(photo credit: Courtesy)
Gas retailers in Dubai in the United Arab Emirates are finding it hard to deal with rising prices and government price controls.
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Emarat, one of four gas retailers operating in Dubai, has run out of gas at some of its stations as the company struggles to meet its financial engagements, the Dubai-based newspaper Gulf News is reporting.
The price of gas is regulated by the UAE government, which despite a 26 percent price increase this year alone, has forced the company to sell gas at far lower cost than what Emarat must pay to import oil. Dubai does not have any oil refineries, unlike neighboring Abu Dhabi that has two refineries and can control all aspects of production.
In addition to Emarat, Abu Dhabi National Oil Co. (Adnoc), Enoc and Eppco also operate in Dubai. All of these companies must sell gas at approximately $1.80 per gallon.
The government of the United Arab Emirates offers a $0.33 per gallon subsidy on gas sales in the country, amounting to hundreds of millions dollars every year; however, in an effort to cut costs it decided earlier this year to scale back on such subsidies.
“It certainly is a problem across the Gulf,” Caroline Bain, senior commodities editor with the Economist Intelligence Unit told The Media Line. “It’s hard for retail companies to make a profit.”
Dr. Manouchehr Takin, a petroleum analyst with the Centre for Global Energy Studies in London agreed with Bain.
“I haven’t heard about this case but it’s common in all countries where there is gas production and the government is trying to control the prices,” Takin told The Media Line.
While the United Arab Emirates is the seventh largest oil producer in the world and is estimated to have the world’s fourth largest oil reserves, the oil is not spread equally across the seven kingdoms that make up the country.
When the United Arab Emirates was formed as independent country in 1971 the Al-Nahyan tribe, in what today is Abu Dhabi, being the largest tribe, was given that biggest cut when the internal borders were drawn. This has meant that the Al-Nahyans now control most of the country’s oil reserves.
The relative lack of oil in Dubai is often regarded as one possible
explanation for why the country started to diversify its economy away
from oil much earlier than surrounding countries.
One example of this forward thinking was the establishment of national
airline Emirates Airlines in 1985, which helped to market the city as a
tourist hub. Abu Dhabi followed suit in 2003, when it established
national airline Etihad Airways.