ENERGY-UAE: Oil Producers, Too, Feel the Pinch of High Prices

By IPS Correspondents Reprint | | Print |

Meena S Janardhan

DUBAI, Oct 18 2004 (IPS) - As consumer nations reel under the impact of record-high oil prices that tipped over 55 U.S. dollars a barrel last week, oil-producing nations, too, are feeling the heat.

Petrol pumps belonging to two leading companies in the United Arab Emirates (UAE) have threatened to shut down unless they are allowed to raise prices or receive state subsidies. UAE fuel companies are complaining that the retail business for petroleum products in the country loses over 4.1 million dirhams (about 1.1 million U.S. dollars) daily as they are forced to sell at prices lower than their procurement costs.

The U.A.E contains proven crude oil reserves of 97.8 billion barrels, or slightly less than 10 per cent of the world’s total supplies, with a daily production of about 2.3 million barrels. At current global prices, the daily revenue amounts to about 420 million dirhams (around 115 million U.S. dollars).

An official from Eppco and Enoc, two oil companies that have more than 160 service stations in Dubai and the northern emirates (accounting for 50 percent of the Dubai and northern emirates’ market), said in a press statement that they were thinking of closure due to heavy losses.

With world crude prices hitting new highs, he stated that they were purchasing refined petrol at around 6.75 dirhams (about 1.85 U.S. dollars) per gallon (3.784 litres), while they were allowed to sell a gallon at only around 4.75 dirhams (around 1.4 U.S. dollars).

”Incurring losses of this magnitude is clearly not sustainable in the long term unless the companies either have access to subsidised products or retail prices are increased by at least 2 dirhams (approximately 50 U.S. cents) per gallon,” the official said.

Oil has jumped about 20 U.S. dollars in less than four months, spurred most recently by an outage in U.S. Gulf production, which is operating at 73 percent of its normal rate of 1.7 million barrels per day after pipeline and platform damage by Hurricane Ivan last month. On top of this, security fears, threats to Russian oil giant Yukos from the state in the shape of massive tax bills, and above all soaring demand have seen prices in both London and New York set records day after day.

Seven stations built by Enoc during the last 12 months are not functioning and have only security guards working at the sites, as operating them would mean even greater losses.

Group representatives of Eppco and Enoc, along with other retailers, are slated to meet authorities at the Ministry of Petroleum and Mineral Resources this week to discuss the issue and find solutions. While the decision to shut down the pumps has been put on hold till then, the price of diesel in the country was increased on Sunday in response to rocketing international oil prices.

But the ministry has rejected demands to increase petrol prices and said talks would continue with the retailers on the issue.

Car owners in the country were furious with the retailers for wanting an increase in petrol prices.

”We stay in an oil-rich country and that must be to our benefit. It is true that petrol prices are low here, but these companies are scaring the public. Petrol prices were raised just a few months back and it is ridiculous to ask for another price hike in the same year,” Saleh Hussain, a Dubai resident told IPS.

While refusing to comment on the threat issued by Eppco and Enoc, the other U.A.E retailers, Adnoc and Emarat, acknowledged that they were suffering heavy losses, too, at the retail level but stated that they would continue to operate as normal.

In the meantime, oil producers have allayed fears of shortages and ministers of key Gulf countries have given their assurances that most producers were increasing their capacity to meet demand.

Saudi Arabia has just boosted capacity by 500,000 barrels per day (bpd) and the U.A.E is increasing output by about 300,000 bpd soon.

Following suit is Kuwait, which announced it would pump an additional 200,000 bpd, while Qatar is raising its daily capacity by 200,000 barrels.

”My message to the world is there’s no shortage; there’ll be no shortage; and we are willing to meet demand as it rises,” Ali Ebrahim Al Nuami, the Saudi oil minister, told the press at an oil conference in Abu Dhabi, the UAE capital.

”We have in place programmes to increase capacity at appropriate times as required…and we have the willingness, capability and spare capacity between 1.5 and 2 million bpd for the foreseeable future,” he added.

The U.A.E Oil Minister, Obeid Bin Saif Al Nasiri, said at the conference that the U.A.E’s average output in 2004 would be about 2.5 million bpd compared to about 2.3 million bpd last year.

According to a local oil industry analyst, the action of the retailers ”is the wrong move at the wrong time”.

”This threat by Dubai-based petrol retailers Enoc and Eppco comes at a critical moment. While the government is trying to calm growing international concerns resulting from the recent increase in oil prices, these retailers are trying to use the crisis to their own advantage,” he told IPS.

”The threat is intended to bust the price-control system imposed by the federal government on the local retail fuel market and replace it with a free-price system,” added the analyst. ” Such a move is fine, but not when it sends the wrong signal to the world and adds to the fears in the international market.”

Unlike other Gulf Cooperation Council countries, the U.A.E does not subsidise retail marketing companies to sell petrol at the regulated prices. In effect, the distribution firms subsidise motorists.

But there are some consumers who are advocates of the free-market system.

”For too long Gulf oil-producing countries have lived in a euphoric state with regard to subsidies,” said Bobby Schuck, a British publisher of oil and gas magazines in Dubai.

”The low price of fuel at the pumps throughout the region has long been seen as unsustainable and has been the major factor in choking competition and keeping most international oil companies from competing with the national oil companies,” he revealed.