Tuesday, August 28, 2012

The world according to ENOC, Jebel Ali & more

If you could think of one participant in the Dubai economy that exemplifies a bit of a detachment from its debt fuelled construction boom turned bust, then the Emirates National Oil Company (ENOC) is certainly it. The Oilholic has always been one for contrasting Dubai’s debt fuelled growth with neighbour Abu Dhabi’s resource driven organic growth. However, ENOC is a somewhat peculiar exception to the recent Dubai norm or some say form.
 
Since becoming a wholly owned Government of Dubai crown company in 1993, ENOC has continued to diversify its non-fuel operations while playing its role as a custodian of whatever little crude oil reserves the Emirate holds. The history of this NOC dates to 1974. Today it is among the most integrated (and youngest) operators in the business, though not necessarily profitable in a cut throat refining and marketing (R&M) world.
 
While it has no operations in neighbouring Abu Dhabi, ENOC has moved well beyond its Dubai hub establishing a foothold in 20 international markets and other neighbouring Emirates over the years. In case, you didn’t know or had never heard of ENOC, this Dubai crown company has a majority 51.9% stake in Dragon Oil Plc; a London-listed promising upstart. Dragon Oil’s principal producing asset is the Cheleken Contract in the eastern section of the Caspian Sea under Turkmenistan’s jurisdiction.
 
Despite trying times for refiners ENOC’s Jebel Ali Refinery, situated 40km southwest of Dubai City, is the crown company’s crown jewel. Planned in 1996 and completed by 1999, the Jebel Ali refinery’s processing capacity currently stands at 120,000 barrels per day (bpd). It processes condensate or light crude to myriad refined products which get exported as well as feed in to ENOC's own domestic supply chain.
 
ENOC says an upgrade of the refinery was carried in 2010 at a cost of US$850 million. The refinery dominates the landscape of the Jebel Ali free trade zone accompanied by a sprawling industrial estate and an international port. The Oilholic is reliably informed that the latter is among the largest and busiest ports in the region playing host to more ships of the US Navy than any other in the world away from American shores.
 
While being able to host aircraft carriers is impressive, what’s more noteworthy from a macroeconomic standpoint is the fact that the Jebel Ali Free Trade Zone as a destination exempts companies relocating there from corporate tax for fifteen years, personal income tax and excise duties. It’s a privilege to have visited Jebel Ali and also by ‘crude’ coincidence witness ENOC sign a joint venture agreement with Saudi Arabia’s Aldrees Petroleum & Transport Services Company (Aldrees) for setting up service stations in different locations across the latter.
 
The equal-staked venture will see service stations in Saudi Arabia feature ENOC’s regional marquee brand products. The first station is expected to open early next year, with the number of sites rising to 40 in due course. Given that ENOC needs to buy petroleum from international markets as Dubai does not produce enough of the crude stuff, the move has much to do with cost mitigation on the home front.
 
ENOC is forced to sell fuel at Dubai petrol pumps well below the price it pays for crude and refining costs. For instance, over 2011 fuel sales losses at ENOC were thought to be in the US$730-750 million range. So here’s a NOC with profitable non-fuel businesses but troubling fuel businesses looking for ‘crude’ redemption elsewhere. That’s all for the moment folks; a final word from Dubai later! Keep reading, keep it ‘crude’!
 
© Gaurav Sharma 2012. Photo 1: ENOC Bur Dubai Office, UAE. Photo 2: Jebel Ali Refinery and Industrial Estate, Dubai, UAE © Gaurav Sharma 2012.

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