x Abu Dhabi, UAEMonday 24 July 2017

Enoc left to pick up Dh4bn oil bill

Emirates National Oil Company says it faces a Dh4.2 billion bill from supplying cheap fuel as oil prices soar.

An Enoc station on Emirates Road near Ajman. Jeff Topping / The National
An Enoc station on Emirates Road near Ajman. Jeff Topping / The National

Emirates National Oil Company (Enoc) says it faces a Dh4.2 billion (US$1.14bn) bill from supplying cheap fuel as soaring oil prices take their toll on the Dubai energy company.

Federal caps on petrol prices mean Enoc and other oil firms are unable to raise prices at the pump to offset the higher cost of fuel they buy on global markets. The cost of international crude is up more than 50 per cent since the start of last year.

"Subsidies are a significant cost for Enoc and other downstream operating companies, and they would prefer not to have them in place," said Thaddeus Malesa, an independent Gulf energy analyst.

Enoc, which is fully owned by the Dubai Government and also sells under the Eppco brand, buys a large portion of its crude oil and some of its petrol on the open market, making it vulnerable to volatile oil costs.

Rising international prices meant Enoc had to pay Dh1.5bn last year to meet the cost of subsidising fuel in local markets, it said yesterday. This year, it expects fuel subsidies to cost the company an additional Dh2.7bn, or 80 per cent more than last year.

The UAE Government, like many others in the region, subsidises fuel prices to help control consumer costs. Prices of light sweet crude for June delivery climbed to almost $114 a barrel on Friday.

Enoc has previously called for an end to price controls, complaining they were set far below the rate the company needed to break even on its fuel sales.

The Government has taken some action to appease the pressure on margins for oil firms. The latest of two increases in fuel prices - which together totalled as much as 27 per cent - came into force in July after policymakers decided to relax fuel subsidies. Despite these increases, the price of petrol is still well below market rates.

But the prospect of a further easing of subsidies appears remote for the time being. A backdrop of regional unrest, combined with concerns about the impact of food costs, leads most analysts to conclude price increases are unlikely.

Despite the challenging outlook for Enoc, it remains a profit-making company. It said its financial results for last year and the first quarter were "positive".

Enoc operates a refinery in Jebel Ali, which allows it to produce a significant portion of the petrol it sells to consumers in Dubai. It also has overseas interests through a 51 per cent stake in Dragon Oil, the oil exploration firm.

Subsidising fuel has also taken its toll on Emarat, a loss-making competitor of Enoc's. Last month, Emarat was hit by fuel shortages at about 60 of its petrol stations. The firm blamed delivery problems.

tarnold@thenational.ae