April 25, 2011 [Dow Jones] – Chinese energy companies are mulling plans to boost petroleum storage in the hydrocarbon-rich Persian Gulf region as part of a global push to diversify their business beyond Asia and expand trading of oil products overseas.
In the past year, PetroChina Co., China International United Petroleum & Chemical Corp., or Unipec, and Brightoil Petroleum Ltd. have looked into building or leasing oil storage facilities in the United Arab Emirates’ sheikdom of Fujairah, located outside the Persian Gulf on the Gulf of Oman.
The port of Fujairah, one of the busiest in the world, has become a strategic site to store crude oil in the Middle East because of its location just outside the bottleneck of the Strait of Hormuz, a potentially risky shipment route. A new oil pipeline from Abu Dhabi, the U.A.E.’s largest emirate, will make Fujairah port a strategic storage and export hub for the country’s crude.
“Fujairah is booming, and it’s a good location between Asia and the Atlantic Basin,” said Mark Lewis, managing director at the London office at FACTS Global Energy.
Fujairah already has surpassed Rotterdam as the world’s second-largest bunkering port after Singapore and its storage capacity is expected to more than double to about 8.3 million cubic meters by the end of 2012, port officials have said.
Chinese oil companies such as PetroChina and Unipec are seeking to get a foothold in the region as part of a broader strategy to establish a presence all over the world as they seek to emulate western oil firms, FACTS’ Lewis said. Majors such as BP PLC and Royal Dutch Shell PLC have invested in everything from oil exploration and production to refining, trading and operating retail service stations.
Although China imports more than 45% of its crude from the Middle East, Chinese companies aren’t heavily involved in trading oil products such as diesel or jet fuel in the region because of fierce competition from well-established players such as Vitol Holding B.V. and Glencore International AG, which can source barrels from the U.S., Mediterranean or Asia.
But that could change as the region is expected to see an increase in the trading of petroleum products, partly driven by rising demand from countries such as Saudi Arabia, Iraq, Iran, Yemen and India, regional traders say.
“In the future, a lot more products are going to be coming in and out of the region,” Lewis said.
OPPORTUNITIES
This in turn may create new opportunities for Chinese firms. PetroChina, Asia’s largest oil company, may build or lease between 500,000 and 600,000 cubic meters of storage for oil products with a local partner in Fujairah, according to several people familiar with the matter.
The people said PetroChina may take an equity stake in the project if it makes economic sense. However, they cautioned it’s too early to tell whether the oil firm will go ahead with the project because it is still examining its profitability.
The company has taken oil storage already in the U.S. and Caribbean, and is also trading oil products in the Mediterranean.
“They have no natural reason to be there, but they are traders, so they trade where it’s active,” a Singapore-based trader said.
Both Unipec and Brightoil have been in various stages of discussions with Singapore-based Concord Energy Pte Ltd. to lease oil storage at a 1.135-million-cubic-meter terminal in Fujairah that will be completed in 2013, people familiar with the matter said.
Fujairah port officials declined to comment on future storage projects. Brightoil didn’t respond to emailed questions, while officials at PetroChina and Concord Energy declined to comment.
Brightoil sees Fujairah as a third market for bunker-fuel sales after Singapore and Rotterdam, people familiar with the company’s thinking said. The Chinese marine fuel supplier already has established footholds in both Singapore and Rotterdam by setting up trading desks, leasing storage and starting bunker sales in both locations.
Unipec, the trading arm of China Petroleum & Chemical Corp. (SNP), or Sinopec, may also want to line up oil storage for its planned joint-venture refinery in Saudi Arabia. Last month, Sinopec and state-run Saudi Aramco signed an initial agreement to jointly develop a 400,000-barrel-a-day refining complex in Yanbu on the Red Sea, which is expected to start operations in 2014.
“Storing oil products in a net-exporting region (such as the Middle East) is really not a crazy situation,” said another trader. “Look at Singapore. Although Asia is a net exporter of middle distillates, there are still about 11 million barrels stored there.”
