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Port of Fujairah aiming high

Logistical and political snags need skilful navigation to secure Fujairah's position as a world-leading energy and trading port

The Port of Fujairah has the geographic fortune of lying just south of the Strait of Hormuz—the world's most important oil transit chokepoint—that the US Energy Information Administration says facilitates traffic which last year carried 18.5m barrels a day of oil. A waterway plied by Arab and Iranian fishermen in rudimentary wooden boats only half a century ago is now used to transport 19% of the world's daily oil supply.

Leveraging its golden location, the port is the world's second-largest bunkering hub and has created a 'parking lot' in local waters to capture the increasingly hefty Asia-Middle East-Africa shipping traffic. Progress has been relatively swift. Singapore, the world's largest bunkering hub, was established as a free port in 1819; the Port of Fujairah didn't open until 1983.

Fujairah boosted its operational arsenal with a $175m very large crude carrier (VLCC) jetty last September—the first on the Indian Ocean coastline of the Arabian Peninsula—and plans to increase onshore storage capacity by 40%, to 14m cubic tonnes, by 2020 are on track. Abu Dhabi is backing Fujairah. A 35-year concession agreement signed in June grants Abu Dhabi Ports exclusive rights to develop port infrastructure and includes plans to cater for larger vessels by deepening the berths, and establishing almost 300,000 square metres of storage space and a 1km quay.

Investors need to feel confident in future expansion plans and Fujairah aims to enhance its credibility by increasing transparency. Breaking away from the Middle East's poor reputation for information sharing, the port since January has released weekly oil inventory data. Furthermore, with external consultants' support, Fujairah is reviving a proposal to establish independent benchmarks for Middle East oil products. Supporters argue that it's high time to update the archaic set-up that sees the world's highest oil-producing region relying on netback prices from Singapore.

Headwinds ahoy

Location counts for a lot, but not everything. The port needs to react speedily and smartly to shifting market dynamics to keep pace with growth in global and regional ports: Singapore, Rotterdam, Houston; and those in Oman, Qatar and Saudi Arabia. Fujairah's ambition isn't exclusive.

First up is the speed at which Fujairah can adjust to the International Maritime Organisation's (IMO) ruling last October to reduce the sulphur cap for bunker fuel, from 3.5% to 0.5% by 2020, instead of the alternative of 2025. Plans to build more fuel oil tanks could be reconsidered and the port's global clientele will be eager for greater clarity on the new 'menu' of diversified bunkering options, notably low-sulphur fuel and liquefied natural gas.

Politically, de-escalation must be the port's hope. Easier said than done, however. The Gulf crisis, with Saudi Arabia, UAE, Bahrain and Egypt cutting off ties with Qatar—including sea, air and land blockades—has blurred the port's commercial and political lines. The Strait of Hormuz is the sole waterway for Qatar, the world's biggest LNG exporter, and Fujairah is a key re-fuelling spot for the state's coveted supply contracts in Europe and Asia.

Unsurprisingly, the political dispute has triggered complex logistical challenges to identify politically-compliant traffic routes. This has been further complicated by the co-loading of many VLCCs that carry cargoes from multiple states, including Qatar. The UAE's blanket ban on Qatari vessels and cargoes in early June was loosened later in the month, allowing Fujairah to offer bunkering services for non-Qatari vessels that called at Qatari ports.

But vague updates and stony political exchanges—despite international mediation efforts—shed little light on when Fujairah's operations will return to normal. The long-term consequences associated with blocking Qatari shipments remain to be seen. For now, the re-direction of some Qatari cargoes to Omani ports has highlighted the presence of competition on the Arabian Peninsula's coastline.

Fujairah must also keep an eye on Iran's intermittent threat to disrupt or block traffic through the Strait of Hormuz. However short-lived any subsequent conflict might be, Fujairah wouldn't escape the knock-on impact.

In an ideal world, the Port of Fujairah, tucked beneath a mountainous backdrop, would become a valuable neutral zone in a volatile region, providing investors with a secure energy and trading foothold. The political reality is that Fujairah is part of the UAE and unable to distance itself entirely from the geopolitical turbulence in the Gulf. Nevertheless, its track record over a relatively short period places it in a strong position to compete with Singapore for the top slot.

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