Emirates National Oil Co (Enoc) announced on Tuesday it is joining hands with Saudi fuel retailer Aldrees to build at least 40 service stations in the kingdom. The Dubai-government owned retailer is facing losses at home and hopes to reverse them by expanding abroad.
Most of the Enoc’s trouble comes from the fact that it sells fuel at the petrol pumps well below the price paid for on international markets. Convenience stores and car washes at Enoc forecourts in the United Arab Emirates (UAE) help alleviate its financial burden.
However, the UAE market is not big enough to offset fuel sales losses which Enoc has said would exceed $730 million in 2011. As a result, Enoc has formed a 50:50 joint venture with Aldrees Petroleum, which enjoys healthy sales margins thanks to plentiful cheap supplies from Saudi Aramco, to increase its revenues abroad.
“So that’s why for the whole organization is to go outside and explore new markets.”
Enoc shut fuel pumps at its petrol stations in the northern emirate of Sharjah last year to limit losses from selling fuel at federally set prices well below its acquisition cost. The profitable Sharjah forecourt shops remained open, but the pump closures caused fuel shortages and long queues at remaining forecourts in Dubai’s less well-off neighbouring emirate.
Although the retail prices of fuel at Saudi pumps are less than half those in the UAE, because the price state-run Saudi Aramco charges Saudi retailers for its gasoline is even lower, Enoc expects its partnership with one of Saudi Arabia’s largest fuel retailers to be much more profitable.
Abdulelah Saad Aldrees, the head of Aldrees Petroleum, said Aldrees buys 91 octane gasoline for 0.36 rials a litre (less than $0.10) and sells it at 0.45 rials (about $0.12). It pays 0.51 rials for 95 octane gasoline and sells it at 0.60 rials ($0.16), he said. The higher octane gasoline costs about 1.75 rials ($0.47) in the UAE.
Unlike Saudi Arabia, the world’s largest oil exporter, and major UAE oil producer Abu Dhabi National Oil Company, Dubai does not have enough oil to meet its own fuel needs, forcing Enoc to buy it on the international market.
Aldrees operates more than 450 filling stations in Saudi Arabia, and the partners plan to build at least 40 more in the first phase the 400 million dirham investment plan. The first is expected to open next year.