UAE is building secret £1.4bn oil storage facility underground

THE UAE has quietly started construction of a giant oil storage facility in a network of caverns, according to industry sources.

The Mandous facility will have the capacity to store 42million barrels of oil in three different caverns located in the emirate of Fujairah.

State-owned Abu Dhabi National Oil Company (Adnoc) is responsible for the project and has forbidden domestic media in the UAE from writing about the facility, citing national security reasons.

It is thought that when the project is completed the reserves will act as a buffer in case of severe disruptions to oil supplies.

A $1.8bn (£1.4bn) engineering contract to construct the underground facility was awarded to South Korea’s SK Engineering and Construction at the end of last year. There was no publicised contract signing ceremony due to the sensitive nature of the project.

Under existing plans each of the three caverns will store a different grade of crude and some will be fed by oil tankers using offshore pipelines.

Adnoc declined to comment on the project.

The UAE is the latest in a series of countries that have invested in underground oil storage facilities.

Over recent years, China has invested heavily in large-scale storage facilities for crude, which are mainly made up of above-ground tanks.

Above-ground tankage requires less investment for countries that do not have suitable underground caves, but are more vulnerable to a military attack. Japan and South Korea already have existing subterranean oil storage facilities and, in 2014, Singapore officially opened the Jurong Rock Caverns, a network of tunnels with capacity to store 10million barrels of oil underground.

In June, India approved plans to create two new underground oil storage facilities with a total capacity of 48million barrels. The facilities will be constructed in Chandikhol in India’s east and Padur in the south and will have capacities of 30 million barrels and 18million barrels respectively.

When completed, the projects will bring India’s total strategic reserve capacity to nearly 90million barrels.

The US started building its strategic petroleum reserve after the Arab oil embargo in 1973, which resulted in soaring global oil prices and rationing at petrol pumps.

It stores 660 million barrels of oil in a network of 60 caverns that have been carved into rock salt in Louisiana and Texas.

Crude oil prices have risen by around 50pc over the last 12 months amid uncertainty over global supply.

There are concerns that Saudi Arabia and Russia will not sufficiently increase output to replace Iranian exports when US sanctions snap back on Nov 4.

Saudi Arabia has already said that it is boosting production and will supply needy refiners.

Alexander Novak, Russia’s Energy Minister, has said that prices may hit $100 this autumn, due to fears about future supply. The UAE consumed more than a million barrels of oil a day in 2017, according to the oil and gas company BP.