Best of our wild blogs: 17 Jul 14

Brotherhood Tour (Sun 20 Jul’14 at 09.00am)
for a.t.Bukit Brown. Heritage. Habitat. History

Checking up on Pulau Jong
from wild shores of singapore

Finding romance on Terumbu Semakau
from The Long and Winding Road

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Malaysia's oil hub: Will it be a threat to Singapore?

Alvin Foo The Straits Times AsiaOne 17 Jul 14;

Tucked away in a corner of the south- eastern tip of Johor, a regional oil and gas hub is starting to develop in Pengerang. A world-class oil storage terminal officially opened near the small town last month.

Pengerang is part of an ambitious plan launched in 2009 to build Malaysia's biggest refining and petrochemical complex. It has been earmarked as one of the country's key economic transformation projects and is designed to develop South-east Johor into a regional oil storage and trading hub.

Pengerang will house oil refineries, naphtha crackers and petrochemical plants as well as a liquefied natural gas (LNG) import terminal and a regasification plant.

There are also plans to build another oil storage hub about twice the size of Ang Mo Kio off Johor's Tanjung Piai coast near Jurong Island to capture spillover business from Singapore.

At first glance, this seems to pose a threat to Singapore's own ambitions as a regional oil trading hub. But economists and industry experts mostly think that Pengerang will complement rather than compete with Singapore. Some analysts, however, are quick to point out that Malaysia would not be pouring in millions of dollars there just to get spillover business.

"While it's seen as complementary, it's also competitive," said CIMB regional economist Song Seng Wun, noting that Pengerang has "massive land" in which to expand, unlike Singapore.

'Streets ahead'

Oil and gas is a key component of Singapore's economy, accounting for about five per cent of gross domestic product, according to the Economic Development Board. The sector also produces spillover benefits for other industries, such as chemicals, oil and gas equipment and oil rig manufacturing.

Currently, Singapore is Asia's leading oil trading hub and one of the world's top three export refining centres. Oil and its products are priced here for the region. Singapore also has sizeable oil storage facilities and a port which handles trans-shipments of smaller cargoes into the region - something Pengerang lacks.

Given Singapore's significant head start, experts say Pengerang will more likely attract spillover business from Singapore for now.

For instance, its oil storage tanks could attract traders seeking a cheaper alternative to house their cargo, especially if tanks in land-scarce Singapore are fully occupied.

Later, the petrochemical and refined products in Pengerang could also be shipped out or traded through Singapore.

Industry watchers like Ernst & Young's Asia-Pacific oil and gas leader, Mr Sanjeev Gupta, note that there is likely to be more than enough business for Singapore and Pengerang to share.

Regional energy usage, still about half of the global average on a per capita basis, has been growing and will expand further in the coming years, as ASEAN economies thrive and incomes rise. This means an increase in energy shipments around the region as well as a need for more oil storage space.

With Singapore already entrenched as the regional leader in oil and gas, it is likely to benefit more than Pengerang - at least for now. Jurong Island, Singapore's massive oil and gas complex, has drawn more than $40 billion in investments from various companies, including Shell and ExxonMobil. Many high-end petrochemicals are produced there largely for export.

The Government has more development plans, but land is getting scarce on Jurong Island, and there is a limit to how much more industry expansion it can handle, say some sector watchers.

Growing threat

That's where Pengerang comes in. The town shares several characteristics with Singapore that make it ideal as an oil and gas hub.

It is strategically located along one of the world's busiest shipping lanes, overlooks the Straits of Singapore, and has a deep-water harbour capable of handling Very Large Crude Carriers that carry huge oil cargoes. Malaysia also has plans for an LNG import terminal in Pengerang.

This latter move could be a game-changer as LNG has swiftly emerged to become the next big thing in Asian energy, as the region searches for cleaner and less risky sources of fuel.

Demand for natural gas is poised to grow around 150 per cent in the Asia-Pacific between now and 2035, substantially higher than the projected global demand expansion of 50 per cent.

Energy giants such as ExxonMobil, Royal Dutch Shell and Chevron have invested heavily in LNG assets, mostly in Australia. Much has also been said about Singapore becoming an LNG hub in recent years, especially with the official opening of its LNG terminal in February.

But although Singapore attracts investors because of its transparent business rules and mature legal and financial systems, unlike Malaysia, the country does not possess LNG reserves.

Industry veterans have mixed views over whether Pengerang will live up to its hype. Like most mega Malaysia ventures, its future may hinge on whether its main backer, Prime Minister Najib Razak, continues to succeed at the polls.

Naysayers point to the initial plan being hit by project delays. As a result, Petronas' Pengerang Integrated Complex, which costs US$27 billion (S$33.4 billion), is set to start up a year later than expected in 2019.

Only time will tell if Pengerang will emerge as a complement or competitor to Singapore.

But it serves as a timely reminder that the Republic cannot afford to rest on its economic laurels.

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