Moving downstream in oil and gas
JOHOR’S transformation into a downstream hub in the oil and gas industry is gathering pace, creating thousands of new jobs and fuelling the state’s steady rise as a major economic powerhouse in the country.
This strategic diversification into refining and manufacturing of higher- value products in the petrochemicals sector is aimed at maximising Malaysia’s petrodollar income.
Billions of ringgit are also being invested into a deepwater terminal project and tank farms on Johor’s southern coastline. The idea drew inspiration from the success of Holland’s Amsterdam- RotterdamAntwerp trading centres. The massive investment by the public and private sectors also serves as a catalyst to the economic development not only in the state, but also the country as well.
In Pengerang, building and construction work at Petroliam Nasional Bhd’s ( Petronas) massive refinery and petrochemical integrated development ( Rapid) complex is moving along with a targeted completion date in 2019.
Expected to cost around RM60bil when it was announced in 2011, the Rapid project is the cornerstone of a development to accelerate Johor’s transformation into a global oil and gas downstream centre.
To date, it is the biggest investment in the country’s oil and gas downstream business and will feature an integrated refinery and petrochemical facilities with other supporting services at a single site.
It is one of the two catalytic projects under the larger Pengerang Integrated Petroleum Complex ( PIPC), which covers an area of 20,000 acres at the southeast tip of Johor.
Pengerang is the natural choice given its strategic location near to the international sea lanes. It is a naturally sheltered deepwater harbour, hence making its hinterland an ideal location to serve as an oil, gas and petrochemical hub.
Dialog Bhd undertook the task of developing the deepwater terminal and wharf, which is the other key component of PIPC. The Pengerang Deepwater Terminal project started operations on April 2014.
The deepwater port, developed by Dialog together with its partners Holland- based Royal Vopak and the Johor State Government, is able to accommodate very large crude carriers ( VLCCs) the size of four football pitches. The terminal also includes storage tank facilities.
Expansion at the Pengerang Deepwater Terminal is on- going, with phase two of the project involving the development of facilities required for the handling, storage and distribution of the crude oil, petroleum, chemical and petrochemical feedstock products to and from the Rapid complex.
A third phase of expansion will see the development of liquefied natural gas ( LNG) regasification plant and storage facilities.
The PIPC, when fully built, will boast storage, blending and distribution capacity totalling five million cubic metres.
According to the Johor Petroleum Development Corp ( JPDC), the state is set to have a total of 10 million cubic metres of oil and gas storage by 2020.
Aside from the Pengerang, two other strategic locations had been identified for the development of oil and gas storage facilities.
The Tanjung Langsat site, located at the existing port facility managed by Johor Corp, will have a total of two million cubic metres of storage capacity. Another three million cubic metres of storage facilities is underway at Tanjung Bin, located at the south- western shore of Johor.
The Tanjung Bin petrochemical and maritime industrial centre, managed by MMC Corp Bhd’s unit Seaport Worldwide Sdn Bhd, covers an area of 2,255 acres.
The main activities at Tanjung Bin will be focused storage, blending and transit of petroleum products. The growth of the oil and gas downstream activities in Johor is still in its infancy compared with neighbouring Singapore.
The two lacks natural hydrocarbon resources, but possess similar strategic advantages, thanks to their location along the busy shipping routes and proximity to demand zones in Asia.
While Singapore is already an established player in the downstream business – it is the world’s largest bunkering fuel destination and boasts a ready ecosystem with mature finance, insurance and arbitration capacities – Johor can draw on its own competitive advantages such as having a lot more land for future expansion.
The oil and gas industry also has a long history in Johor. While the new projects in Pengerang focuses on oil and gas downstream activities, other neighbouring coastal areas such as Pasir Gudang and Teluk Ramunia are already established locations in the upstream side of the industry, specialising in fabrication of offshore structures.
The focus to develop Malaysia Malaysia’s s downstream capabilities comes with challenges, especially in the current market climate with the price of crude oil down sharply from where it was two years ago.
JPDC’s chief executive officer Mohd Yazid Ja’afar admitted in January the task of getting new investors to come in to Pengerang has become increasingly difficult as global players cut back on their investment plans.
With equal representatives from the state and federal governments, JPDC’s main role is to coordinate the development of PIPC.
The PIPC was launched as part of the Government’s economic transformation programme. The goal for PIPC is to create high- paying jobs and be both sustainable and an inclusive motor of growth for Johor and Malaysia as a whole.
One of the crucial roles for the Government is to put in infrastructure and utilities in Pengerang and connecting areas to cater for the future expansion needs once PIPC is in place.
These include construction of new roads, installing a comprehensive network of power, telecommunications and water supplies, upgrading roads to highways to facilitate movements of goods and services and a centralised management of industrial waste products from the complex.
With budgets in the billions of ringgit, timelines spanning years and lifecycles extending over decades, oil and gas projects present unique challenges. But the potential economic wins are huge and Johor is already reaping the benefits.