While international attention has understandably focused on Abu Dhabi’s considerable upstream energy sector, and increasingly on midstream developments, the emirate is also home to a substantial and growing distribution and retail market. As suppliers to motorists, households, businesses and the transport sector, retailers and distributors play an essential role in the smooth running of the economy, as well as in urban development.
In 2013, total sales of unleaded gasoline in Abu Dhabi reached 3.03bn imperial gallons, according to the “Energy and Water Statistics 2013” report from Statistics Centre – Abu Dhabi. This is a 17% increase from the 2.59bn imperial gallons consumed in 2011. For its part, diesel sales reached 3.24bn in 2013, which was a drop of 4% from two year’s prior. Over the same period, sales of liquid petroleum gas (LPG) rose from 149m imperial gallons to 168m imperial gallons, a rise of 11.3%.
Retail Competition
There are four companies operating petrol stations in the UAE: the state-owned Abu Dhabi National Oil Company’s (ADNOC) subsidiary ADNOC Distribution; the Emirates General Petroleum Corporation (EMARAT), which is owned by the UAE federal government; the Emirates National Oil Company (ENOC), owned by the government of Dubai; and the Emirates Petroleum Products Company (EPPCO), a wholly owned subsidiary of ENOC.
Recent years have seen the national retail market undergo a reorganisation, with ADNOC Distribution acquiring dozens of stations in the Northern Emirates from EMARAT and ENOC in a climate in which pump prices are low, and those of crude oil volatile. Prices for 95 unleaded petrol are set at Dh1.72 ($0.47) per litre by the federal Ministry of Energy, meaning that companies without access to low-cost fuel find it difficult to operate profitably. This operating environment has kept foreign entrants out, and squeezed those incumbents – EMARAT and ENOC – which are required to buy their fuel on the international market.
Adnoc Distribution Expansion
ADNOC Distribution has been expanding strongly over the past half-decade, capitalising on growing market segments, such as aviation and supply to residential and commercial properties. As of mid-2014, ADNOC Distribution had 300 service stations across the UAE, a number it expected to increase to 400 over two years, more than doubling its network from 180 stations in 2010. “The growth is primarily in response to increased urbanisation and the UAE’s steady economic growth, as well as to rising local demand for the company’s products,” Abdullah Salem Al Dhaheri, CEO of ADNOC Distribution, told OBG. “ADNOC Distribution is witnessing rapid growth in the domestic market. The company is currently strengthening its competencies and boosting the efficiency of its administrative and operational capabilities.”
In December 2014 ADNOC Distribution signed a deal to transfer 25 non-operational service stations in Sharjah from ENOC, under which no money changed hands. The stations will be renovated and rebranded by the Abu Dhabi company before they are reopened. The closure of all ENOC and EPPCO stations in Sharjah in June 2011 was ordered by the Sharjah Economic Development Department following a supply shortage. This was reportedly caused by the effect of a mismatch between purchase and sales prices, though technical issues were also cited. As a result, other petrol stations, including those owned by ADNOC Distribution, came under greater pressure, with long queues for the pumps at times.
At the time of the crisis, ENOC received billions of dirhams from the government of Dubai, but still faced difficulties keeping some stations supplied. The ENOC deal came following the conclusion of a two-year takeover of 74 EMARAT stations in the Northern Emirates by ADNOC Distribution. The company hit a difficult patch as global oil prices hit around $150 a barrel in 2008. There was subsequently a slump led by the global economic crisis, before prices started to rise again.
EMARAT’s owner, the federal government, raised the company’s capital by Dh3bn ($816.6m) to Dh9bn ($2.45bn) in June 2011, but the firm continued to have trouble turning a profit in some stations, and thus decided to focus its attention on its core market and most profitable stations.
The EMARAT deal gives ADNOC Distribution 31 new stations in Sharjah, 16 in Ras Al Khaimah, 12 in Fujairah, 10 in Ajman and six stations in Umm Al Quwain, according to local press reports. As well as expanding the company’s footprint and ability to serve retail customers across the country, ADNOC’s expansion in the Northern Emirates has been seen as a sign of Abu Dhabi’s increasingly important role in supporting economic development and maintaining services in other emirates.
SMART STATIONS: In addition to expanding its retail network, ADNOC Distribution is implementing new technology throughout its operations, including through its Programme SMART project. This initiative is aligned with the federal government’s plans to build a smart government and cities that make use of technology to improve processes, increase efficiency and enhance day-to-day life for citizens.
Within its service stations, the company is seeking to apply industry models of best practice to enhance safety, security and customer service. Examples of technologies being integrated include “[ radio-frequency identification] RFID-based authorisation and payment, [near field communication] NFC readiness, as well as mobile and B2B/B2C e-commerce platforms”, according to Al Dhaheri.
The RFID system uses electromagnetic fields to transfer data for tracking, a sophisticated form of bar code, while NFC or contactless payment is becoming increasingly more common in developed markets. Mobile payment has so far been under-utilised but could work well in the Abu Dhabi market, where levels of mobile ownership are high and take-up of new technology tends to be rapid.
The B2B e-commerce platform and mobile portal will allow ADNOC Distribution’s corporate customers to access, manage and top up their accounts from anywhere, at any time, from computers, tablets and mobile devices. To this end, the company is also fitting out its service stations to ensure that they have interactive smart technology and upgrading its call centres with an interactive voice response system. These technologies and services will broaden the means of payment for customers and clients, with an emphasis on accessibility and mobility.
Residential Customers
While its network of service stations may be the most obvious part of ADNOC Distribution’s business to many visitors, the company also works in a range of other segments, including supplying fuel to properties, aviation and commercial vehicle fuel, and bunkering. In the property sector, the company has played a significant but subtle role in the urban development of Abu Dhabi City by establishing substitute natural gas (SNG), also known as synthetic natural gas, supplies to high-rise buildings in major new developments, including Al Reem Island, Al Maryah Island, Saadiyat Island, Central Market, the Abu Dhabi National Exhibition Centre, Etihad Towers and Capital Plaza.
On Abu Dhabi Island, around 65% of buildings use central LPG installations with rooftop storage tanks to supply fuel for cooking and heating, and in Abu Dhabi City around 98% of cooking is fuelled by LPG, according to Al Dhaheri. The majority of the remaining multi-unit buildings, villas, commercial establishments and industrial facilities use LPG cylinders and outside storage tanks as their sources of LPG for meeting cooking and heating needs.
Innovate Options
However, for new high-rise developments of 20-80 stories, the use of central LPG systems or individual LPG bottles was judged dangerous by the Abu Dhabi Civil Defence, which is responsible for safety and civil protections. In the absence of an established natural gas distribution network, and with the electricity system already facing rising demand and limited supply, there were concerns that the limitation presented these major developments with a significant roadblock.
ADNOC Distribution found a solution in SNG, a mixture of LPG and air offering the same fuel capabilities as natural gas. The gas can be easily supplied to buildings through SNG plants a safe distance from buildings. “The primary objective of introducing SNG is to ensure a safe alternative fuel that would replace hazardous central rooftop storage and individual use of bottled LPG,” said Al Dhaheri. “Additionally, this will also work as a stand-by system in case of natural gas supply disruption and for peak demand.”
The SNG solution has a range of other benefits as well. It is easier to control during emergencies, as the supply system network is monitored and controlled from a centralised control room; it reduces the risk of accidents by decreasing the number of LPG tanker movements within the city; fuel supply is uninterrupted, unlike with individual LPG canisters; and fuel loss and emissions are lower. Finally, the SNG system could be used in the future as new natural gas products enter the market.
Compressed Natural Gas
In 2008 ADNOC Distribution started the construction of compressed natural gas (CNG) distribution facilities at its service stations. The extension of a CNG network is intended to help meet the goal of 25% of government vehicles being fuelled by CNG, as outlined by the Abu Dhabi Economic Vision 2030. This includes public transport and police vehicles, among others. “The main advantages of making the switch to CNG are access to environment-friendly, oil-independent resources that are safe, energy efficient and economical,” Al Dhaheri told OBG.
CNG produces fewer emissions than petroleum and most other motor fuels. ADNOC Distribution’s CNG network has main stations that supply smaller outfits independent of the national gas pipeline network. In the first phase of the project, 17 CNG stations were installed in Abu Dhabi City, Al Ain and Sharjah, while phase two will integrate five CNG stations in Ruwais, supporting buses run by ADNOC-owned refinery Abu Dhabi Oil Refining Company, among other things. The second phase will also see 14 new CNG stations commissioned in 2015 and 2016 across the emirate of Abu Dhabi.
Maritime Aviation
ADNOC Distribution also supplies fuels to the aviation industry and maritime sector, which is known as bunkering. It is expanding its aviation fuel depot at Abu Dhabi International Airport in order to raise fuel delivery capacity from 1150 cu metres to 2650 cu metres per hour through the installation of new pumps, while enhancing depot operations by ensuring simultaneous transfer of fuel from the Abu Dhabi refinery at Sas Al Nakhl and the depot at Mussafah to meet demand from the growing airport. Increasing the speed with which airplane refuelling can be conducted will be key to achieving the airport’s goals for further expanding its role as a regional aviation hub.
In the bunkering sector, ADNOC Distribution foresees rising demand from new ship leasing activity and it is in negotiations with the Abu Dhabi ports authority to set up a new depot at Khalifa Port.
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