Category: Nieuws

The port city continues to bloom with its unique geographic location as one of the leading oil trading and bunkering hubs in the world.

Fujairah has raised its profile as one of the world’s leading oil trading and bunkering hubs by building world-class terminal and port facilities. Though high oil prices over the past decade were an important factor supporting investment in new energy-related infrastructure, Fujairah has multiple competitive advantages that allow its oil-related industries to operate successfully through cycles of low and high oil prices.

Fujairah’s unique niche is based on services related to trading and moving of oil. Its advantages can be classified into ‘hardware’, such as location and infrastructure, and ‘software’, such as the regulatory environment and the sophistication of the legal and financial sectors of the UAE to meet the requirements of the shipping and oil trading sectors.

Hardware

Even though oil price is low, more barrels of oil are being produced in the Arabian Gulf region – which is the target market of Fujairah’s storage and logistics terminals.

Fujairah’s position on the eastern coast of the Arabian Peninsula, adjacent to the Strait of Hormuz, is unique. The Port of Fujairah sits on a critical tanker and trade route linking Europe, Africa and Asia to the Arabian Gulf.

The port city is also the landing point for the 380 km Habshan-Fujairah crude oil pipeline, which provides Abu Dhabi with an export outlet on the Arabian Sea coast, thus cutting down travel time for tankers that would otherwise have to sail through the narrow and busy Strait of Hormuz to load their cargo.

The wider Arabian Gulf region holds the reserves of large national oil companies, which manage the world’s most attractive hydrocarbon reserves.

The Emirate of Fujairah benefits from utilisation of its infrastructure – comprising an oil tanker jetty and 8.8 million cubic metres of storage capacity to date and expected to climb to 14 million cubic metres by 2018. In this respect, it must compete with other world-class oil hubs for its customers, who are oil owners whose products are handled in Fujairah. These include 14,000 vessels, which anchor in Fujairah waters and the major national oil companies including ADNOC, ENOC, SOCAR, Sinopec that move physical oil in the region.

The Port of Fujairah is working with its oil terminal partners to construct a VLCC jetty that can accommodate the world’s largest tankers.

The Port of Fujairah is planning to invest $304m (Dh750m) over the next two years to expand and upgrade its oil-handling infrastructure. With the investment, the port supports the Fujairah government’s strategy to provide job opportunities to UAE nationals as well as help boost various economic sectors in the country.

Future projects planned for Fujairah include the construction of additional refining, petrochemicals, and LNG import terminals that can complement the existing energy-related infrastructure.

Software

In addition to the world-class infrastructure, Fujairah has other characteristics conducive to the development of an oil hub such as a strong marine services market, which attracts fleet operators to bunker in Fujairah waters.

As part of the UAE, Fujairah is a respected safe haven that affords international oil traders confidence that their vessels, cargoes, and contracts will be protected within a stable legal and regulatory framework.
UAE’s sophisticated financial services sector is capable of meeting the large-scale working capital requirements of the shipping and oil trading sectors.

Risk Management

As oil prices have come down, global oil inventories have risen close to 3 billion barrels, according to the International Energy Agency. A ‘contango’ market that anticipates higher future prices also contributes to utilisation of oil storage infrastructure.

To navigate such oil price volatility going forward, the key for the owners of these oil stockpiles, who are also customers of Fujairah’s infrastructure, is risk management discipline. Build-up of inventories would be a speculative exposure.

Therefore, traders will have to protect themselves by balancing their physical positions with contracts to hedge price risk and lock-in acceptable margins with creditworthy counterparties.

Banks who lend to the energy industry must also understand the dynamics of their customer’s business and help clients actively manage risks through the market cycles. For example, National Bank of Fujairah’s treasury desk is active in helping its energy sector clients protect against price swing risks and structure inventories into hedged assets.

At the right place, at the right time

Oil price dynamics are difficult to predict, and investment decisions in the industry are examined very closely. Fujairah’s investment outlook is built on strong fundamentals. The world continues to consume more oil and the Arabian Gulf region also continues to produce more oil.

With its superb location, excellent oil infrastructure and increasingly sophisticated financial services sector, Fujairah will continue to raise its profile as one of the world’s leading oil trading hubs.

Upcoming projects

Fujairah is developing several government, oil and gas, infrastructure and housing projects. One of the most prominent is that of Dibba Fujairah Port. Two 650-metre docks with an 18-metre depth and cranes with a capacity of 4,000 tonnes per hour are being constructed.

“The development of the port at an overall estimated cost of Dh1.6 billion aims to facilitate the transportation of primary materials, to meet growing global demand and the requirements of all types of ships,” said His Highness Sheikh Hamad bin Mohammed Al Sharqi, Member of the Supreme Council and Ruler of Fujairah. The multi-purpose commercial port is expected to complete by the end of 2022.

The construction of the Dh1.9 billion Mohamed bin Zayed Residential City was completed last year. It will accommodate 1,100 residential villas equipped with advanced facilities, with the aim of providing housing for about 7,000 citizens. It will also include schools, mosques, parks, and commercial stores, community cultural centre and a men’s council.

The region is also anticipating the inauguration of the Etihad Rail project, which is expected to strengthen its economic sectors through the establishment of three stations starting with Khatmat Al Malaha Station that will link the UAE to Oman, Fujairah Station and Khor Fakkan Port Station.

The Ministry of Energy and Infrastructure in coordination with the local authorities in the Emirate of Fujairah recently opened, the Najimat tunnel, which will contribute to the smooth flow of traffic and raise the efficiency of Sheikh Hamad bin Abdullah Road.

The Fujairah F3 Independent Power Project was the winner of the Power Deal of the Year. The project includes the construction of a 2,400 megawatt combined cycle power plant. All generated power will be sold to the Emirates Water and Electricity Company under a 25-year power purchase agreement. It is due to start commercial operation in April 2023.

Khaleej Times, February 25, 2021

The oil, gas and chemical industries have always been quick to respond to macroeconomic changes. Demand for these three products is therefore an important indicator for economic development. Vice versa, the market for oil and chemicals is heavily influenced by socio-economic trends. While the impact of Covid-19 on the global economy obviously is enormous, there are also other key factors to consider when creating a market outlook for the oil and chemical industry. In this blog, we share our predictions regarding changing supply/demand imbalances in liquid bulk and their impact on the storage markets.

Electric vehicles on the rise

Over the past few years, the market for electric mobility has seen incredible growth. In 2019, the global electric car fleet exceeded 7.2 million, up 2 million from the previous year. With more and more electric car models being introduced to the market and charging infrastructure improving, this strong growth is only expected to increase. The IAE estimates that by 2030, there will be over 250 million electric vehicles (excluding three/two-wheelers) on the world’s roads. According to the IEA, the projected growth in the Sustainable Development Scenario of electric vehicles would cut oil products by 4.2 million barrels/day. (source)

Effects of lockdowns on fuel consumption

When we zoom in on North-Western Europe, the market outlook for the oil and chemical industry is poised to see some significant shifts over the coming years, especially regarding fuels. The ongoing move to sustainable energy sources aside, the demand for road and jet fuels has, of course, been strongly influenced by the ongoing Covid-19 pandemic. While the short-term effects of national lockdowns on demand for fuels are relatively straight-forward (fuel consumption is strongly linked with people’s mobility patterns), it will be the longer-term effects that are the most interesting to keep an eye on.

The ‘new normal’

Any economist will tell you that human behavior is notoriously hard to predict. Still, experts agree that the pandemic most likely will lead to a subtle yet noticeable shift in consumer behavior and travel habits.

Large corporations like banks, IT companies, and insurers are already preparing for a ‘new normal,’ where their staff will work more from home after Covid-19 than they did before. While the technology and infrastructure for remote working have already been in place for the past few years, both office workers and their employers have now experienced that it is possible to work from home at a large scale. Online meetings via Teams or Zoom have shown to be viable alternatives for in-person meetings. That’s not to say that face-to-face meetings at an office have become a thing of the past, but the advantages of online meetings have become more apparent.

As it could be that people will commute less to their offices, a decline in overall car traffic volume is expected. Together with the ongoing electrification of road vehicles, we expect that the current surplus for gasoline will increase further. When we take a look at diesel consumption, reversed dieselization of passenger cars will lead to a faster decline than we will see for gasoline. That being said, because the electrification of trucks is not expected to happen in the coming years, there will still be a large volume of diesel consumption left. 

While the positive experiences with online meetings now offer a financial impulse for reducing business air travel, it’s currently difficult to forecast if people will fly for private purposes as much after Covid-19 as they did before. Nonetheless, the longer the pandemic drags on, the more significant its long-term impact on aviation will be. That’s why for jet fuel, we forecast that the current deficit for North-Western Europe will grow at a slower pace.

What’s next?

It is clear that the transition to sustainable fuel sources will greatly impact the tank storage terminals. The market outlook for the oil and chemical industry will see significant shifts in supply and demand, while the Covid-19 pandemic only adds further complexities to the market. That’s why market intelligence should be on the radar of every terminal operator.

During our regular Market Update webinars, we offer our expert outlook on supply, demand, and trade flows and their impact on tank storage demand. 

Do you want to make sure that you never miss out on important market updates? Sign up for the next webinar today, so that you are better prepared for what tomorrow will bring.

Oil and gas plays a key role in running our world, from powering homes and businesses to keeping the transportation infrastructure running. Our lives wouldn’t be the same without oil and gas.

Consumers can easily spot price fluctuations within the oil and gas industry, from filling up our tanks at the gas pump or sticker shock on our utility bills during the winter and summer months. These price changes may seem meaningless at times, however, several factors influence increases and decreases in oil and gas pricing. There is more to it than supply and demand.

If you are considering investing in crude oil, understanding the factors which affect oil and gas prices will give you a more solid foundation for your investing activities.

There are four primary factors that affect the price of oil and related products worldwide. These factors include:

Demand
As with any commodity, one factor that dictates price is demand. The world demand is around 90 million barrels per day for crude oil. Many countries have fuel subsidies for their residents. This can be good or bad. It’s especially bad when a company is forced to sell at a loss.

Supply
Supply has an effect on price. Supply is usually kept slightly below demand by about one million barrels per day.

Forbes, Editor: Jay R. Young, January 27, 2021

BCOM, GSCI seen adding about 100,000 crude oil contracts. Annual re-balancing begins Friday and will last for five days

Tens of billions of dollars worth of commodity investments are about to be switched around in a move that’s set to cause a wave of oil-futures buying.

While the move happens every year, crude’s 20% decline in 2020 means that the value of oil index investments has been far below its target for months. As a result, as much as $9 billion of oil contracts could be purchased over the five days of re-balancing that start Friday, according to Citigroup Inc., at a time when the market is already surged to 10-month highs.

The move affects the world’s two biggest commodities indexes — the S&P GSCI Index and the Bloomberg Commodities Index. Crude has recovered from its coronavirus-driven rout and so far this year has been benefiting from Saudi Arabia’s unilateral output cuts, a surge of investments to hedge reflation and coronavirus vaccines. Markets are now abuzz with talk of the next tailwind for prices: commodity indexes plowing into another 80 to 100 million barrels of crude futures contracts.

“It’s a big deal,” said Gary Ross, a veteran oil market watcher and chief executive officer of Black Gold Investors LLC. “If you start increasing financial length by 80-100 million barrels, you push up the price $2-$3, all other things being equal.”

Investment products that track the S&P GSCI or BCOM are followed by billions of dollars in passive, long-only funds such as pension funds. Bloomberg Index Services Limited, the administrator of Bloomberg Indices, including BCOM, is a wholly-owned subsidiary of Bloomberg LP.

Buying Trigger
Estimates of the exact size of the inflows vary significantly. That’s because the figures are based not only on a product’s weight within the index, but also their total assets under management and how actively traded they are. For BCOM, the weight of most contracts will increase, except Brent and Nymex gasoline. For S&P GSCI, oil contracts will see a lower weighting, despite WTI remaining the largest constituent part.

What matters, though, is investment flows. While weightings might drop, the dollar value to maintain the new weightings might need to rise. And that’s what would trigger the contract buying.

Citi’s estimate assumes that BCOM and S&P GSCI both have about $100 billion of investments. Still, JPMorgan Chase & Co. said last month that it only expects about $3 billion worth of buying in the market as crude’s rally up toward $50 limited some of the additional purchases required.

There are some big unknowns about exactly how the process will play out. One is that investors and traders, aware of the re-weighting, may already have been pre-empting it. Another is the total dollar value of the commodity assets that funds will have under management, which will dictate the scale of investment flows.

RBC Capital Markets estimates that there will be about 80,000 Brent and West Texas Intermediate contracts bought during the re-balancing.

“This buying pressure across the complex should serve as a tailwind and help fortify the improving oil market sentiment,” RBC analysts Helima Croft and Michael Tran wrote in a note.

Bloomberg, Editor: Alex Longley, January 27, 2021

Kinder Morgan is currently one of the largest energy-infrastructure companies in North America. It operates 70,000 miles of natural gas pipelines, nearly 10,000 miles of oil and refined-products pipelines, and has an extensive storage footprint. The bulk of its assets transport, process, and store fossil fuels, which are vital to supporting the U.S. economy.

However, the economy is slowly transitioning to cleaner fuel sources. That could impact Kinder Morgan’s business in the coming years unless it joins the transition. The company’s management team addressed these concerns during its recent fourth-quarter conference call. Here’s what they had to say about the company’s plans for the energy-market transition.

Focused on the cleanest fossil fuel
Kinder Morgan is already a step ahead of many fossil fuel-focused companies because it generates the majority of its revenue by operating natural gas infrastructure. That’s key because it’s a cleaner fuel, and its increased usage is important for reducing greenhouse gas (GHG) emissions. It’s also why electric utilities are investing in new natural gas power plants.

These plants currently have a competitive advantage over renewable energy in that they produce steady electricity. By contrast, renewables can be intermittent because the sun isn’t always shining and the wind doesn’t always blow. However, as the costs for battery storage come down, this competitive advantage will fade away.

Still, as CEO Steve Kean stated on the call, the company’s large-scale natural gas business “will continue to be needed to serve domestic needs and export facilities for a long time to come and continue to reduce GHG emissions as we expand its use around the country and the globe.” In the near term, the value of this business “increases as more intermittent resources are relied on for power generation” because “natural gas is clean, affordable, and reliable. And pipelines deliver that commodity by the safest, most efficient, most environmentally sound means.”

Looking ahead to the energy transition
While natural gas will remain vital to the economy for a long time, Kinder Morgan is already looking toward the future of energy. Kean noted that:

Also among the energy transition businesses that we participate in today is the storage handling and blending of liquid renewable transportation fuels in our products pipelines and terminals segments. We’ve handled ethanol and biodiesel for a long time. Today we’re handling about 240,000 barrels a day of a 900,000 barrel a day ethanol market, for example. We also handle renewable diesel today. That’s part of our business that is ripe for expansion on attractive returns.

As the CEO notes, Kinder Morgan has already started to pivot some of its liquids assets toward renewable fuel sources like ethanol, biodiesel, and renewable diesel. That’s beginning to open up new expansion opportunities.

For example, it’s investing $18 million to expand its market-leading Argo ethanol hub to add 105,000 barrels of ethanol-storage capacity and enhance the system’s ability to load this fuel into transportation vessels like rail and barges. Meanwhile, as demand for these fuels rise, the company should be able to leverage its existing footprint to capture additional expansion opportunities.

Kinder Morgan sees several other adjacent opportunities to participate in the energy transition in addition to what it’s already doing. Kean stated that:

Moving out the next concentric circle of opportunities is a set of things that we can largely use our existing assets and expertise to accomplish. Those include things like blending hydrogen in our existing natural gas network and transporting and sequestering CO2. A further step out would be businesses that we might participate in if the returns are attractive, such as hydrogen production, renewable diesel production, and carbon capture from industrial and power plant sources.

Hydrogen could be a massive opportunity since it could eventually replace natural gas as an emission-free fuel source. In addition to that, the company already has expertise in transporting and sequestering carbon dioxide since it uses that greenhouse gas to produce oil out of legacy fields in Texas. Thus, it’s well-positioned to potentially capture it from industrial sources and use it for oil production, or sequester it in abandoned oil and gas fields to reduce the economy’s carbon footprint.

While the company plans to participate in the energy transition, Kean made one thing clear: “[A]s always, we will be disciplined investing when returns are attractive in operations that we are confident we can build and manage safely, reliably and efficiently.” He said that the company “will not be chasing press releases” because “energy transitions for a variety of reasons take a very long time.” The company plans to “look hard as we lead” and will “evolve to meet the challenges and opportunities.”

A key theme to watch in the coming years
Kinder Morgan currently focuses on the infrastructure needed to transport and store the fossil fuels vital to supporting the economy. However, it’s well aware that the economy is moving toward cleaner fuel sources. That’s why it’s also beginning to transition its business to support the future of energy.

While it’s taking small steps now, Kinder Morgan will need to continue making strides to keep up with this change, which investors need to watch closely in the coming years.

The Mootley Fool, Editor: Matthew DiLallo, January 27, 2021

Oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, an official with International Energy Agency (IEA) said.

“Producers are grappling with huge uncertainty about where this goes from here,” said Tim Gould, head of energy supply outlooks and investment.

“That’s not just in terms of economic recovery but indicators we wouldn’t necessarily normally be looking at: (such as the) levels of trust in different countries about vaccines.”

OPEC and allied countries such as Russia agreed this month to cut crude production through March in a bid to match abundant supply with demand which has sagged amid surging virus cases while vaccination programmes get underway.

While the pandemic has prompted some energy majors and watchdogs to predict that a peak in the world’s demand for oil has been brought nearer or may have already come and gone in 2019, Gould said the IEA disagreed.

“As things stand, with the pace of change we see on the structural side is not enough in our view to deliver a peak anytime soon.”

“Growth in the economy, recovery in the economy will sooner or later bring oil demand back to 2019 levels. The 2020s in our view are the last decade in which you’re likely to see increasing oil demand,” he added.

Reuters, Editor: Noah Browning, January 27, 2021