The race is on to build the most oil storage capacity in Asia as a RM21 billion project has been tabled to turn Tanjung Piai in southwest Johor into a second oil storage hub, in addition to Pengerang, AMResearch said Wednesday.
The equity research team of AMInvestment Bank said that it was confident Malaysia would top Singapore as Asia’s new oil trading hub and it also expected the share price of Benalec Holdings, with vested interest in the Piai project, to double up.
It said that Malaysia’s oil storage capacity would quadraple to 21 million cubic metres by 2017, flanked by storages in both east and west tips of Johor. Driven by cheaper land cost than in city-state Singapore, Johor would mimic Jurong Island, which now hosts Asia’s major swing oil refineries and is the third biggest oil trading centre in the world.
“Malaysia appears set to overtake Singapore as the tank storage leader in the region with the projects in South Johor expected to add capacities of 16 million cubic metres, leading to Malaysia having capacities of up to 21 million cubic metres by 2017,” AMResearch wrote in a note to share investors.
This compares with Singapore’s current storage capacity of 11 million cubic metres. However, Singapore also has a plan to double its storage capacity.
AmResearch applauded a recent slate of multi-billion dollar proposals, which it said could bring to Malaysia the single largest investment in oil tanks. Benalec, an investment holding company, and the Johor state this week announced it has signed a MOU to sell 1,000 acres of reclaimed land in Tanjung Piai to 1MY Strategic Oil Terminal Sdn Bhd.
At the same time, Bernama news agency reported that Malaysia and the United Arab Emirates (UAE) also agreed to set up a RM21 billion crude oil and petroleum storage facility off the coast of Tanjung Piai with the capacity to store 60 million barrels of crude oil and petroleum.
“This landmark announcement vindicates our long-standing conviction of Piai’s high development potential. By extension, it addresses any doubt about Benalec’s deal-making prowess– with much more to come going forward,” AMResearch said in a note about the deal.
AMResearch maintained a BUY rating on Benalec Holdings, with a target price of RM2.48, double its current share price. Benalec was trading at RM1.22 on Bursa Malaysia at midday Wednesday.
This latest oil storage project is over four times the RM5 billion investment that another Malaysian company Dialog had announced in 2011. Under the proposal promoted by the government agency Malaysia Petroleum Resorces Corp (MPRC), Dialog would build oil and gas storages and a deepwater port in Pengerang as a catalyst for what could be Asia’s oil trading hub. This RM5 billion project would construct 5 million cubic metres of oil and gas storage facility in a joint-venture with Vopak, the world’s biggest oil terminal company.
Malaysia’s state oil company Petronas would provide the other catalyst for Pengerang with investments of RM60 billion in a Refiney and Petrochemical Integrated Development (Rapid) project, which awaits a final investment decision by the third quarter of this year.
The Tanjung Piai project now, although without an oil refinery attached, appears to have superceded Pengerang. It will have three times more oil storage capacity and with investments over four times more than the Dialog-Vopak group.
“Benalec has reaffirmed its entry as the most formidable tank terminal operator in Malaysia, surpassing Dialog and MMC Corporation, “ AMResearch said.
Establishing an Asian oil and gas trading hub has been part of Malaysia’s Performance Management Delivery Unit (PEMANDU) proposal to help fastrack Malaysia to developed status by 2020, AMResearch said.
It noted that Singapore was now home to over 800 professional oil trading companies, with a
trading volume of US$375bil in oil contracts annually. Jurong Island plays host to more than 95 leading oil companies such as Shell, ExxonMobil, Chevron, DuPont, BASF, Sumitomo Chemicals and Mitsui chemicals.
Tanjung Piai, also dubbed the southern most point of mainland Asia, is now a quiet, fishing village and a tourist resort area. It has a national park which shelters more than 20 varieties of mangroves, primates and migratory birds species.