DUBAI'S oil reserves and production may be on the wane but the growing downstream oil and gas activity within the Jebel Ali free zone tells a different story. Just inside the zone sit the vast storage tanks of Star Energy Resources. Over the road is the Dubai Natural Gas Company (Dugas) methyl tertiary butyl ether (MTBE) plant. Not far away a site is being prepared for an Indian-backed fertiliser complex. At the end of the same road, just before the Emirates Petroleum Products Company (Eppco) terminal, construction is starting on Dubai's first refinery - a 120,000 barrel- a-day condensate splitter.

All the new activity is in marked contrast to the situation 10 years ago, when Star Energy started building an independent storage and blending terminal. It was - and still is - the first in the Gulf. In those days Star Energy stood almost alone in a remote area but its capacity has expanded along with the growth of the Jebel Ali free zone.

Privately owned by a group of UAE investors, Star Energy is just starting a third-phase expansion of its Jebel Ali terminal. Designed to raise tankage capacity by 25 per cent to 511,000 cubic metres, the $12 million project centres on the construction of seven cone-roof tanks, with additional internal floating roofs. Three tanks will have capacity of 20,000 cubic metres each; the remaining four will hold 10,000 cubic metres. The project also involves upgrading all the terminal control systems and expansion of the pump station manifolds to enable greater flexibility and dedicated pipeline facilities.

The latest expansion reflects the growing demand for Star Energy's services. 'We are short of capacity against the demand in the market,' says Campbell Povey, chief executive of Star Energy Corporation. 'Over the past three years, we have had very high occupancy. Besides the need to expand capacity, we also want to increase our flexibility on the product side and protect quality. To maintain our competitiveness, we have to offer services other than plain storage.'

Star Energy's Jebel Ali current operations are divided between stockholding of middle distillates and the blending of gasolines and jet fuel. Major international oil companies and traders use the installation as a half- way house between the refiner and the consumer. Typically, the company's clients purchase refined products within the Gulf and lease tankage space from Star, either for storage or blending. Products are shipped from Jebel Ali on to markets in Africa, the Indian subcontinent and the Far East.

Star's independence has been the key to its success. The Gulf is not short of product storage capacity, but nearly all of it is dedicated to refineries run by state-owned companies. It has also been able to expand and adapt quickly because of its location inside the Jebel Ali free zone, where the infrastructure is extensive and the red tape minimal.

'There is a growing requirement for what we are offering here, especially if you take in how the market is evolving in India and Pakistan,' says Povey. 'The beauty here is that you can build storage and turn it around in a year.'

The point about speed is apparent in the latest expansion. Having acquired a new plot beside the existing terminal on a term lease, Star Energy, planning rapid implementation, moved quickly to appoint the US-based Stone & Webster Engineering Corporation as its engineering consultant.

Site clearing and grading began last December. The two main contracts - for the tankage and balance of work packages - were awarded in late 1997 and early 1998 to Dubai-based CBI Eastern Anstalt, the contractor involved in building the original terminal and the subsequent second phase expansion. With construction work well under way on phase three, Star Energy is aiming to have the extra capacity available by the end of October.

The timing could hardly be better. Low oil prices usually boost demand for storage, as traders and oil companies buy cheap and hold products until the market recovers. Storage rates rise, opening up the prospects for further capacity increases. Indeed, Star Energy now has enough land available to undertake a fourth and fifth-phase expansion of its terminal, if and when market conditions make it an attractive proposition.