Emirates National Oil Company (ENOC), the Dubai-based energy company, has called for an end to Federal caps on petrol prices, saying it has suffered months of losses as a result of rising costs for crude oil. Scrapping price controls would mean sharp increases at the pump for consumers, because current prices are set far below the rate the company needs to break even on its fuel sales.
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, where prices have nearly doubled in the last 12 months. But the retail price is fixed at Dh1.37 (37.3 US cents) per litre of special petrol, or Dh6.25 a gallon. At this price, the company is losing money with every sale at its 170 service stations, said Saeed Khoory, the chief executive.
The Federal Government should either offer direct subsidies for retailers to cover their losses or let the petrol price rise, he said. "Freeing the price is the best solution for the UAE," he said, reiterating an argument the company has put forward in the past when oil prices spiked. Mr Khoory said the Government should model a new pricing mechanism after diesel, which is not subject to a cap. Dubai's petrol demand increased by between 3 and 4 per cent last year in spite of the financial crisis, he said. In earlier years, consumption jumped as much as 14 per cent a year.
The cost of producing petrol from crude oil at the current price of more than $80 a barrel dwarfs the company's revenues from selling the fuel at the pump, he said. Petrol sales are only profitable when the crude price is less than $40 to $45 a barrel, he said. The Abu Dhabi National Oil Company, by contrast, produces petrol at very low cost from its own crude reserves and does not lose money under the current price regime, analysts say.
ENOC is bringing online the expansion at its refinery in Jebel Ali, which will allow it to produce nearly all of the petrol it sells to consumers in Dubai, according to PFC Energy, a Washington-based consultancy. The refinery will reach its full capacity of 120,000 barrels per day by April, Mr Khoory said. But ENOC will still need to import crude oil to feed the plant, since it is not designed to process the type of crude oil that comes from Dubai's dwindling offshore reserves.
Mr Khoory also indicated that the company remains focused on commercial opportunities overseas, even after its bid to acquire 100 per cent of the shares in Dragon Oil was rejected by minority shareholders last month. ENOC plans to retain its 52 per cent stake in the firm, which produces oil and gas in Turkmenistan, Mr Khoory said. When ENOC made its takeover bid last summer, Mr Khoory described it as motivated in part by a need to secure oil supplies for its refinery.
cstanton@thenational.ae