UAE - The Dubai Energy Business.
Dubai is a major consumer and importer of natural gas. Its demand for gas has been rising by 17-20% per annum in recent years and has exceeded 1,500 MCF/day. But actual gas consumption averages 1,170-1,250 MCF/d, up from less than 500 MCF/d in 1995, because of a lack of supply sources. Demand is projected to rise to more than 2,000 MCF/d in 2010. The latter figure could be much higher if city gas is introduced to cover the emirate's urban consumers. The adjacent emirate of Sharjah is the first in the GCC to have a city gas grid in operation. It will be followed by Abu Dhabi (see Gas Market Trends).
Dubai has become an important player in regional fuels trade. The state-owned Emirates National Oil Co. (ENOC), which operates a condensate refinery at Jebel Ali, is co-leader of Van Ommeren Tank Terminal Fujairah. This has major storage, blending and terminal facilities for oil products in the emirate of Fujairah, on the Gulf of Oman, which have been in operation since January 1999. At Dubai's Jebel Ali free zone, the private Star Energy Corp. has similar facilities which are expanding.
ENOC unit, Dubai Shipping Co. (DSC), has a fleet of tankers which carry fuels exported from the condensate refinery at Jebel Ali and oil products and chemicals imported for Dubai, the rest of the UAE and regional consumption (see background in Vol. 62, OMT No. 21). Dubai-based Dubai & Kuwait Shipping Co. (D&K Shipping) is a 50-50 JV of ENOC and the Kuwaiti firm Independent Petroleum Group (IPG), which in 2001 got three oil tankers with each having a capacity of up to 80,000 dwt, in addition to one 45,000 dwt oil vessel purchased in 2000 at $15.5m.
In May 2004 ENOC entered into a JV with Abu Dhabi's International Petroleum Investment Co (IPIC), Oman Oil Co. (OOC) and Thales of France, an international electronics and systems group, to set up a shipping firm, Gulf Energy Maritime (GEM). ENOC holds 35% in GEM. IPIC and OOC each have 30% and Thales 5%. The project, with the outlay being structured as a mix of 30% equity and 70% debt, will have 16 tankers of various sizes in the first phase.
ENOC Supply & Trading has major offices in Singapore and Dubai, with small offices in London and Bombay. The firm trades across the barrel, from crude oil to naphtha, distillates and fuel oil. Having started up in South-East Asia, it is moving into the Indian subcontinent and the Middle East. It will eventually move into Europe, Russia and the Caspian.
Dubai's Emirates Petroleum Products Co. (EPPCO), in which Caltex has a stake, is marketing products in most of the UAE emirates.
Dubai's export blend, called Dubai, is heavy and sour of 32.5[degrees] API gravity with 1.7% sulphur. Dubai has been a world marker for trading in heavy/sour crudes. Iran and its Arab Gulf neighbours price their east-bound crude oil sales according to the average spot market prices of Dubai and Oman crudes. The price of Oman, a lighter and sweeter crude relatively rich in distillates, is determined to a large extent by the spot market value of Dubai. The market value of Dubai is assessed in terms of spreads against Dated Brent - a light/sweet grade which is the marker for most of the world's crude oils. Brent is influenced by WTI, a similar crude which does not trade outside the US.
The physical trade in Dubai, however, has been lacking in transparency and has become illiquid. As the volume its output is too small to sustain a spot market, Dubai has become subject to manipulation. Only ten or 12 cargoes of Dubai per month are traded on spot basis. This limitation means the spot price of Dubai is influenced by large liftings. If a company loads two VLCCs within days, the spot price of Dubai rises quickly irrespective of the situation for Dated Brent. But the offtaker using VLCCs would only buy when the spread between Dated Brent and Dubai is wide, i.e., when the spot market value of Dubai is low enough for the buyer to jump to the opportunity.
In February 2002, Shell and Wall Street trader J. Aron exercised their seller's option to supply Oman - in place of Dubai - into several Dubai-related contracts. The contracts valued Oman at a premium of 5 cents/b over Dubai. It was the first time that Oman was delivered in place of Dubai since November 2001, when Platts said it would start taking such trades into consideration in assessing Dubai values. Usually Oman commands a higher premium over Dubai.
The state-owned Indian Oil Co. (IOC) is one of the largest buyers of Dubai. At times it takes full advantage of low Dubai prices and buys large cargoes of the crude when the spread is wide. Because of a shortage in infrastructure capacity at Cushing, where a slight shift may cause WTI futures and spot prices to rise or fall sharply, NYMEX has been advised to move its WTI delivery point to the Gulf coast. While stocks at Cushing are low, those on the Gulf coast are high (see background in Vol. 62, OMT No. 21).
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|Publication:||APS Review Oil Market Trends|
|Date:||May 29, 2006|
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