Feb 28 2015, 08:17 AM
Oil price slump threatens Malaysia's oil ambitions
Feb 27, 2015 4:15 IST
PENGERANG, Malaysia (Reuters) - A collapse in oil prices is making it harder to attract investment in the next phases of a plan to build one of Asia's biggest energy hubs on Malaysia's southernmost tip, a development estimated to be worth over $50 billion.
The Pengerang Integrated Petroleum Complex (PIPC) aims to help Malaysia compete with Singapore to become the region's top oil and petrochemicals hub, but the local government body coordinating the project said the environment was now clearly tougher.
On the once-sleepy Pengerang peninsular in the southern Johor state, villages have been relocated to make way for storage tanks, refineries and terminals under the almost $30 billion first phase.
State oil firm Petronas [PETR.UL] is leading the core part of this development, known as the Refinery and Petrochemical Integrated Development (RAPID).
But while RAPID won a final investment decision in April 2014, before oil prices began tumbling, two other phases due by 2027 face a much harsher climate with oil prices having halved since June to around $60 a barrel.
"The big picture is not looking good," said Mohd Yazid Ja'afar, chief executive of the Johor Petroleum Development Corporation, which is coordinating the developments.
He said that the corporation had started to send out feelers to investors for the second phase but in the current environment "people tend to be more careful with their money."
Ja'afar said, however, he was confident that the investment appetite would return longer term.
Alongside Petronas, the developments are being funded with state and private money. Malaysia's Dialog Group (DIAL.KL), Dutch firm Vopak (VOPA.AS) and the Johor state government for example are backing a deepwater terminal and storage facilities in the first phase.
Ja'afar said cost cutting was being focused on longer term exploration and production developments, while those downstream, such as oil refineries and shipping terminals, had better prospects since they offered more immediate returns.
"Less effort is being put on finding new oil, but when you go further downstream... they are less affected and they are happy with raw materials getting cheaper and cheaper," he added.
SCRAPPING ASSEMBLY YARD
Illustrating how this is having an impact on the ground, Petronas is scrapping a major oil platform assembly yard in southern Malaysia, as it grapples with the biggest cuts in capital expenditure in at least five years.
Petronas bought the Ramunia yard four years ago for almost $100 million. During recent visits to the site there was little activity. A new multi-storey office block stood empty along with other half-finished facilities behind wire fences.
The closure comes as dozens of oil and gas rigs lie unused in Malaysian and Singaporean waters as demand for exploration and new production has fallen along with prices.
A Petronas spokesman confirmed via email that the yard was being converted from a yard building exploration and production assets into a Material Off-Loading Facilities jetty in order to support the RAPID development.
Petronas said in November it may slash 2015 capital expenditure by 15-20 percent, though sources said cuts may be a deeper 30 percent and that some projects could be shelved. The firm's annual results are due to be released on Friday.
Subbu Bettadapura of energy consultancy Frost & Sullivan said Petronas was unlikely to award new risk sharing contracts for exploration until oil recovered above $80 a barrel.
LUXURY VILLAS STAND EMPTY
Barclays said oil-exporting Malaysia was the most vulnerable country in Asia to the oil slump and Morgan Stanley has estimated a 10 percent fall in oil prices reduced its GDP by 0.6 percent
The impact is being felt in the broader economy."A lot of people from oil companies used to dine here but the number has been reducing over the past few months," said Gayan Bahadur, a waiter at the Jade Garden Seafood restaurant, located between the Ramunia yard and the main PIPC complex.
Five miles (8 km) north of Pengerang's oil and gas sites is the Sebana Cove township development, aimed at housing thousands of oil workers and including a golf and yacht resort.
But most of its completed luxury houses stand empty and a salesman marketing the next phase said he was offering heavy discounts in a bid to attract buyers.
At the Iskandar Project, across the Johor Strait from Singapore and partly focused on oil workers, many condominiums are also empty.
"There are simply less people moving here now because of cheaper oil and the slowing economy," said Lee Ban Hua, a construction manager of one of Iskandar's developments.
Oil & Gas Careers V7, Upstream and Downstream, rise early, work hard, strike oil
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) until one day I've given opportunity to lead and be the acting Project Engineer (because I'm still intern can't be Project Engineer) for PVD-CLJOC project at Vietnam for Cuu Long Workover campaign. The company sponsored me to do OPITO BOSIET and I've been to offshore to have an exposure on the operations. During my time at offshore I get to know and meet my seniors that is currently undergoing ARD Program with PETRONAS. I asked and they shared their experience. So I found my interest in this drilling sector (although workover not very or too drilling).
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