facilities in recent years, as part of a wider effort to capitalise on the emirate’s strategic location outside the Strait of Hormuz.

Its status as a hub for bunkering and oil trading activities was given a major push by the construction of the 1.5 million barrel-a-day (b/d) oil pipeline from Habshan to Fujairah, which is exporting crude directly to the port, evading the jams at Hormuz. Oil tanker terminal capacity has been developed to attract private tank storage facilities to cater for both increased trading and bunkering activity, and to make it an important player in the supply of marine fuels.

Storage expansion

Sizeable volumes of additional capacity are being added at Fujairah by traders and terminal operators such as Singapore’s Concord Energy, Dutch firm Royal Vopak and Rotterdam-based Vitol Tank Terminals International (VTTI). Total storage capacity is expected to reach more than 10 million cubic metres by 2017, compared with less than 9 million currently, although this is below the previously announced official target of 12 million cubic metres.

Average annual bunker sales volumes at Fujairah are about 24 million tonnes, which is still well below the 42.4 million tonnes seen at Singapore in 2014, but more than double Rotterdam’s 10.6 million tonnes.

In addition to the storage expansion, Fujairah has plans to build more refining capacity, along with petrochemicals and LNG regasification facilities – the latter reflecting the increasing importance of LNG as a bunker fuel. Tarun Arora, general manager of the local GPS Chemoil, which has 700,000 cubic metres of storage capacity at Fujairah, says the growth of storage at the port is firmly on track. “Occupancy is looking good… so I don’t see any reason why growth should not continue,” he says.

Occupancy levels at Fujairah’s terminals are estimated to be 70 per cent and rising. Some companies have been granted permission to offer floating storage to facilitate bunkering, and this storage is not included in the overall 24 million tonnes of bunkerage.

“There’s a lot of expansion under way in terms of investments announced by the ruling family and private investments coming in,” says Muthukrishnan Prabakaran, global head of terminals at local bunker supplier Gulf Petrochem. “Fujairah is putting up additional berths with deep-water drafts and building a berth to accommodate large crude vessels.”

Fujairah is the big hub in the region and we’re optimistic about the way things are going

Tarun Arora, GPS Chemoil

That is needed because the number of vessels calling at Fujairah will increase significantly. The port’s increased diversity of product offerings, going beyond crude and refined products to include chemicals and eventually LNG, will add further ballast to its pretensions to become the world’s number one bunkerage hub. “So far, traffic in the petrochemicals portfolio has not been high, but now it has permission there’s good scope for this to come to Fujairah,” says Prabarakan.

Fujairah Oil Terminals (FOT), an independent third-party storage facility owned by a group of shareholders that includes the Fujairah government, boasts 1.2 million cubic metres of capacity and will store crude oil, fuel oil, gas oil and gasoline. It is seeking to attract firms to lease and use the facilities on a long-term basis. FOT will also offer additional services such as product mixing, blending and heating.

Much of the new demand at Fujairah is for crude oil. “The rest of the market may be in a consolidation phase, but new entrants are bringing in new business and that is mainly crude oil,” says Arora.

The port has felt the beneficial impact of the recent oil market trend, with declining prices encouraging the stockpiling of barrels due to the contango condition, in which future prices exceed spot rates. “The demand for storage space is happening because of the temporary situation caused by the fall in crude prices,” says Prabarakan. “Most of the trading community is expecting to reap the benefits of the contango impact in the market; therefore there is strong demand for additional storage.”

Oversupply likely

However, this situation is unlikely to continue over the long term, with signs in mid-February that oil prices were slowly regaining some strength. That will reduce the contango effect. Meanwhile, the additional storage coming online at Fujairah in the next year will increase supply, whereas demand will likely recede.

This additional storage will come from new capacity at the likes of Greece’s Aegean Marine Petroleum and India’s Infrastructure Leasing & Financial Services. The latter is due to start filling its 650,000-cubic-metre storage tanks in the first quarter of this year. VTTI is adding 1.3 million cubic metres, while Royal Vopak is to add 478,000 cubic metres of crude oil storage capacity on top of the 2.1 million cubic metres it already operates. That will raise the total storage capacity at Vopak Horizon Fujairah to more than 2.6 million cubic metres. The expansion marks the first oil tanks in the Middle East for independent storage purposes.

Fujairah’s expansion is partly predicated on a planned 200,000-b/d refinery project, backed by Abu Dhabi’s International Petroleum Investment Company. This facility is to include 19 above-ground tanks and will have a total capacity of 91,000 cubic metres for naphtha, diesel, gas oil, fuel oil, kerosene, slop and water. However, the refinery, which was due to come onstream in 2016, has been delayed.

Fujairah’s bunkerage sales will receive another shot in the arm if Iranian crude is able to escape sanctions. “It will definitely have an effect when Iran’s sanctions are lifted, as more product will likely come into the market,” says Prabarakan. “In any case, the market has the tenacity to absorb any such supply shocks.”

Other Middle Eastern ports are looking to expand bunkerage volumes. In May 2013, Mashreq Petroleum – owned by Egyptian private equity giant Citadel Capital (since renamed Qalaa Holdings) – signed a 25-year concession agreement with the East Port Said port authority to build Egypt’s first independent tank terminal.

This tank farm on the north side of the Suez Canal will serve the global shipping market and act as a backup to Egypt’s national energy security policy. The facility will have capacity for up to 800,000 tonnes of product, including liquid bulk (fuel oil, gas oil, naphtha and jet fuel) and bunker fuels. Mashreq Petroleum will have an annual storage capacity of 10 million tonnes and bunkering capacity of 2-3 million tonnes, with three berths that will accommodate tankers of up to 120,000 deadweight tonnes and four berths for bunkering barges. 

The facility will primarily serve the liquid bulk market in the Far East, the Middle East and the broader Mediterranean region. Mashreq Petroleum will also provide fuel bunkerage services for the 20,000 ships a year that transit the Suez Canal. The project’s growth prospects in the storage market are based on both the fast-rising rate at which petroleum products are transiting the Suez Canal and the Middle East and Mediterranean regions’ status as deficit markets for diesel and gasoil.

Oman ports

Other centres are looking to capture more bunkerage sales, with Khor Fakkan in Sharjah – which, like Fujairah, faces the Gulf of Oman – emerging as a putative bunkering site and Sohar and Duqm ports in Oman also looking at the expansion of storage facilities.

Oman invited firms this year to prequalify to build a new bulk liquid berths terminal at Duqm, adjacent to the planned refinery, to act as the export port for refined products. Reports last year indicated that Omanoil Matrix Marine Services was expanding bunkerage services at Sohar, through the use of a dedicated 6,000-tonne barge. 

These ports are not aiming to compete with Fujairah, which aims to become the world’s top bunkerage centre from Singapore. “Fujairah is the big hub in the region and we’re optimistic about the way things are going,” says Arora. “With the refinery coming up in the next four to five years, things will look even brighter.”