x Abu Dhabi, UAEMonday 22 January 2018

Adnoc 'not worried' by EU's jet fuel tariff

The EU has levied a tax on Middle East jet fuel imports as it seeks to make headway on a regional free trade agreement.

The Abu Dhabi National Oil Company (Adnoc) is confident of finding enough buyers for its jet fuel despite a planned tariff on Middle East supplies by its top customer, the European Union.

Last week, the EU announced it would levy a 4.7 per cent duty on jet fuel from the region as it tries to throw momentum behind reviving talks for a free-trade agreement with the GCC. The new tax came as the World Bank upgraded the GCC to upper-middle-income status, prompting Europe to remove Arabian Gulf nations from its generalised scheme of preferences, a tranche of developing countries whose goods are exempt from import duties.

The move could have a significant impact on jet fuel prices in Europe - a major market for Middle East refineries.

Although most Abu Dhabi jet fuel that is not sold domestically goes to Europe, Adnoc is confident its customers - Europe's biggest oil companies such as BP and Total - can persuade politicians in Brussels to abandon the tax. Today Europe meets a third of its 1.2 million barrel per day (bpd) jet fuel demand through imports, mostly from the Middle East.

"There is some sort of pressure from oil companies - they don't have enough jet fuel in Europe - so maybe they are putting pressure on the European parliament not to implement that," said Sultan Al Mehairi, the head of marketing and refining at Adnoc. "I don't think we need to be worried."

Adnoc has already renewed next year's contracts with most of its customers, including a provision that additional negotiations take place if the tariff comes into effect as scheduled in January. This year it raised its premium over Middle East quotes by 17.5 per cent to US$2.35 a barrel, 10 cents higher than national oil companies in Kuwait or Bahrain.

"It may pose some sort of difficulties initially, but I think we can manage," said Mr Al Mehairi. "Maybe we will switch more to the domestic market because there are some customers now who bring fuel to Dubai airport."

The tariff comes on the back of a push by the EU to revive stalled negotiations for a free-trade agreement with the GCC. John Clancy, an EU spokesman, cast the tax as an incentive to speed talks along.

"In these circumstances, the GCC should reconsider engaging again in bilateral negotiations with the EU, which have been suspended since 2007, to return as soon as possible to a duty-free regime in relations with the EU," Mr Clancy told Reuters.

Trade growth between the two blocs has waned, with exports from the EU to the GCC inching up by 6.3 per cent last year compared with 63.7 per cent in 2011, when it was the GCC's top trade partner.

Abu Dhabi is due to complete a $10 billion upgrade of its refinery in Ruwais next year, doubling capacity to more than 900,000 bpd of crude. Petrol and gas oil - with much of the former destined for domestic consumption - are the main products, with smaller amounts of jet fuel produced on the side.