Pumping up: The emirate is playing a growing role in the domestic petrol retail segment

Steadily rising automobile ownership rates throughout the UAE over the past decade have contributed to a jump in demand for motor fuel in recent years. As of the end of 2013 four companies operated petrol stations in the country, including the distribution arm of the Abu Dhabi National Oil Company (ADNOC Distribution), which is owned by the government of Abu Dhabi; the Dubai government-owned Emirates National Oil Company (ENOC); the Emirates Petroleum Products Company (EPPCO), a wholly owned subsidiary of ENOC; and the Emirates General Petroleum Corporation (EMARAT), which is owned by the UAE’s federal government. As a result of the fact that domestic petrol prices at the pump are set by the government at Dh1.72 ($0.47) per litre, firms that do not have a local supply of low-cost fuel have found it hard to turn a profit.

An Increaing Presence

 ADNOC Distribution, the UAE’s largest petrol supplier, has benefitted from a close relationship with the Abu Dhabi Oil Refining Company (TAKREER), ADNOC’s refining arm. With this in mind, in recent years the retailer has taken over the operation of a number of its competitors’ fuel stations, primarily in the Northern Emirates, and it has established a handful of new petrol stations and other related infrastructure. “ADNOC Distribution aims to increase its presence in the UAE as part of its expansion plans, while developing services on par with world-class standards to keep pace with the rapid local market growth,” Abdullah Salem Al Dhaheri, the CEO of ADNOC Distribution, told OBG. “In line with this strategy, the company is set to take the total number of service stations that it manages to over 400 within the next two years, doubling its assets since 2010, when ADNOC Distribution had just 180 service stations.”

Rising Demand

According to a July 2013 report issued by the EIU, by 2017 the number of cars in the UAE per 1000 residents was expected to hit 636, up from 470 at the end of 2012. This rapid projected growth would follow a period of relatively limited expansion in the market from 2009 to 2011, which can be attributed in large part to the slowdown in economic activity in general following the 2008-09 international economic downturn. Growth in new passenger car registrations is projected to reach 10.2% on an annual basis for the 2013-17 period.

While this figure is down somewhat on the 2006-08 boom in car registrations in the UAE, it is significantly higher than projected growth in other Gulf nations. In Saudi Arabia, for example, car ownership rates are projected to reach 430 per 1000 residents in 2017, according to EIU figures.

The expected jump in vehicle ownership in the UAE in the coming years correlates with a concurrent rise in the country’s population, salaries and GDP on a per-capita basis. Indeed, as of the end of 2012 the UAE’s population had reached 9.21m, according to World Bank data, up 3.1% from 8.9m at the end of 2011, 8.4m at the end of 2010 and 7.7m at the end of 2009. According to data released by the IMF, meanwhile, in 2012 the UAE’s GDP per capita was $43,774, the 17th-highest figure in the world. Taking into account the federal government’s goal of boosting the nation’s GDP per capita by 65% by 2021, this figure is expected to rise for the foreseeable future. These trends are widely considered to be major contributing factors to the projected increase in car ownership in the coming years.

The Petrol Market

 ADNOC Distribution, which was established in October 1973, is both the oldest fuel retailer in the UAE and one of the largest petroleum distribution companies in the Gulf region. The firm produces a wide variety of products and services, including various types of petrol, diesel fuel and aviation fuel, along with a range of engine and equipment lubricants, greases and motor oils, including specific products aimed at passenger automobiles, trucks, tractors, boats, ships and airplanes (see analysis). ADNOC Distribution currently operates more than 200 service stations throughout Abu Dhabi and the five Northern Emirates, namely Sharjah, Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain. Traditionally the firm has not operated in Dubai, which is home to the UAE’s three other retail distributors, though since late 2012 it has been looking to move into the emirate.

ENOC and EPPCO, meanwhile, are owned by Dubai’s government, while EMARAT is owned by the UAE federal government. All three firms have posted losses in their retail business in recent years, as a result of rising demand and the fact that they purchase the majority of their input at international market prices, which are higher than the subsidised petrol prices currently in place in the UAE. In recent years both ENOC and EPPCO have been forced to shut down a number of service stations in the Northern Emirates for short periods of time as a result of a lack of sufficient supply.

In May 2012 in an effort to manage its retail losses, EMARAT ceded control of 75 petrol stations to ADNOC Distribution. The facilities, all of which were located in the Northern Emirates, are currently being re-branded and re-opened by ADNOC Distribution. As a result of this deal, EMARAT expects to purchase 600,000 to 700,000 tonnes of petrol in 2014 as a whole, down by nearly 50% from 1.2m tonnes in 2013. This drop is also expected to result in a decline in the firm’s losses by around 40%.

Growing Influence

 In the meantime, ADNOC Distribution has worked to shore up its position in the market. As previously mentioned, in December 2012 the firm announced that it planned to establish 10 petrol stations in Dubai, which marks the company’s first foray into the emirate. In November 2013 it stated that it had completed refurbishment work on the first service station that it had taken over under the agreement with EMARAT, and that the station – located in Sharjah – would open before the end of the year. Under the agreement ADNOC Distribution took over the operation of 30 stations in Sharjah, 17 in Ras Al Khaimah, 12 in Fujairah, 10 in Ajman and six in Umm Al Quwain. The rebranding of the stations is now under way, and is expected to be completed by 2017. Additionally, as part of the deal ADNOC Distribution took over the operation of a petroleum depot at Sharjah’s Port Khalid.

In June 2013 ADNOC Distribution announced that it planned to open 42 new petrol stations, primarily in Abu Dhabi and in the Northern Emirates, where demand has grown exponentially in recent years. Of the 42 stations, 20 will be located in Abu Dhabi City, while four will go up in Al Ain, to the east of the capital, and five will be built in the western region of Al Gharbia. Additionally, six new stations will be constructed in Sharjah, along with three in Fujairah and two in Ras Al Khaimah, as well as one each in Ajman and Umm Al Quwain. “ADNOC Distribution is in ongoing coordination with government authorities to establish service stations in newly developed areas as well as high-density areas,” Al Dhaheri told OBG.