Malaysia Pengerang refinery to boost demand for tankers: experts

Malaysia’s Pengerang Integrated Petroleum Complex is likely to boost the demand for oil tankers in the region as more crude is delivered for refining and some of the oil and petrochemical products are exported after processing, experts at the Institute of Southeast Asian Studies said late last week.

“Of course, there will be more demand for tankers once the project is complete and operationalized,” Javier Revilla Diez, a professor for economic geography at the University of Cologne and a visiting fellow at ISEAS, told S&P Global Platts on the sidelines of a seminar organized in Singapore.

“A lot of stuff has to be transported in for processing,” Diez said.

Petroliam Nasional Berhad, or Petronas, is setting up a refinery in Johor’s Pengerang with a refining capacity of 300,000 b/d, which is equivalent to over four VLCCs of crude a month, or one every week.

The 300,000 b/d refinery project is likely to be completed next year.

Close to 70% of the crude for processing in Pengerang will be supplied by Saudi Aramco, which overall plans to invest around $7 billion in the entire complex.

National Shipping Co. of Saudi Arabia, or Bahri, is the exclusive provider of VLCCs to Saudi Aramco for delivering CFR cargoes.

Even if Bahri’s ships are deployed for moving cargoes to Malaysia, it will still translate into demand for ships of other owners elsewhere, Singapore-based brokers said.

Saudi Aramco has inked an agreement to pick up a 50% stake in the refinery and the cracker plant and a similar stake in a polymer plant owned by Petronas Chemicals Group Bhd.

Global VLCC market is currently reeling under excess supply and any incremental demand accruing from upcoming refineries, such as the one in Pengerang, will help absorb some of this tonnage.

The number of VLCC newbuilds projected to be delivered in 2018 is 54, which would see around 13 new supertankers enter the market in each quarter.

According to industry sources, VLCCs saw 47 deliveries and eight scrapings in 2017, pushing the total number of vessels this year to 715.

Once the refinery is in operation, domestic sales and exports will involve transportation as well, which entails further demand for tankers, Diez said.

“Pengerang is important because the VLCCs will be able to dock in at the terminal for offloading their crude,” Serina Rahman, a visiting research fellow under ISEAS’ Malaysia Studies Program, said at the seminar.

Pengerang has a safe and sheltered harbor with ample anchorage available for VLCCs, Rahman said.

The coastal waters are deep enough for VLCCs, around 20 meters-24 meters, with no brakewaters required, she said.

Delivery of crude in VLCCs, instead of Aframaxes, will ensure economies of scale.

“Not only will the cost of delivery in bigger ships will be lesser but even there will no expenditure in dredging at the terminal to enable unloading of the cargo,” she added.

Also, the Ultra Large Crude Carriers, or ULCCs, may be able to dock at the terminal, Rahman said.

ULCCs, VLCCs and Aframaxes typically have a capacity of 3.7 million, 2 million and 750,000 barrels of cargoes, respectively. ULCCs are primarily used for storage purposes.

There is also a possibility of additional demand for product and chemical tankers, once the integrated petrochemical complex is up and running, she said.

“We don’t know the demand for exports at the moment because there are also efforts going on for more eco-friendly products to substitute plastics and [deploy] more electric cars,” she added.

However, other experts pointed out that there will still be considerable indirect demand for oil and oil products because electricity is needed to charge batteries for operating electric cars. As a result, demand for oil will sustain in the medium term.

The entire project also brings into sharp focus the oil- and gas-related activities in the entire Straits of Malacca region, including Singapore.

The Pengerang complex is spread over 8,000 hectares, equivalent to around 12,000 soccer fields and is triple the size of Singapore’s oil and petrochemical complexes in Jurong Island, Diez said in a presentation at the seminar.

The oil and gas industry comprises around 22% of all manufacturing employment in Singapore, he said.

In contrast, Malaysia’s Tanjung Bin and Tanjung Langsat are 913 hectares and 1,972 hectares, respectively.

There will be a lot of oil- and gas-related facilities between the two regions, including the increase in storage capacity in Johor, and based on the cost-benefit analysis, it can enhance the competitiveness in Singapore, Diez said.

Source: Platts



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