Malaysia: Leveraging on shipping route
Time：2015-02-03
Browse：58
Just last year, Petroliam Nasional Bhd (Petronas) announced the final investment decision of US$16bil to kickstart the much-awaited Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang.
The Department of Environment’s approval for the Tanjung Piai reclamation project recently marks the budding of another petroleum storage and petrochemical hub.
All these developments are in line with Malaysia’s aspiration to be an oil storage and petrochemical hub to complement the bustling oil and gas (O&G) downstream activities as seen in our neighbour country, Singapore, which is one of the largest in the world in that business.
Currently, the oil storage hubs are in Pengerang, Tanjung Langsat and Tanjung Bin. Jumping on the bandwagon will be the proposed Tanjung Piai Maritime Industrial Park that will sit a on a 1,411ha-man-made island, Tanjung Piai.
There in lies the question of whether there are too many petroleum hubs in that region that could lead to overcapacity?
In an e-mail reply to StarBizWeek, Johor Petroleum Development Corp chief executive Mohd Yazid Ja’afar says whether additional storage capacity can lead to an oversupply situation remains to be seen.
“We need to understand whether the proposed additional capacity is meant to support trading, or for strategic reserves, or for its own use, and most importantly the development timeline. “We will be able to have clearer views when we have more details of the proposed additional capacity.”
According to him, that is based on the assessment of commercial demand for oil storage, not just in Malaysia and Singapore, but region-wide.
The oil storage capacity of up to 10 million cu m in South Johor comprises existing capacity already offered and to be developed by terminal and storage facilities in Tanjung Bin, Tanjung Langsat and Pengerang, he explains.
“With Asia, especially South-east Asia, experiencing rapid development, it is foreseeable that demand for energy will continue to rise, and oil storage facilities have a significant role to play in the global energy supply chain,” he adds.
According to information from the Iskandar Regional Development Authority, the demand increase for refined petroleum products in Asia is estimated to increase from 4.2 million barrels per day (from 2008 to 2015) to 7.1 million barrel per day (from 2015 to 2025).
An observer says each of the hubs have their own niche and hence the room for their respective existence.
However, times are tough for the O&G sector.
The 60% drop in crude oil prices does not spare even the biggest oil and gas (O&G) players in the world from tightening their belts.
Not only are they scaling back capital expenditure, some of their operating expenditure are affected as seen in British Petroleum’s move to freeze wages for its 84,000 employees worldwide. Even though the impact of low oil prices is not expected to hit the downstream segment directly, cutback measures by oil majors are likely to constraint the development of their petrochemical and refinery businesses as well.
On this backdrop, a slowdown in downstream expansion is likely.
Another observer points out: “Even after years, it has been a great challenge for Rapid to obtain foreign direct investment. I doubt it is necessary to create another petroleum hub in that region.”
During the down cycle of the O&G sector, he expects fund raising to be challenging.
The proposed Tanjung Piai petroleum hub counts petroleum terminals, petrochemical complex, biodiesel plants, liquefied natural gas plants, oil and gas supply base and downstream services as its features.
On the other hand, Rapid is part of the bigger Pengerang Integrated Petroleum Complex that covers an area of more than 8,000ha and will house oil refineries, naphtha crackers, petrochemical plants, a liquefied natural gas import terminal and a regasification plant.
That said, the proposed Tanjung Piai Maritime Industrial Park has its own advantages such as the proximity to Jurong Petrochemical Hub and natural water depths of more than 20m, which is suitable for very large crude carriers berths.
Another geographical advantage of Tanjung Piai is the natural shelter that provides and anchorage area for about 1,000 vessels.
Projects of such a scale may take decades to take shape due to the huge capital involved.
Looking at what went down in history, the RM1.4bil Asia Petroleum Hub (APH) was stalled due to cost overruns and lack of funding amidst the 2008 financial crisis.
At a smaller scale of 40ha reclaimed area, APH was planned to be an integrated oil terminal facility that is capable of handling more than 30 million tonnes of petroleum products.
APH was formed in 2005 with a completion target in 2009 and recently, there are talks of reviving the project.
For Tanjung Piai to carve its own niche, not only will it need strong financial backing but a lot of detailed planning is needed to be in place for it to take off.