But owners stress that it will be complementary to facilities in Singapore
By Teo Cheng Wee, The Straits Times, 27 Apr 2012
PENGERANG (Johor): Malaysia has started building a petroleum storage terminal in south-east Johor, in a project that could become a strong competitor to Singapore's facilities on Jurong Island.
The Pengerang Independent Deepwater Petroleum Terminal, which will be built at an initial cost of RM1.9 billion (S$778 million), can store up to 1.3million cubic metres of crude oil and is expected to be completed by 2014. It can be expanded by another 1 million cubic metres if needed.
The terminal is a joint venture between the Johor state government and oil and gas companies Dialog Group from Malaysia and Royal Vopak from the Netherlands. It forms part of the larger Pengerang Integrated Petroleum Complex, which Malaysia envisions as a top regional oil and gas hub, to drive growth in what has been singled out as a key sector for the country in the coming years.
Analysts have noted several advantages that Pengerang - a previously sleepy fishing village located about 90 minutes from Johor Baru and 20km from beach resort Desaru - has over Singapore. They include its 24m deepwater jetty facilities, which will allow very large carriers to dock and collect or deliver crude oil more easily and cheaply than in Singapore.
The cost of operating in Pengerang is likely to be cheaper as well, with land more abundant. The petroleum complex has already been allocated 91 square km of land by the Johor state government, which is about three times the size of Jurong Island. Singapore's space constraints, on the other hand, recently forced it to start developing alternative storage facilities, such as mega floating structures and underground caverns.
'If the cost advantage is there, Pengerang is certainly a viable option for companies,' said HwangDBS Vickers Research analyst Quah He Wei.
National oil company Petronas will also build a RM60billion refinery and integrated complex in Pengerang, providing further impetus for the area's development. This is set to be ready by 2016.
In his opening address at the terminal's ground-breaking ceremony yesterday, Johor Menteri Besar Abdul Ghani Othman noted that Singapore has over 20 years become one of the top three global players in trading, refining and manufacturing oil and gas products and equipment, despite having no oil resources.
'Perhaps we can do that in 10 years in Pengerang, given the availability of new technology and technical know-how,' he said to applause from the 500-strong crowd, which included senior regional executives in the oil and gas industry. He added that the development is targeted to contribute RM19.78 billion to Malaysia's gross national income and create 14,000 jobs by 2020.
But speaking to reporters later, the project's owners took pains to stress that the project was not a competitor, but instead complementary to Singapore.
'We operate four terminals in Singapore. The independent oil terminal is simply an answer to the demand from our customers for additional capacity, which we can't offer in Singapore because the land is not available to us,' said Vopak Asia president Patrick van der Voort. 'So it's complementary to what's already established around the trading hub in Singapore.'
Dialog Group executive chairman Ngau Boon Keat argued that Asia's appetite for crude oil, which is growing by about 5 per cent a year, creates room for another player in the region. Both Singapore and Pengerang, he noted, are located halfway along the oil shipping route between Asia and the Middle East.
'Companies won't be moving out of Singapore,' he said. 'The business is growing, it's not a stagnant business.'
Mr Quah feels that for now, it is likely that companies operating in Singapore will expand to Pengerang rather than relocate completely. Even then, he thinks the process will take at least about five years.
'Singapore's advantage is its ready market and all the facilities that are already in place,' he said. 'If you look at Iskandar Malaysia, for example, land cost is a fraction of that in Singapore but people are not relocating immediately. They want to watch and see.'
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