Emirates National Oil Co. has opened a plant at the Port of Fujairah and claims that once it is finished it will be the largest blending facility in the Middle East. The plant, being built in three phases that are scheduled to be finished later this year, has another distinction: It is one of the few and perhaps one of the last to be located on U.A.E.s east coast and hence outside the Persian Gulf.

Enoc officials call that a strategic advantage and say they will leverage both the size and location of the plant to build the companys lube sales domestically and internationally.

Blending on the Coast

Enoc is owned by the government of Dubai and is one of the biggest domestic lube companies in the U.A.E. Others include government-owned Abu Dhabi National Oil Co. and Emirates Lube Oil Co.

Enocs new plant opened last year at the Port of Fujairah. Standing on a 63,500-square-meters site that overlooks the Gulf of Oman, it has capacity to make 100,000 metric tons per year of lubricating oils and 5,000 t/y of greases, operating on two shifts per day. In a March 2012 press release, the company claimed to have planned three additional phases to the project and that these will raise its capacity to 250,000 t/y by 2014. That would make it one of the largest plants in the Middle East, it said. The facility has more than 11,000 tons of storage capacity. It is equipped for both automatic batch and continuous inline blending, officials said, giving it flexibility to efficiently make various types and volumes of product.

Enoc says one of the plants key features is a dual 800-meter supply line that runs from the ports sea jetty to the plants base oil storage tanks. These allow base oils to be loaded directly from ships to the tanks, speeding transfer and reducing chances for mishandling. The line can also be reversed, allowing finished product to be delivered directly to barges.

Officials say the supply line and the plants location put Enoc in good position to serve the marine lubricant market – identified as a primary goal when the project was first announced in 2008. Serving traditionally as a layover for trade among the Middle East, India and Africa, the U.A.E. is a big supplier of marine lubes, and most of what the country supplies is dispatched from the east coast, said Mohammed El Sadek, Enocs director of lubricant marketing.

Being on the U.A.E.s east coast offers another advantage: With tensions high over Iran, the Fujairah location looks strategically placed should there be a deterioration in regional stability. The Islamic Republic has threatened to block traffic through the Straits of Hormuz if Western nations attempt to cut off its oil exports. The United States has warned that it would not permit a blockade by Iran.

This is the only [U.A.E.] blending plant out of the Arabian Gulf if anything should happen, El Sadek said during a January interview at Enocs Dubai headquarters. The company is not the only one to have this idea. International Petroleum Investment Corp., owned by the government of Abu Dhabi, is building the 360 kilometer overland Abu Dhabi Crude Oil Pipeline from Habshan oil field to Fujairah. The 2.5 billion project is engineered to reduce ship traffic through the strait while increasing security of supply.

Launchpad for Exports

Enoc officials say the plants operations are currently skewed toward the marine market, but it appears that the company also intends to use the facility as a stage for the export of finished lubricants. The plant can blend automotive engine oils, gear oils, transmission fluids, marine oils and industrial oils including railroad engine, hydraulic, turbine, compressor and gear oils, as well as specialty lubes. It can also produce automotive and industrial greases.

Exports would involve not only Enocs own branded lubes, but also finished products toll blended for other companies. El Sadek said Enoc contract blends for several well-known marketers but declined to identify them.

Most of the lubricants produced in the U.A.E. are exported, but El Sadek said Fujairahs location gives Enoc an advantage. Producers are finding the east coast gives them the opportunity to send their products to many regional countries without the need to blend in Dubai or Sharjah, he said. The majority of U.A.E. blenders are based in Jebel Ali, Dubai and Sharjah. People relied on Jebel Ali because of its port facility, and Fujairah was not well promoted. However, most marketers who established blending in the U.A.E. [planned for] on the local market, not export volumes. But late in the day they have recognized they need to export to other countries.

Opportunities are closing for competition to duplicate Enocs advantage. The government of Fujairah has granted exclusivity to Enoc, and as there is no more land available in the immediate port area, other blenders will find it difficult to locate in that area. There are other ports on the east coast, such as Kalba. For other companies, there will be no second chance to build up anything in the port [of Fujairah], El Sadek said. He conceded, though, that Jebel Ali will remain important due to the well-developed nature of its facilities and container handling capability. When we are shipping to Africa we try to use Khor Fakkan [a container port next to Fujairah], and when we export elsewhere in the Middle East, we ship through Jebel Ali.

Enoc currently operates in around 50 countries, mainly in the Middle East, Africa, Southeast Asia and the Indian subcontinent. Africa is attracting more attention, particularly since a number of major oil companies withdrew operations from the continent. Enoc began operations in 17 of the continents countries in Africa during the last year, Sadek added. But the company is not simply trying to run up its score. Its not about increasing the number of countries. We want to be present in countries where we can get enough respect for the brand.

Exports do not account for all overseas sales. Enoc chooses to blend using third parties in some locations, finding cost efficiencies in countries that are landlocked or that have their own raw material supply. As of January, the company had contracts to have products toll-blended in Karachi, Pakistan, by Pakistan State Oil and in Jakarta, Indonesia, by Pertamina. Enoc planned to announce another toll-blending deal in Morocco in the first quarter with a global company. We are thinking of a blending operation in East and West Africa, but it could be toll blending [arrangement] or a joint venture, El Sadek said in January. We are also considering South Africa and China, and we expect to finalize these arrangements before the end of the second quarter.

Emerging markets present exciting opportunities, and Enoc is aiming to take advantage. We have gone beyond first mover advantage to fast mover advantage. There is an opportunity in Africa, and the more we grab the better, as margins are very good. However, the supply/ demand situation of base oil and fluctuations in price are a concern. When the price of base oil drops, it attracts a lot of small-shop operations, which impacts our competitiveness. Frequent changes in base oil prices pose a risk for distributors which can disrupt strategy. We have seen around a 23 percent decline in base oil prices since September, and I suspect we may be facing another round of increases in February.

Local Focus

Enoc is not limiting its focus to marine and export markets. Officials say the company will also use the new plant to grab a bigger share of domestic lube sales. Within the next few years the company aims to capture 20 percent of the local market for lubricating oils and 50 percent for greases.

To help reach that goal, Enoc is developing a chain of fast lube centers. A substantial amount of automotive lubricant sales in the U.A.E. are conducted through down-market tire shops. We know most people are hesitant to go to the high street and would prefer to go to the dealer, which is very expensive, or somewhere like our Super Lube facility, El Sadek said. Enoc plans to heavily promote Super Lube in the retail space as a solution midway between tire shops and the car dealer. We will offer the service quality of a dealer but at a much cheaper price.

Enoc is trying to regain volume lost from another domestic sales channel – its chain of fuel stations. Fuel stations in the U.A.E. must charge retail prices that are set by government and which are a fraction of prices in free markets. Enoc buys fuel on the open market and absorbs the cost of subsidies into its operations, but with oil prices in excess U.S. $100 per barrel the program became unsustainable, the company said. To cut costs last year, the company closed a number of its stations, which also offered automotive lubricants.

We have not seen any impact on the reputation of the brand or on volumes in our international markets, but in the U.A.E. we have seen around a 3 percent reduction in volume, Sadek acknowledged.

The U.A.E. is home to around 50 blenders, located mostly in the emirates of Sharjah and Ajman. El Sadek echoed a common complaint that many of those companies produce substandard lubricants and that this damages the wider market. These unlicensed, small blenders have no quality control or specifications, he said, and they are creating a big mess, which is bad for the reputation of products made in the U.A.E.

The government tried to address the problem by adopting minimum performance standards, but to date this has not been sufficient, El Sadek added. Previously we put all the marketers together with government and proposed that those who were selling bad products would be fined or have their licenses withdrawn, he said. The drive was there but the implementation was not carried out, and it needs the support of the Ministry of Petroleum and Ministry of Economy as well the local municipalities.

Enoc has continued adding to the Fujairah plant since it opened. First, the company spent AED 65 million (13 million) on a second phase to increase storage capacity. The phase two expansion is not the final one, El Sadek said. We are also planning a phase three which will start in the middle of this year. It was supposed to be in 2013, but we cannot wait and will bring it forward, he said.

Phase three will see a further increase in blending capacity and filling lines as well as increased grease production capacity. When the wide ranging expansion is completed, the plant will have storage capacity for 30,000 tons of base oils, 1,750 tons of additives and 3,000 tons of finished products. Enoc will also add three more filling lines and other accessories that enable the plant to package brake fluids and automotive engine coolants.

Enoc appears undaunted by the U.A.E.s existing over-capacity for lubricants production. He argued that a big plant makes sense because it affords room for sales growth. Many blenders are already operating at their design capacity and cannot expand any further, so opportunities for growth are limited particularly for blenders located in Jebel Ali.

Given its size, it appears that need not be a concern for Enocs Fujairah plant.