Big Export Refinery.

The Abu Dhabi state-owned IPIC has cut the planned capacity for an export refinery in Fujairah to 200,000 b/d from 500,000 b/d. ConocoPhillips dropped out of this project in 2007 as costs rose to more than $12bn. IPIC then said it was looking at modifications to the design to boost the plant's potential profitability, including adding petrochemical units. Occidental Petroleum (Oxy) has since signed an MoU with IPIC for possible joint participation in hydrocarbon-related investments in the UAE and abroad.

The refinery will get its crude from a 1.6m b/d, 400-km pipeline from Habshan. The 1.6m b/d pipeline and its Fujairah terminal will begin operations in June 2012. In late 2007, IPIC gave contracts worth $460m to three firms to supply pipes for this: 225,000 tons of coated steel pipe supplied by Sumitomo Corp, Salzgitter Mannesmann Int'l and Jindal Group of India. IPIC, which manages global energy investments in excess of $10bn for the Abu Dhabi government, has got WorleyParsons of Australia to do the front-end engineering design (FEED) on the pipeline (ADCOP). ILF Consulting Engineers is the project manager. China Petroleum Engineering and Construction Corp was the EPC contractor.

ADCOP was fast-tracked and completed in late 2009. This has involved the building of storage and terminal facilities for crude oil exports at Fujairah.

Abu Dhabi-based Quality Energy Petro Holding (QE) in recent years announced plans to have a 500,000 b/d refinery built in Fujairah and a smaller plant in Russia. QE's CEO Adel al-Utaiba, a cousin of former UAE Oil Minister Manei' al-Utaiba, on Feb. 6, 2008, said the Fujairah refinery had an estimated price tag of $12.8bn. But he said the decision to proceed with both plants would depend on securing a guaranteed supplier of crude locked into a 15-year contract, adding: "The whole thing is a very, very early stage. The main issue is the supply of crude. If we can't find a way of doing it, then of course it will be cancelled". Since then there has been no progress on this project.

QE was proposing that the Russian government undertake a crude swap with Iran to feed the plant in the UAE with Iranian crude. That would be a better supply arrangement as it would be a government-to-government deal. If Iranian crude were used as a feedstock, QE would look at building a pipeline from southern Iran. The Fujairah plant would be a JV with Russia, he said, noting that QE was talking to both the local government of Chelyabinsk and Russia's federal government on participation. QE was also considering buying Iraqi crude for the plant, he said.

The plant would take up to five years to build. He said the refinery could also be in Ras al-Khaimah (Rak) or Umm al-Quwain. If the plant were not in Fujairah, then another pipeline would be built to transport oil products to Fujairah for export. Fujairah is outside the shipping choke-point of the Strait of Hormuz, so a pipeline to the port would cut freight costs.

QE, a relative newcomer to the energy industry, has said it is planning involvement in petrochemical plants in the Middle East. It has had plans to take part in JVs with IOCs which will have around $100bn of assets in this decade. Utaiba owns 89% of QE, which was formed in 2005. The company was in talks with an international bank about financing options, which could include Islamic bonds.

Vitol, the world's top independent oil trader, is selling bunker fuel in Fujairah to diversify from an over-crowded East Asia fuel oil market. From a fuel oil perspective, the Middle East is seen as a growth region, not only in its marine fuels market but the area is also seen as a viable point to supply Pakistan's growing demand.

Fujairah is the world's second-largest marine fuel market, handling more than 13m t/y, compared with around 31.5m t/y in Singapore. Vitol's entry into Fujairah in 2008 was facilitated by about 500,000 CM of oil storage capacity at the port, part of the facilities it owns from its purchase of a majority stake in the emirate's refinery. Another 560,000 CM of capacity has been built at the refinery. The storage tanks give Vitol an advantage which eluded such majors as Chevron and Shell, as well as Singapore trader Hin Leong that exited the market after attempting to set a presence there.

Other than the bunkers market, Vitol is targeting Pakistan, which sought 6m tons of fuel oil in 2007, almost double the 2006 volumes of 3.1m ton, all of which were supplied by Middle Eastern players Bakri and FAL Oil. (In contrast, Singapore will face a glut of storage capacity - with some 2.5 MCM of new fuel oil tanks on stream since end-January 2008 and raising potential supply by about 60% - far out-stripping actual demand).

The Middle East fuel oil market had been largely self-sufficient before 2007, when growing demand from ships and utilities and a short-fall in Iranian supplies forced players to look elsewhere. FAL Oil, Fujairah's dominant player, has since brought in two VLCCs from the Caribbean and Europe as well as several Aframaxes from the Black Sea.

Vitol began selling marine fuels in Fujairah in June 2007 on fob basis, also brought in two VLCCs in November of that year. That was when supplies were at their tightest.

Naftogaz Middle East, a JV of Ukraine's state-owned Naftogaz and Abu Dhabi-based al-Jazeerah Enterprise for Development & Trading, in June 2007 got EPSAs for Blocks 39 in Salalah and 42 in Sharqiyah and is moving ahead with development of its concession in Fujairah. In Fujairah, the JV began onshore drilling in October 2007 after finishing 2D seismic surveys on a reserve said to be about 1.6 TCF of gas. The JV signed an EPSA in 2005 covering both onshore and offshore in Fujairah.