Indonesia, Saudi Arabia join Malaysian oil pipeline deal

Associated Press
29 May 07

Malaysia signed Monday deals with Indonesia and Saudi Arabia to build a pipeline running across northern Malaysia that will cut oil transit time from the Middle East to China and Japan from 21 days to seven by bypassing the oft congested Malacca Strait.

Trans-Peninsula Petroleum Sdn. Bhd., Transpen, owner and operator of the $7 billion project, inked an agreement with Ranhill Engineers and Constructors Sdn. Bhd. also from Malaysia and Indonesia’s PT Tripatra Engineers and Consultants for the design and construction of the 300- kilometer pipeline near the border with Thailand.

Witnessed by Malaysian Prime Minister Abdullah Ahmad Badawi and Indonesian President Susilo Bambang Yudhoyono, Transpen also inked a separate agreement with Indonesian firm Bakrie and Brothers tbk for the supply of steel pipes and Al-Banader International Group of Saudi Arabia for the supply of oil.

The signing ceremony was held on the sidelines of the third World Islamic Economic Forum.

To be constructed in three phases stretching over seven years, the 1.2-meter diameter has a carrying capacity of 6 million barrels per day throughput of crude oil.

The pipeline will ease congestion in the Malacca Strait, which is notorious as pirates’ haven, by diverting about 20 percent of the oil now sent via the strait through the pipeline, the company noted.

Of the 60,000 vessels that transit the strait, 30 percent are oil tankers, Transpen said in a statement.

Transpen Chairman Rahim Kamil Sulaiman said at a press conference the “timing is perfect” for the project to take off as oil market has shifted to East Asia, with China now being the second biggest importer of oil.

While analysts have voiced skepticism over the viability of the project considering it would only save oil tankers three days of transit time, Rahim countered that the assumptions were based on big tankers and not the smaller 80,000-ton vessels that Transpen is targeting.

He said 60 percent of oil tankers plying the strait are smaller vessels as many ports in East Asia cannot accommodate bigger crude carriers.

These smaller tankers currently take about 21 days to transit oil from the Middle East and Africa, passing through the Malacca Strait and Singapore and northward to China and Japan.

The pipeline that stretches from the west coast town of Yan in Malaysia’s Kedah State to Bachok on the east coast of Kelantan State will cut transit time to seven days.

“The savings in using our pipeline to the oil producers, to oil traders, is enough to even pay for one month of storage,” Rahim said.

On both ends of the pipeline, there will be offshore mooring facilities to accommodate deep-draught tankers that require a minimum depth of 25 meters. A storage facility will also be built that will hold 90 percent of the system’s capacity of 180 million barrels.

The first phase of the project is slated to begin next year once land acquisition and environmental and social impact assessments have been done.

Transpen, a company run by former executives of the national oil company Petronas, said in the statement that once the first phase is completed by mid-2011, the pipeline could begin to generate income.

The pipeline project is just one of the aspects in the government’s plan to develop the northern corridor.

Kedah State Chief Minister Mahdzir Khalid said there will also be two oil refineries set up in Yan by SKS Development Sdn. Bhd. and Merapoh Resources Corp. Sdn. Bhd. at a total cost of $9 billion.

Both companies are expected to announce details of the plan next month, he said.

It had earlier been reported that Iran and China are keen to invest in the projects that have a combined capacity to refine nearly 500,000 barrels per day