OREANDA-NEWS. March 27, 2013. China Petroleum and Chemical Corporation is leading fuel producers and traders borrowing more than 500 million to build storage at the biggest oil port in the Arabian Gulf region outside the Strait of Hormuz.

The Chinese company known as Sinopec and a Singaporean partner raised a 252 million loan last month for an oil-storage facility at Fujairah, the UAE port located outside the Gulf's shipping chokepoint, a person with knowledge of the financing said on March 12. The joint venture will pay less than the average of energy companies worldwide, according to data compiled by Bloomberg.

"Borrowers in industries with strong fundamentals like oil will not have problems raising money," Amol Shitole, a credit analyst with SJS in Bangalore, India, said by telephone on March 12. "Syndicated loans and project financing are coming at cheaper cost" as lending rates fall, he said.

Fujairah's expansion as a fuel-storage site comes as credit costs decline in the UAE and the Gulf Cooperation Council's other five-member nations. Borrowers in the region are paying the lowest interest rates since 2010, according to data for 209 GCC loans compiled by Bloomberg. Storage operators may need to borrow more as they build new tanks in Fujairah.

Sinopec's venture with Concord Energy will pay about two percentage points, or 200 basis points, more than the London Interbank Offered Rate for its 10-year loan, said the person with knowledge of the loan, declining to be identified because the terms are confidential. Energy companies worldwide, including traders, storage operators, explorers and utilities, paid an average margin of 310 basis points over benchmarks since January 1, 2012, data compiled by Bloomberg show.

Fujairah's location on the Gulf of Oman about 100 miles (160 kilometres) south of the Strait of Hormuz enhances its appeal to international traders and tank operators such as Vitol Group and Royal Vopak NV.

Investors are betting that demand for refined oil products in a region holding 48 per cent of the world's crude reserves will boost their profits from storing fuel in Fujairah. The former fishing village, along with Singapore and Rotterdam, is now one of the largest ports for refuelling ships with so-called bunker fuel.

Gulf Petrochem, based in Sharjah, plans to expand a 412,000 cubic metre storage facility that it inaugurated last month, Prerit Goel, a company director, said on March 12. The trader borrowed 80 million of the 135 million needed to build the tanks, with Abu Dhabi Islamic Bank leading the group arranging the seven-year syndicated loan, he said.

"For at least the next two to three years, trading growth in Fujairah will be on the upside because of demand in the region," Aamir Habib of Credit Europe Bank said.

"The market for storage in Fujairah is supported by trading in bunker fuel and refined products."

Investors in fuel-storage run the risk that a decline in demand or trading volumes could affect the market for tank space, driving down the fees tank operators can charge their customers.

These companies will probably pay more than Abu Dhabi National Energy Co, known as Taqa, which agreed in December to 2.5 billion in credit at 75 to 100 basis points over Libor, said Shitole of SJS. Taqa is controlled by the government of Abu Dhabi, holder of six per cent of global oil reserves.

Abu Dhabi has the second-lowest credit risk in the Middle East after Saudi Arabia at 64 basis points, according to CMA, which is owned by McGraw-Hill Cos and compiles prices quoted by dealers in the privately negotiated market.