Singapore's biofuels hedge
Business Times 14 Dec 07
SINGAPORE'S reputation as the world's third largest oil refining hub is under siege. India's Jamnagar, with plans to boost capacity to over 1.9 million barrels per day (bpd) - will soon overtake long-time hubs like Singapore and Rotterdam (each with about 1.3 million bpd) as the world's single largest refining hub.
India's Reliance Industries is investing US$6 billion to double capacity to 1.24 million bpd by next year, while Essar Oil is also spending US$6 billion to triple its capacity there to 700,000 bpd by 2010.
By comparison, Singapore refiners ExxonMobil (605,000 bpd), Shell (500,000 bpd) and Singapore Refining Company (285,000 bpd) seem more intent on value-add, petrochemical plant investments and refinery upgradings - the latter to produce 'green' transportation fuels.
Any additional capacity here will likely only be achieved through 'refinery creep', that is, small increments from upgradings. So far, the only known addition is a 'niche' 110,000 bpd refinery in the form of a US$400 million condensate splitter being built by Jurong Aromatics Corporation to provide feedstocks for its planned US$2 billion petrochemical complex on Jurong Island.
Little wonder then the recent spate of calls by Singapore officials on the need to boost refining capacity here to secure the Republic's position as a leading oil and gas global hub. 'This is necessary to provide the critical volume of export-oriented refining throughput, creating the liquidity needed to anchor oil trading and price discovery activities here,' said S Iswaran, Minister of State for Trade and Industry.
But current high engineering, procurement and construction costs - amidst the global building boom - is making nonsense of new refinery economics, Singapore Petroleum Company CEO Koh Ban Heng told a recent oil conference. Capital equipment costs have doubled since 2002, skilled labour is very hard to find and project costs have ballooned. Given this scenario, Singapore's strategy to try to integrate biofuels activities - including biofuels trading - into the oil refining/trading hub here is a good hedge.
However, escalating palm oil prices caused by strong demand from the many upcoming biodiesel plants, including in Indonesia and Malaysia, has made many such palm oil-based projects uneconomical. Australia's Natural Fuel, which is building a plant on Jurong Island, has for instance been forced to source jatropha from Madagascar instead.
But this has not deterred Neste Oil from just announcing a S$1.17 billion investment in an 800,000 tonne per annum biodiesel plant in Singapore - which will be the world's biggest. This is because the Finnish refiner will use second-generation technology to produce high-quality biofuel, thus giving it an edge over basic plants.
So even if there are no new incoming oil refineries at this time, Singapore's strategy to leverage on its highly efficient oil and logistics hub here to develop new wings like biofuels refining may just fly.
