Local News » Fujairah’s Transparency to Unlock Global Doors

Fujairah’s Transparency to Unlock Global Doors

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Shedding light on oft-opaque data sets and establishing independent pricing benchmarks top the checklist for the UAE’s port city of Fujairah, as it aspires to be the world’s next major energy and trading hub.  

 

Fujairah Oil Industry Zone (FOIZ) is six-months into publishing inaugural weekly inventory in a bid to bolster the confidence and interest of investors at home and abroad. The pioneer initiative, launched with the leading independent provider of information, [benchmark prices and analytics for the energy and commodities markets] S&P Global Platts, is peeling away some of the ambiguity that is synonymous with oil markets and puts the port one step closer to being a serious contender to behemoths Singapore, Rotterdam and Houston. Fujairah is only second to Singapore as the world’s largest bunkering hub; impressive considering Singapore’s port was established in 1819 and Fujairah’s in 1983.

 

The valuable role data transparency has in generating reliable supply-demand and financial forecasts cannot be underestimated, especially when lower oil prices and geopolitical uncertainties force investors and accountants to second-guess their commitments. It enables traders and other professions associated with the Port of Fujairah to spot opportunities, hedge risks and generate profit at a faster rate. Each is key to attracting investors to the budding global hub.

 

“The weekly inventory data gives global audiences interested in understanding the flows of oil products easy access to the region’s dynamics and supports the Middle East’s ongoing diversification into producing, exporting and locally trading refined oil products,” said Dave Ernsberger, Head of Energy Pricing, S&P Global Platts, which is distributing FOIZ’s weekly data. 

 

Increased predictability also reduces the number of knee-jerk reactions amongst investors, which often dampen momentum for the big-ticket project financings that stretch into the decades. Such financing structures commonly support infrastructure developments for refineries – a sweet spot of growth for the Gulf’s energy sector as Europe’s refining industry withers. Most of the 7.1 million b/d of new distillation capacity for 2015-2020 will originate in the Middle East, China and the wider Asia Pacific, according to OPEC’s 2015 World Oil Outlook.

 

A road half travelled 

 

Fujairah’s data transparency is a necessary step towards a more ambitious goal; to create and launch the Middle East’s first independent pricing benchmark for oil products, potentially by the early 2020s. More than half (57%) of the respondents to UAE-based energy communications and research consultancy Gulf Intelligence’s industry survey in late-2016 said the lack of independent benchmarks is the main restriction on Fujairah’s growth into a global hub. 

 

Historically, crude was mostly shipped out of the Middle East to refineries abroad and re-imported as oil products – including gasoline, diesel, gasoil, jet fuel and fuel oil – to serve Middle Eastern demand. Now, the rapid growth of refining capacity in the Middle East and increased demand for oil products means trade is flowing both ways. Unsurprisingly, the volume of voices questioning why the Middle East still relies on Singapore to value most of its refined products is rising.

 

“The idea of establishing a benchmark pricing index for the Emirate of Fujairah has been contemplated for many years and is supported by a range of considerations that qualify the Emirate to be a regional pricing centre for the petroleum products that are traded in the Gulf,” said His Highness Sheikh Dr. Rashid bin Hamad Al Sharqi, Vice Chairman, FOIZ, and Chairman of Fujairah Culture and Media Authority. 

 

If all goes to plan, the benchmark will evolve into the world’s third global crude benchmark, alongside London’s Brent and the US’ West Texas Intermediate (WTI). If the benchmark falls short of its global target, it will give investors a better viewfinder into regional dynamics.

 

Either way, the Port of Fujairah cannot rest on its laurels. Plans by China, a key client base for Fujairah, to launch a crude oil futures benchmark could finally gain traction within the year. Whether the benchmark from the world’s largest crude importer beats Fujairah to the finish line of establishing the world’s third crude benchmark remains to be seen. Efforts by Singapore and Tokyo misfired, but China’s keenness will keep Fujairah on its toes. 

 

Fujairah also faces competition from other regional ports equally keen to lock-in clients with regional demand and along the New Silk Road, including those in Saudi Arabia, Oman and Iran. Fujairah’s growth rate will influence the UAE’s economic outlook. As it stands, the World Bank expects the UAE to post moderate but steady GDP growth at 2.5% this year, rising to 3.3% in 2019. Comparatively, Iran, keen to strengthen its position in global energy markets following the lifting of most of its sanctions in early-2016, is expected to report 5.2% GDP growth this year and 4.8% in 2019. This marks the highest rate of growth in the Middle East for both years. 

 

The UAE’s wider efforts are also helping to cast the country – and in turn, the Port of Fujairah – in a favourable spotlight amongst global investors. The UAE’s Ministry of Energy launched the first phase of the Oil and Gas Big Data Project with OPEC in April this year in a bid to create a public and comprehensive view of the data landscape. 

 

“This is yet another level of transparency. And at every meeting of OPEC, we also invite the International Energy Agency (IEA), the International Energy Forum (IEF) and other international organizations,” said His Excellency Suhail Al Mazrouei, the UAE Minister of Energy. “I am sure we will even invite the international oil companies in the future, because they are stakeholders. This level of transparency in the industry is needed and it will drive more efficiency and prioritization of spending in research and development.”

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