Global independent oil trader Vitol announced August 19 that it signed an agreement with Malaysian shipping group MISC Berhad to set up a new joint venture to own a planned oil storage terminal at Tanjung Bin in southern Malaysia.
Just another oil terminal project in Asia, some would say. Or is it? Start tracing back the headlines and you begin to see a trend -- Malaysia is pouring billions of dollars to grow its oil industry.
On July 21, Vopak said it has inked a memorandum of understanding with Malaysia's Dialog Group to conduct a feasibility study to develop an oil storage facility with an initial storage capacity of 8.8 million barrels in Pengerang, Johor, in southern Malaysia.
On July 15, Malaysia's privately held Merapoh Resources Corp. signed a memorandum of understanding with the Kedah state government and an engineering, procurement, construction and commissioning master agreement with contractor SK Engineering for a proposed $10 billion refinery in Yan, Kedah in northern Malaysia.
In April this year, UK-based investment company Lenstar signed a memorandum of understanding with Malaysia's Pristine Oil for the construction of storage tanks to hold up to 1.5 million barrels of oil and a 22-km pipeline from Gurun to Yan, plus 18 km of offshore pipeline to facilitate the uploading of oil from vessels to tanks. Lenstar also has announced that it is studying a plan to build a petroleum refinery and petrochemical complex worth up to $8 billion in Melaka and Perak.
In late October 2008, Pristine and Siemens Malaysia held a press conference in the state of Malacca to announce their plans to jointly develop the Malacca Oil Storage Terminal on the island of Pulau Besar. The 1 million mt oil storage project, valued at Malaysian Ringgit 700 million ($199 million), was slated for completion in the second quarter of 2010.
Iran is heard to be in talks with Malaysia to build a refinery in Kedah, worth an estimated $4.8 billion. Both countries are in negotiations to build a refinery capable of processing 250,000 barrels a day of crude.
And perhaps the most ambitious project to date is the $7 billion oil pipeline project planned across the northern part of Peninsula Malaysia. In May 2007, Malaysia's Trans-Peninsula Petroleum and Ranhill Berhad together with Indonesia's Tripatra Engineers and Consultants signed an agreement for the design, engineering, procurement, construction and testing of the pipeline, which was to run from Kedah, on the west coast of peninsular Malaysia, to Kelantan, on the eastern seaboard. The pipeline was to provide an alternative and shorter route for transporting oil from the Middle East to East Asian countries, versus shipping through the congested Straits of Malacca. (Read: bypass Singapore.)
Singapore is an island city-state of 648 square kilometers with a population of 4.8 million. It has no natural resources, but the tiny island state has been the center of oil refining and physical oil trading in Asia in the past decades. From its humble beginnings as a small kerosene distribution hub for Shell in the 1890s, to its first export-oriented refining investments made in the 1960s, oil trading in Singapore has grown by leaps and bounds. Singapore is the world's top bunker port and the oil product pricing hub for Asia Pacific, with over $300 billion in physical oil trade and $600 billion in derivatives trade recorded in 2007. (Ka-Ching!)
So it is no surprise that Malaysia is formulating a plan to pull some of that oil trades away from its neighbor. Then again, others have tried.
In early 2004, Thailand tried to challenge Singapore to become a regional energy hub with the launch of its Sri Racha oil center and the implementation of generous tax incentives. The Thai government also examined the possibility of cutting a canal through the narrowest part of Kra Isthmus, north of its border with Malaysia, as an alternative shipping route to the Malacca Strait. The estimated $20 billion project would shorten the passage from the Indian to the Pacific Ocean by up to 700 nautical miles, but the plan did not received sufficient backing from the Thai leadership.
The Malaysian projects are not slam dunks as well. Politics may get in the way, as the Kedah state ruled by a Pan-Malaysian Islamic Party-led opposition coalition, whose interests could be different from the federal government led by the Barisan Nasional.
And don't expect the Singapore government to just sit back and watch. To counter Thailand's challenge, Singapore announced plans in February 2004 to lower by 50% corporate income taxes on oil companies that do business in the country.
Bottom line: Singapore is nimble and will flex its muscles to beat competition. For example, in response to forecasts that tourism in Singapore is fast becoming a sunset industry, the staunch guardians of multiracial and religious harmony within the higher echelons decided to look past conservative views and brought in Formula One racing. In addition, the government has also allowed private consortiums to build two casinos, known locally as "integrated resorts."
So expect a reply from Singapore..."akan datang"...(Malay for coming soon.)
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