Malaysian oil and gas company Petronas plans to a build a $20bn (£12.3bn) factory complex to produce chemicals and refine crude oil.
The facility will be located in the southern state of Johor, bordering Singapore.
Petronas says the strategic location is close to deepwater ports, international shipping lanes and areas of high energy demand.
The project is expected to be commissioned by the end of 2016.
According to state-run Petronas, the facility will house a crude oil refinery, a naphtha cracker and a complex that produces petrochemicals and polymers.
The refinery will have a processing capacity of 300,000 barrels per day for the production of petroleum products such as gasoline, jet fuel, diesel and fuel oil.
At the project launch, Prime Minister Najib Razak said the $20bn commitment signified "Petronas's ambitions to capture the opportunities Asia's dynamic energy and chemical markets are expected to provide".
The 300,000 barrel-per-day (bpd) refinery in southern Johor state bordering Singapore, is expected to be commissioned by end-2016 and will take Malaysia’s oil refining capacity to 935,300 bpd, coming at a time of growing production capacity from India, China and South Korea.
“This commitment to an ambitious expansion in its downstream production capacity assuredly signifies the depth of Petronas’ ambitions to capture the opportunities Asia’s dynamic energy and chemical markets are expected to provide,” Prime Minister Najib Razak said at the project’s launch.
Petronas Chief Executive Shamsul Azhar Abbas said the complex, to be named the Refinery and Petrochemicals Integrated Development (RAPID), would meet an expected surge in demand for specialty chemicals in Asia, the main market for the products, while complementing Singapore’s energy business.
“As far as the market is concerned, the whole Asian region is going to be short of high specialty products, so this is meant for the region,” Shamsul said after the launch. The project would expand Petronas’ petrochemicals business and spur growth of Malaysia’s downstream oil and gas sector, he said.
“More than 80 percent of the products are new products because we have not gone into full specialty product development,” Shamsul added.
Specialty chemicals — high-value raw materials used to produce a host of consumer products from high-performance tires to state-of-the-art LCD televisions — is a growing market for petrochemical makers seeking higher profit margins and to differentiate themselves from competitors.
Neighboring Singapore aims to rule Asia’s expanding specialty chemicals sector, part of the $395 billion global market, but faces a challenge from China, which is set to increase capacity and reduce imports. Growth for Asia in this sector is seen at 10-15 percent, versus 2-3 percent in the United States and Europe, analysts said.
“If the project is aimed at high valued-added petrochemical products, then that would add something to the economics of the project,” said Tilak Doshi, chief economist at the Energy Studies Institute in Singapore.
“If it is not, then I am stumped because you have Reliance there, a major exporter and just around the corner one of the most efficient refining centers in Singapore. Plus you have the Vietnams and Chinas who have refining capacity for their own domestic use.”
The RAPID project, which is at a feasibility stage, will take Petronas’ total domestic and overseas oil refining capacity to 748,000 bpd and its Malaysian capacity to 623,000 bpd. It would bring its petroleum products output to 140,200,905 bpd, including gasoline, jet fuel, diesel and fuel oil.
Malaysia is due to move to Euro IV from Euro II diesel next year, and Euro V by 2015, and analysts said a sophisticated refinery would fit into this plan. FACTS Global Energy estimates Malaysia imported 165,000 bpd of oil products in 2010, with gasoline representing about two-thirds of that total, and the new refinery will enable it to export the surplus.
The project will also have a petrochemicals and polymer complex, including a 3 million ton-per-year (tpy) naphtha cracker and petrochemical derivatives facility focusing on synthetic rubber.
The facility would boost Petronas’ production of petrochemicals from 6.2 million tons per year to 10 million.
The project is even bigger than Malaysia’s largest infrastructure project — the $11.5 billion mass rapid rail project that will be built this year.
The Southeast Asian country has been trying to lure new energy investments. In January, the government said oil giants Exxon Mobil Corp. and Royal Dutch Shell PLC would invest $4.9 billion in new oil, gas and energy assets in the country, part of Malaysia’s initiative to attract $444 billion in investments by 2020 to spur economic growth, though the Petronas project is not part of this plan.
A net oil exporter with flagging output, Malaysia produced 1.61 million barrels of oil equivalent per day (boepd) in the third quarter of 2010/2011, down from 1.64 million boepd output for the same period last year.
“They are likely to go the Reliance route and use Middle East sour crude and crack it,” Doshi said. “It doesn’t make sense to use their own high-quality crude and destroy the value from exporting it.”
Petronas is partners with international energy companies in the development of the massive Majnoon and Halfaya oil fields in Iraq, which should give them access to plentiful supplies of increasing Iraqi crude as projects develop.
Malaysia will export about 420,000 bpd of its light sweet crude in 2011, said consultancy FACTS Global Energy, rising to about 450,000 bpd by 2015 and 480,000 bpd by 2020 without taking into account the RAPID project. Exports last year were around 511,900 bpd, Petronas said.
Some analysts questioned whether such a large and costly project would be able to a find a market for its products.
“The difficulty is that Asia as a whole is still oversupplied, and moving forward East Asia and India will continue to export heavily,” said Alex Yap, a consultant at FACTS Global Energy. “Demand in Southeast Asia is rising, but there are still large exports from Thailand and Singapore.”
The four refiners in South Korea are vying to upgrade their facilities to meet growing global demand for high-value added light and cleaner products, and face competition from India’s Reliance, which is ramping up production at its sophisticated refineries to capture more markets and Chinese refiners, which are likely increasing around 3.7 million bpd of new capacity between 2010 and 2015.
To support the development of RAPID, Petronas said it would consider building a new liquefied natural gas (LNG) receiving and re-gasification terminal within the mega complex.
Shamsul said the $20 billion estimated cost of the project did not include the LNG re-gasification terminal and other facilities including a nearby power plant. He gave no cost details on the additional items.
Petronas has yet to decide on the project’s international partners as it was still in the process of finalising the product stream for the complex by this September.
All information on this website is for educational purposes only and is not intended to provide financial advise. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold MinKL Invest harmless in any and all ways.
