Brooge in pact to develop low-sulphur fuel refinery

Fujairah-based Brooge Energy has signed an agreement with an oil trading company to develop a 25,000 barrel per day fuel refinery.

The Nasdaq-listed company did not disclose the name of the trading company, which will sublet the site and foot the cost of constructing the refinery.

Brooge will assume responsibility for the operations and will earn revenue from tolling fees on a take-or-pay basis.

The tolling contract with the oil trader is valid for 20 years.

“The modular refinery will be focused on producing very low-sulphur fuel oil and will be fully compliant with the new IMO [International Maritime Organisation] 2020 very low sulphur rule,” said Nicolaas Paardenkooper, chief executive of Brooge Energy.

In January 2020, the IMO reduced the limits on the amount of sulphur allowed in shipping fuel from 3.5 per cent to 0.5 per cent as it looked to lower the volume of the toxic chemicals released into the oceans.

Although demand for shipping fuel is estimated to have fallen by 4.3 per cent last year due to the Covid-19 crisis and a decline in international trade, the market for fuel with very low sulphur levels grew by 1.4 million bpd as a result of the new regulations, according to the International Energy Agency.

The outlook for fuel oil with very low sulphur content is expected to increase over the coming years as countries look to decarbonise the energy sector amid global efforts to reach net carbon neutrality by 2050.

“With the UAE adding to its oil-production capacity, which we anticipate will drive demand for refining services for both the domestic and export market, we believe this is an opportune time to enter this segment of the oil industry,” said Mr Paardenkooper.

Brooge will focus on the operational aspect of the plant, with the additional revenue earned from toll fees helping to boost its revenue.

The midstream storage provider said in April that it planned to issue new shares worth $500 million to fund its third-phase expansion plans.