The Chinese company known as Sinopec and a Singaporean partner raised a $252m loan last month for an oil storage facility at Fujairah, the port located outside the Gulf’s shipping chokepoint, a person with knowledge of the financing said on Tuesday.

The joint venture will pay less than the average of energy companies worldwide, according to data compiled by Bloomberg. 

“Borrowers in industries with strong fundamentals like oil will not have problems raising money,” said Amol Shitole, a credit analyst with SJS. “Syndicated loans and project financing are coming at cheaper cost” as lending rates fall, he said.

Fujairah’s expansion as a fuel-storage site comes as credit costs decline in the UAE and the GCC’s other five member nations. Borrowers in the region are paying the lowest interest rates since 2010, according to data for 209 GCC loans compiled by Bloomberg.

Sinopec’s venture with Concord Energy (Fujairah Oil Terminal) will pay about 2 percentage points, or 200 basis points, more than the London Interbank Offered Rate for its 10-year loan, said the person with knowledge of the loan, declining to be identified because the terms are confidential.

Energy companies worldwide paid an average margin of 310 basis points over benchmarks since last January 1, data compiled by Bloomberg show. 

Fujairah’s location on the Gulf of Oman about 160 kilometres south of the Strait of Hormuz enhances its appeal to international traders and tank operators such as Vitol Group (VTTI Fujairah) and Royal Vopak (Vopak Horizon Fujariah). Iran threatened last year to close the waterway in retaliation for sanctions on its economy.  

Investors are betting that demand for refined oil products in a region holding 48 per cent of the world’s crude reserves will boost their profits from storing fuel in Fujairah.

The former fishing village, along with Singapore and Rotterdam, is now one of the largest ports for refuelling ships with so-called bunker fuel.

Gulf Petrochem, based in Sharjah, plans to expand a 412,000 cubic metre storage facility that it inaugurated last month, Prerit Goel, a company director, said on Tuesday. 

The trader borrowed $80m of the $135m needed to build the tanks, with Abu Dhabi Islamic Bank leading the group arranging the seven-year syndicated loan, he said. 

“For at least the next two to three years, trading growth in Fujairah will be on the upside because of demand in the region,” Aamir Habib of Credit Europe Bank said on Monday.

“The market for storage in Fujairah is supported by trading in bunker fuel and refined products.”Investors in fuel storage run the risk that a decline in demand or trading volumes could affect the market for tank space, driving down the fees tank operators can charge their customers.

These companies will probably pay more than Abu Dhabi National Energy, known as Taqa, which agreed in December to $2.5bn in credit at 75 to 100 basis points over Libor, said Mr Shitole of SJS. Taqa is controlled by the Government of Abu Dhabi, holder of 6 per cent of the world’s crude reserves.

Storage projects announced already at Fujairah will double capacity for petroleum, diesel and other fuels to almost 9 million cubic metres within three years, Salam Khalil, a technical adviser to the emirate’s government, said last month.

Sinopec and Concord are building 1.16 million cubic metres of storage, and the Chinese oil producer will lease half of it. 

Construction of the tank terminal (Fujairah Oil Terminal) should be completed next year and the loans repaid by the end of 2024, said the person with knowledge of the financing. To make room for future expansion, authorities are reclaiming coastal land where terminals run by Royal Vopak and Vitol Group ventures may each add 1 million cubic metres of tank space.

Abu Dhabi has reinforced Fujairah’s importance as an energy hub by financing an oil pipeline, crude-storage facilities and power plants in the less wealthy emirate. The pipeline became operational last year and can transport 1.5 million barrels a day over 370 kilometres from Abu Dhabi’s onshore fields. Abu Dhabi National Oil Company opened a 1.3 million-cubic-metre tank farm for crude in July.

The world’s largest crude exporter, Saudi Arabian Oil, is the latest entrant seeking fuel storage in Fujairah. The company, known as Saudi Aramco, said this week that its trading unit for refined products will lease space at a facility run by Vopak Horizon Fujairah, a venture owned partly by Rotterdam-based Vopak and Emirates National Oil of Dubai.  

Fujairah is now poised to become a regional storage centre for crude oil and not just refined fuel.Royal Dutch Shell is in talks to secure as much as 1 million cubic metres of crude storage, in what would be the region’s first such crude-tank deal with foreign companies.

Shell is in talks with Vopak Horizon, according to Mr Khalil of the Fujairah government.

“Fujairah is a great strategic location,” said Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management.”As regional refiners add more fuel-processing capacity in the coming years, that will help level out the product balance and add more to the mix for exports.