The Economics of Oil in the Last Hour

By Jamari Mohtar

July 8, 2018

 

Someone brought to my attention an article from an investment advisory newsletter, the Palm Beach Daily, with a heading of The Third “Oil Shock” Is Coming, dated July 1.

It was written by Nick Giambruno, the Editor of Crisis Investing, another newsletter that has a sharing arrangement with the Palm Beach Daily, analogous to the shared, distributed network of the blockchain.

I read it with trepidation because I could see its relation to the prophecies of the Last Hour in Islamic Eschatology.

However, the article at first didn’t grab my immediate attention until a few days later due to four reasons:

  • Time consuming research

Writing a comment piece about oil and gas (O&G) requires the knowledge of some technical “mumbo jumbo” jargons that will consume a lot of my time in research in order to “laymanise” these jargons so that readers of my blog can follow and understand what I’m talking about and where I’m coming from.

To do this, I must have an excellent understanding of these jargons first before I can laymanise them, for otherwise, I would be confusing my readers with my confused article, arising from my confused mind due to the lack of a robust research.

Fortunately, Giambruno wrote in an easy manner, free from jargons although he did not define what oil shock means other than implicitly assuming it has to do only with a hefty escalation of oil prices.

The 2014’s plummeting of oil prices can also be considered as an oil shock if a steep dive in price is included in the definition.

  • Boring topic

O&G is a boring topic although oil and gas are important lubricants of life and the economy, not to mention your car too. But I have a strong feeling even after I have laymanised these technical stuff for the benefit of the lay readers, the subject will still remain boring to most species of humankind.

The exception are those unsung heroes and heroines in the O&G sector who work very hard to “lubricate” our life such that we can enjoy the smoothness, roundness, conveniences, comforts and luxuries of modern living, for otherwise we would still remain a modern caveman like Mr Flintstone driving a Flintstone-branded car.

  • Blockchain Technology (DLT)

My inclination now is more in writing on the more exciting development in the field of disruptive blockchain technology otherwise known as distributed ledger technology (DLT) that will enhance innovation, and how to manage the concomitant challenges DLT will definitely cause in displacing people and resources en masse, once the innovation that it has unleashed become mainstream one day, which according to experts will slowly, gradually and surely take place in the next three to five years.

Some experts are already talking about the potent combination of frontier technologies like the blockchain, artificial intelligence (AI), augmented reality (AR) and the Internet of Things (IoT) that will massively disrupt in the very near future existing technologies by changing the whole landscape of the way we do things today in the most positive, productive, cost-effective and efficient manner.

What an exercise in contradiction – disruptive, yet positive and productive.

These seem to have made other disruptive frontier technologies that had made their appearance relatively much earlier such as 3-D Printing, unmanned sector like drones, and automation rather obsolete before they can even settled comfortably as mainstream technologies, unless they reinvent themselves by combining with at least one of the four technologies above by capitalising on interoperability – the ability of the core component of these technologies to “talk” to each other.

More on this in my future post, in sya Allah.

Already, the emergence of cryptocurrencies and blockchain technology have created two nascent disciplines called Tokenomics and Cryptonomics that have been ignored by the majority of universities worldwide because they are clueless on what blockchain in essence is all about.

Worse is their misconception that blockchain is nothing more than merely hypes concerning the hated, volatile and “fraudulent” cryptocurrencies (read Bitcoin), which dare to replace fiat monies as legal tender, exempt themselves from regulation, and give themselves the unilateral privilege of anonymity (all misconceptions of course!).

The exceptions are very few such as the Said Business School of the Oxford University, which had just organised a short course on the Oxford Blockchain Strategy Programme for professionals, entrepreneurs, founders of start-up companies and regulators from all over the world in February to June.

  • Aggressive selling

The biasness against financial advisory newsletters in general which I suffer, from time to time, because of their aggressive stance in selling their investment ideas and strategies for a hefty subscription rate by lauding how correct and accurate their recommendations were in making tonnes of money for you, had you only followed their recommendations.

At the same time, they tend to keep a low profile on the subject of their bold, specific predictions / recommendations that had gone off the mark, which may have burnt the pocket of their subscribers who followed their investment advice.

But if you try hard enough, you may find some gems in these financial advisory sector such as the Florida-based Palm Beach Daily, and the Crisis Investing newsletters which would precede their recommendations / predictions with solid research and excellent analysis of the geo-political and socio-economic happenings that occur behind the scenes as a backdrop for their investment recommendations and predictions.

Gist of the article

The year 1973 saw Israel at war with Egypt and Syria – the Yom Kippur War. In reaction to US support for Israel, the Organization of the Petroleum Exporting Countries (OPEC) placed an oil embargo on the US and several other countries, and cut oil production.

The result – the first oil shock, which saw oil prices quadrupling from US$3 per barrel to US$12.

The second oil shock in 1980 featured the Iraq-Iran War, which arose in the aftermath of the 1979 Iranian Revolution – one of the bloodiest conflicts of the past 50 years.

The result – oil prices went up more than double because Iraq and Iran were (and still are) two of the biggest oil exporters in the world. No surprise then that the war rocked global energy markets.

There was also another, less dramatic price spike in the early 1990s after the invasion of Kuwait by Iraq, triggering the first Gulf War where oil prices shot up over 70%.

Since then, there was talk of a third oil shock but it never materialised. Never materialised because obviously when Nick Giambruno talked about oil shock, he is limiting it to just a spiking of oil prices, and in this context he is right.

Giambruno’s scenario of a third oil shock, which he predicts will be “even worse than” the previous ones is hinged on the Middle East where wars there are often catastrophic for global oil supplies.

Two geopolitical camps exist there: the US and its allies, like Israel and Saudi Arabia on the one side; and Russia and its allies, like Iran and Syria on the other.

The most significant military conflict on the geopolitical chessboard today is the bloody conflict in Syria that is entering its seventh year.

While on the one side, the US through its proxies, has been trying to overthrow Syria’s leader Bashar al-Assad, Russia and Iran, on the other side of the divide, have massively fortified the Assad regime who is still firmly in charge.

Since the demise of Saddam Hussain, the regional balance of power is favouring Iran. The US, Israel and Saudi Arabia find that unacceptable. According to Giambruno, at this point, war is the only thing that could reverse the trend. Of course, that does not mean he is cheering for war.

The first salvo in the current geopolitical chessboard opens with Israel’s recent move in launching its biggest military strike on Syria since the 1973 Yom Kippur War. This attack, and other recent ones, killed dozens of Syrian and Iranian soldiers.

On this basis alone, many people think the focal point of the Middle East’s next regional war will move to Iran, and with these Israel’s attacks, they also think that the war has already started.

There have been numerous, unambiguous signs that the US has Iran in its radars.

To begin with, President Donald Trump has recently filled up major vacancies in his Administration with war hawks. In April, he made John Bolton his National Security Advisor and Mike Pompeo his Secretary of State. Both have been eager to bomb Iran for years.

In early May, Rudy Giuliani, one of Trump’s lawyers and a long-time political ally, announced that Trump is “committed to regime change” in Iran.

A few days later, President Trump pulled out of the 2015 Iran nuclear deal. He also re-imposed economic sanctions on Iran.

A war between Iran and Israel (and its US-led allies) would wreak havoc on the oil market. That’s because Iran holds a very powerful card, as it could effectively shut down the Strait of Hormuz, the narrow channel connecting the Persian Gulf to global markets. It is the only sea route from the Persian Gulf to the open ocean.

That translates into roughly 35% of the world’s oil traded by sea. With nearly US$2 billion worth of oil passing through the Strait of Hormuz every day, it’s the most critical oil choke point in the world.

In the event of an all-out war, Iran would quickly shut down the Strait of Hormuz. It has made this blatantly clear.

Credible studies have shown that – in a best-case scenario for the US Navy – Iran could seal off the Strait with sea mines and asymmetrical warfare techniques for at least a month before the US could reopen it. The Pentagon itself has admitted as much.

If and when a war with Iran happens—even if there’s only a whiff of it happening—investors should expect the third and most dramatic oil shock, says Giambruno.

Connecting the dots

Based on authentic Ahadith, there are many prophecies on the signs of the impending Last Hour before this cataclysmic event itself happens. Analysing these Ahadith, Muslim scholars have classified them into minor and major signs.

The thinking behind this analysis is the Last Hour will not come until all the major signs have made their appearance, and in turn, the major signs will not come until all the minor signs have made their debut.

Analysis (a form of ijtihad) is required because the nature of prophecies is such that they are not precise or exact in details, for otherwise they would no longer be a prophecy. Hence, the Ahadith on the events preceding the Last Hour are, more often than not, allegorical (mutasyabihah) with respect to details and chronology.

Muslim scholars are in agreement on there being about 60 to 100 minor signs of the Last Hour before the emergence of the major signs, and they believe that all the minor signs have made their appearances.

The Hadith narrated by Imam Muslim below captures the essence of the 10 major signs of the Last Hour.

Allah’s Messenger (may peace be upon him, s.a.w) came to us all of a sudden as we were (busy in a discussion). He said: What do you discuss about? They (the Companions) said. We are discussing about the Last Hour. Thereupon he said: It will not come until you see ten signs before and (in this connection) he made a mention of the (1) smoke, (2) Dajjal, (3) the beast, (4) the rising of the sun from the west, (5) the descent of Jesus son of Mary (Allah be pleased with him, alaihi salam), (6) the Gog and Magog, and land-slidings in three places, (7) one in the east, (8) one in the west and (9) one in Arabia at the end of which (10) fire would burn forth from the Yemen, and would drive people to the place of their assembly.

But there are a few portents of the Last Hour mentioned in some Ahadith that could neither be classified as minor nor major signs. These include the coming of the Great War (Malhama) and the coming of Imam Mahadi contemporaneously with the coming of the Dajjal and the descent of Prophet Jesus son of Mary (as).

For lack of a better term, I would call these the intermediate signs that bridge the gap between the minor and major signs.

Let’s analyse another Hadith of Imam Muslim:

Allah’s Messenger (s.a.w) said, “The Hour will not be established (1) till two big groups fight each other whereupon there will be a great number of casualties on both sides and they will be following one and the same religious doctrine, (2) till about thirty Dajjals (liars) appear, and each one of them will claim that he is Allah’s Messengers, (3) till the religious knowledge is taken away (by the death of religious scholars) (4) earthquakes will increase in number (5) time will pass quickly, (6) afflictions will appear, (7) Al-Harj, (i.e., killing) will increase, (8) till wealth will be in abundance – so abundant that a wealthy person will worry lest nobody should accept his Zakat, and whenever he will present it to someone, that person (to whom it will be offered) will say, ‘I am not in need of it, (9) till the people compete with one another in constructing high buildings, (10) till a man when passing by a grave of someone will say, ‘Would that I were in his place (11) and till the sun rises from the West. So when the sun will rise and the people will see it (rising from the West) they will all believe (embrace Islam) but that will be the time when: (As Allah said,) ‘No good will it do to a soul to believe then, if it believed not before, nor earned good (by deeds of righteousness) through its Faith’ (6.158). And the Hour will be established while (12) two men spreading a garment in front of them but they will not be able to sell it, nor fold it up; and the Hour will be established when (13) a man has milked his she-camel and has taken away the milk but he will not be able to drink it; and the Hour will be established before (14) a man repairing a tank (for his livestock) is able to water (his animals) in it; and the Hour will be established (15) when a person has raised a morsel (of food) to his mouth but will not be able to eat it.”

In the above Hadith, Events 1-11 are all portents preceding the Last Hour (keyword: The Hour will not be established) while Events 12-15 are portents occurring just before the Trumpet is blown by Angel Israfil (keyword: The Hour will be established).

Since in this article, my purpose is to connect the dots between oil and the Last Hour, Event 1 fits the bill. In this regard, the coming third oil shock predicted by Giambruno arising from the unhappiness of US, Israel and Saudi Arabia over the issue of the regional balance of power favouring Iran, can be seen as the lead-up to the coming Great War (Malhama), just as the war in Syria is the lead-up too.

It does not take rocket science to read the US strategy in this regard. The stalemate in the war in Syria has forced Trump to go for a two-pronged strategy – on the offensive with Iran and seeking “détente” with North Korea.

With these two “nuclear-capable” nations being taken care of through this two-pronged strategy, the US can then singularly focused its attention on Syria by taking on Assad and the Russians in Syria.

Some Muslims scholars opine that the 1980 Iran-Iraq war is already a fulfillment on this prophecy of Event 1. This is incorrect. It’s actually a fulfillment of another prophecy (another intermediate sign):

Abu Huraira reported Allah’s Messenger (s.a.w) as saying: The Last Hour would not come before the Euphrates uncovers a mountain of gold, for which people would fight. Ninety-nine out of each one hundred would die but every man amongst them would say that perhaps he would be the one who would be saved (and thus possess this gold).Muslim

Abdullah b. Harith b. Naufal reported: I was standing along with Ubayy b. Kaab and he said: The opinions of the people differ in regard to the achievement of worldly ends. I said: Yes, of course. Thereupon he said: I heard Allah’s Messenger (s.a.w) as saying: The Euphrates would soon uncover a mountain of gold and when the people would hear of it they would flock towards it but the people who would possess that (treasure) (would say): If we allow these persons to take out of it they would take away the whole of it. So they would fight and ninety-nine out of one hundred would be killed. – Muslim

The idea of gold underneath a river (Euphrates) is an allegory of black gold i.e. oil. The above Hadith can also be considered as a precursor to the Malhama just like the current war in Syria, and the impending attack on Iran by the US as predicted by Giambruno.

Also note that in Event 1, two big groups were mentioned, whereas in the River Euphrates prophecy, there was no mention of big groups, which means the combatants were limited to just the two warring sides which was the case in the Iran-Iraq war.

Also mentioned in Event 1 is the fact that the combatants will be of the same religious doctrines. The Syrian crisis initially started with just two groups – the Assad government and the Syrian Mujahidins (both of the same religious faith). Later, the devilish ISIS joined the fray (still of the same faith).

In a matter of a few years, this tripartite war became a bigger group with the participation of US, Russia, Israel, Iran and Saudi Arabia in the war. Sources say US Special Forces and Russian elite paratroopers are already on the grounds in Syria, taking part in the war.

US, Russia and Israel can be considered as of the same “doctrine”, as they subscribe to the ideology of secularism – a doctrine which is either against or neutral to religion having an active say in the public domain of life.

The old Soviet Union is an example of the former (against religion) while the US, Israel and Russia (the successor of the Soviet Union), are examples of the latter (neutral to religion).

Based on some Ahadith, the venue of the Malhama is however, not in Syria or Iran but in another country.

Stay tune on this in my future post!

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Welcome to the Post-Truth World Order!

I had to scratch my head going through the materials while doing research for my article on the rapid development in Pengerang for Focus Malaysia, which was published early this month.

Apart from the confusion between what is Pengerang Integrated Complex (PIC) and Pengerang Integrated Petroleum Complex (PIPC), the question of whether the Saudi’s state-run oil and gas behemoth, Aramco will participate in the Refinery and Petrochemical Integrated Development (Rapid) project at the PIC added a further headache. And now my conclusion is the Rapid project in Pengerang will indeed be a rapid development, with or without the participation of Aramco.

To put the issue in perspective:

  • First, since late last year, we have had the morale boosting news that has further fuelled the sense of optimism in the oil and gas (O&G) sector in Malaysia that Petronas is set to make a final investment decision (FID) to bring in Aramco as its partner for the Rapid project, which is part of the PIC, which in turn is part of the bigger PIPC.
  • Next, in early January this year, came the comment from the Johor Petroleum Development Corporation (JPDC) CEO, Mohd Yazid Ja’afar, in my interview with him that ‘we were advised by Petronas that the Rapid project is progressing according to schedule and as of early January 2017, the progress update for PIC is at around 54% completion’.  I took this to mean there is really no problem for Petronas to complete the remaining 46% on schedule by early 2019, as it is not starting from scratch. And with the improved global oil prices expected this year, Petronas would have the wherewithal to finance the Rapid project on its own in the event that Aramco declines to participate in the planned partnership.
  • Then a week after the interview with Yazid, two seemingly contradictory news entered the fray – one from the Wall Street Journal quoting sources that Aramco has scrapped plan to partner Petronas in the Rapid project, and a Reuters’ report again quoting sources that Aramco has merely shelved the plan for the project.
  • In their response, both Petronas and Aramco said they would not comment on rumour or speculation, with the latter emphasising that it would continually evaluate new businesses.

Despite their response, post-truth phenomenon which one would normally associate with the Brexit vote and the Trump Administration started to pour in, which among other things, asserts without solid proof that Middle Eastern investors were losing confidence in Malaysia or Arab investors were fleeing the country or many other versions to that effect.

This has caught the ire of Second Finance Minister Johari Abdul Ghani who said the project was never led by the Saudis in the first place. He said Petronas had been executing it on its own “since Day One”.

“The funding of this project until its completion has always been based solely on Petronas’ own strength. The possibility of having Aramco as a partner to share the project was only an option. Since Petronas could not agree to some of the terms, the two parties decided to stop the negotiations and move on.”

He said Aramco and Petronas could “always revisit the negotiations” if they could come to an agreement at a later stage.

“Sometimes, in a negotiation or venture, we don’t get the terms that we want, and this is normal,” he said.

“We need to make sure that foreign investors coming into our country will create win-win situations for us and them. Things cannot be one sided.”

Taking into account that King Salman of Saudi Arabia will be visiting Malaysia soon, Johari’s explanation makes more sense. It is normal for a huge project like Rapid that takes the proposed form of an international joint venture (IJV) will have problems in negotiations, and normal too for Head of the respective governments in the IJV to help smoothen the problems.

Rapid momentum at the Pengerang Integrated Petroleum Complex (PIPC)

 Despite the challenging global economic climate and the controversy over attracting foreign direct investments (FDIs) which have caused the big global boys to dither on final investment decisions, the Johor Petroleum Development Corporation (JPDC) tasked with developing the Pengerang Integrated Petroleum Complex is optimistically on the ball to create momentum by wooing small and medium sized enterprises (SMEs) to partake in the development of the Complex.

Normally, the strategy is to get the big players to come first and then the SMEs will follow suit in their supporting and complementing roles. However, different circumstances require different strategies and that is why while understandably waiting for the big boys to arrive at a final decision, the JPDC ingeniously decides to welcome the SMEs first.

These days, the head honcho of the JPDC – a federal agency created under the Prime Minister’s Department, with the main mandate to plan and develop strategies for downstream O&G development in Johor – doesn’t have the luxury to think about other matters.

His mind is singularly focused on coordinating and driving the execution of development projects to make the PIPC situated on the southeastern side of Johor, Malaysia’s premier downstream O&G hub in the region.

A veteran of O&G with 15 years of experience as an engineer in Shell, and now helming the JPDC as its Chief Executive since 2012, Mohd Yazid Ja’afar has his job cut out for him when he and his team have to ensure that PIPC’s refining activity is operationally ready by early 2019. This is the next key milestone after the commencement of storage and trading activities in PIPC in April 2014 that has marked the start of PIPC operations.

Flurry of optimism bodes well for the Oil & Gas sector

After being in the doldrums since global oil prices plummeted from a peak of around US$115 per barrel in mid June 2014 to US$68 six months later, and hit rock bottom at US$26 in February 2016, the O&G sector is now brimming with optimism in Malaysia.

Analysts say the government’s unwavering focus – in the face of a challenging global economic climate – on developing a world-class O&G hub at Pengerang in Johor, which is envisioned to be similar to the Amsterdam -Rotterdam – Antwerp (ARA) model that has areas of refining, storage and blending capacities as well as market access, is responsible for this flurry of optimism.

The idea of developing the Pengerang Integrated Petroleum Complex (PIPC) as a driver of the country’s quest to be a regional O&G hub was conceived way back in 2007 during the heyday of rising oil prices.

The 20,000 acre PIPC was launched in 2012 amid much fanfare as part of the Economic Transformation Programme, making it the largest integrated greenfield development in a single location, equivalent to 3,500 football fields.

Pengerang was chosen due to its strategic location near shipping lanes, deep-water port facilities, large acreage and close proximity to regional demand centres.

Meanwhile, the Pengerang Integrated Complex (PIC) – part of PIPC covering an area of 6,242 acres – is a US$27-billion mega development that includes the Rapid project and six associated facilities.

It will complement the existing infrastructures, attract foreign companies to invest and invite potential collaborations with global partners in logistics and product distribution.

This is turn will spur the growth of Malaysia’s O&G downstream sector, thus pushing the nation into a new frontier of technology and economic development.

While development at the PIPC is within the purview of JPDC, PIC, on the other hand, is handled by the national oil company Petronas, being one of its key projects that would deliver future growth for itself and at the same time, complements the southern Johor economic corridor.

However, with the plummeting of global oil prices starting in the second half of 2014, many observers opined that countries like Malaysia, which are net exporters of oil and are very dependent on oil revenues to finance the growth of their economy, would be badly hurt.

Doomsayers were fast and furious in saying that with the upstream business of exploration and production (E&P) adversely affected with falling oil prices, the government and Petronas will be in dire strait to cough up the fund needed to develop the PIPC and PIC respectively. Reading their prognosis, it seems as if it is the end of the world for the O&G sector in Malaysia.

To the credit of the government and Petronas, they do not pay heed to this pessimism. On the contrary, they continue to strive and work hard to make the vision of a regional O&G downstream hub in Pengerang a reality by remaining steadfast in pursuing this vision and never once put a halt to the project, even when oil prices hit their bottom at US$26 per barrel in February 2016.

In an interview with FocusM, JPDC’s Chief Executive, Mohd Yazid Jaafar, says falling oil prices will definitely affect the upstream business associated with E&P, but it is actually a boon to the development of the downstream business.

“This is because the cost of developing and running refineries and petrochemical plants is much lower now. Liquefied natural gas (LNG) and the feedstock are cheaper too. Thus, the upside now is in the downstream sector.

“Moreover, projects such as the PIPC are the drivers behind decreasing federal dependencies on commodities, as we won’t be relying on locally produced crude oil. We’ll be importing (which is cheaper), adding value by processing the materials onsite, and basically moving Malaysia up the chain.” he adds.

The global oil market has been riding on a wave of euphoria after the Organisation of Petroleum Exporting Countries (Opec) announced on Nov 30 last year that it would cut production of crude oil by 1.2 million barrels per day (bpd) beginning Jan 2017 for a period of six months. On Dec 10, Opec managed to secure agreements from some non-Opec members including Russia to cut another 600,000 bpd, making a total cut of 1.8 millon bpd.

This cut would help to clear the long-standing glut of production and high inventory levels of crude oil globally and lift prices. But Opec warned that although the production cut would speed-up the re-balancing of the global oil market, it would not result in demand exceeding supply until the second half of this year.

But this is a good enough New Year present for the O&G sector in Malaysia, as it would mean oil prices will stabilize high enough to allow for the resumption of high E&P activity at the upstream level, spurring greater level of confidence and optimism in the industry.

 

p.s. So why do I give a heading of post-truth world order for this article? Post-truth politics/philosophy is now an emerging subject in political science and philosophy in some universities of the world. Its genesis began in the aftermath of the great recession of 2008 in which the divide between the have and the have-not was at its greatest and global household debt was at its highest due to the easy money policy brought about by quantitative easing (QE) of the US Fed that had driven interest rate to the lowest allowing people to borrow as if there is no tomorrow. All these caused dissatisfaction and deep seated grievances directed, whether rightly or wrongly, at the establishment. With social media rearing its ugly head, the situation is ripe for demagogues to exploit the social media and use it effectively by tapping into these deep-seated grievances. Thus, truth is no longer based on real objective facts but on who has the loudest voice in the social media. No wonder President Trump is the only US President who is very fond on the verge of addiction in using Twitter, Facebook etc in making his official pronouncements.

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JPDC WOOS SMEs TO PENGERANG PROJECT

Johor Petroleum Development Corp wants them to participate first before big boys come a-calling

By Jamari Mohtar

Focus Malaysia | February 4, 2017

 

DESPITE challenging times facing the oil and gas (O&G) industry, the Johor Petroleum Development Corp (JPDC) tasked to develop the Pengerang Integrated Petroleum Complex (PIPC) is pushing ahead to woo small and medium sized enterprises (SMEs) to develop the mammoth complex.

Normally, the strategy is to get the big players to come aboard first, followed by SMEs in support and complement roles. However, different circumstances require different strategies, and that is why while waiting for the big boys to make their final investment decision, JPDC has rolled out the carpet to welcome the SMEs first.

These days, Mohd Yazid Ja’afar, CEO of JPDC – a federal agency created under the Prime Minister’s Department, with the main mandate to plan and develop strategies for downstream O&G development in Johor – doesn’t have the luxury to think about other matters.

His is focused on coordinating and driving the execution of development projects to make the PIPC situated on the southeastern side of Johor Malaysia’s premier downstream O&G hub in the region.

Helming the JPDC since 2012, Mohd Yazid Ja’afar has his job cut out for him, as he and his team have to ensure PIPC’s refining activity is operationally ready by early 2019. This is the next key milestone after the commencement of storage and trading activities in PIPC in April 2014.

Platform for SMEs

Mohd Yazid tells FocusM about anchoring development on SMEs and the people of Johor.

“We want SMEs to treat PIPC as a platform to provide them with opportunities to realise their own visions. Just discuss with us your plan and we will help you to realise your vision through three industrial parks that our investors are going to set up this year at PIPC,” he says.

Launched in 2012, the 20,000-acre PIPC is part of the Economic Transformation Programme, making it the largest integrated greenfield development in a single location, equivalent to 3,500 soccer fields.

The industrial parks, occupying a total of 2,879 acres would provide space for investors of future downstream and support services to operate. “Our approach is to dedicate certain area of the industrial park for a particular sector SME in the value chain to interact and do business with the providers of core activities of PIPC in an inclusive and integrated way,” adds Mohd Yazid.

They are:

  • Dialog-Sungai Rengit Industrial Estate operated by Dialog Group Bhd. This 333 acres industrial park can accommodate petroleum and chemical storage facilities & warehouses, petrochemical manufacturing industries, bottling and drumming plants, and open yard storages;
  • Spektrum Budi-Pengerang Maritime Industrial Park to be developed on 1,760 acres of reclaimed land for activities like fabrication yard, oil terminal, warehousing and light industries; and
  • JCorp-Pengerang Industrial Park operated by the state-owned enterprise Johor Corporation (JCorp) for the first phase of the development on 786 acres.

Work on phase 1 of the first two industrial parks will start this month and phase 2 in January next year. JCorp started the application process for the development of JCorp-PIP late last year.

JPDC is working with several state-owned enterprises such as Perbadanan Islam Johor Holdings (PIJH) to provide spaces for bumiputera incubators.

It is also collaborating with JCorp to develop an area in PIPC for SMEs and downstream industries in the O&G supply chain, including those in the petrochemicals.

The idea is to create an ecosystem for different industries to complement each other. To bring this idea to life, it is also working with providers of services like communications and information technology to provide the right support.

“The state government-linked companies (GLCs) are the best partners for PIPC at this stage but private players are more than welcome as well. JPDC has engaged with various manufacturing association and groups including the Malaysian Plastics Manufacturers Association (MPMA) and we would like to urge private players to take advantage of the opportunities that such an ambitious project presents.

“For the GLCs, this project is a chance to help them monetise their land. All they need to do is develop the land and provide a space for the industries. For private players, PIPC offers an upside opportunity for them to come in as active participants along the value chain,” says Mohd Yazid.

With dedicated Government forums from both Federal and State to fast track development at the PIPC, the JPDC has been working hand in glove with the Johor state and federal authorities to provide the needed infrastructure for the people and workers at the PIPC.

These currently include the construction of a Taman Bayu Damai Police Station (to be completed in April this year), the new 4-lane dual carriageway ring road (end June 2017) and Health Clinic at Sungai Rengit (end Dec 2017). These are no ordinary public infrastructures but specialised ones to meet and adapt to the kind of dangers, mishaps or investigations that are unique to a mammoth, integrated complex such as PIPC.

The Johor Menteri Besar, Dato’ Mohamed Khaled Nordin recently launched the PBT Pengerang, the Pengerang local authority on Jan 16. This new local authority in Pengerang comprises people with the experience, expertise and track record of developing industrial park in Pasir Gudang that will help further improve the overall effectiveness and efficiency of PIPC’s development and management.

“The Johor State government intends to position the development in Pengerang as the catalyst for growth for the east Johor corridor. It hopes to transform the area into an economic district of global importance. The strategies on SMEs and public infrastructures are part of the transformation effort,” says the Chief Executive.

Global players

So what about the participation of global players in the O&G industry? JPDC’s head honcho admits that SMEs wouldn’t come aboard without big-name global companies participating in the PIPC project.

“Our strategy is to ensure that there is the presence of Fortune 500 companies to anchor the development. Their presence will definitely create confidence not only to fellow Fortune 500 companies but also the local and international SMEs to set up base in PIPC. And we already have two,” says Mohd Yazid.

Petroliam Nasional Berhad has been anchoring the development of the Refinery and Petrochemical Integrated Development (Rapid) project since 2012.

The other big player is Royal Vopak of Netherlands which together with Dialog Group Bhd and Johor State Secretary Incorporated (SSI), had formed a consortium since 2012 to build the Pengerang Deepwater Terminal (PDT), which has been operating since 2014.

Mohd Yazid says JPDC has seen a lot of interest from local and foreign potential invstors.

“However, due to falling global oil prices and a slowdown in China’s economy, some of the potential investors are a wait-and-see stance before making their final decisions.”

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Rapid on track despite Aramco blow

THE Johor Petroleum Development Corp (JPDC) is confident the progress of the Refinery and Petroleum Integrated Development (Rapid) project in Pengerang Johor will not be affected, despite reports that Saudi Aramco had scrapped plans to partner Petronas in the project.

Speculation had been rife that Petrolium Nasional Bhd (Petronas) will offer a 50% stake to Saudi Arabia’s state-run oil and gas giant, Aramco in the US$27 bil (RM119.6 bil) Rapid project.

However, foreign news report a fortnight ago indicated the deal is dead in the water. Both quoting sources, The Wall Street Journal said Aramco had scrapped its plan to partner Petronas in the Rapid project, while a Reuters’ report said the Saudi company had merely shelved the plan.

Nevertheless, JPDC officials are optimistic that with improving global oil prices expected this year, Petronas would have the resources to finance the project on its own even if Aramco scraps the planned partnership.

“We were advised by Petronas that the Rapid project is progressing according to schedule and as of early January 2017, the progress update for PIC is at around 54% completion,” JPDC’s CEO Mohd Yazid Ja’afar tells FocusM.

This mirrors the national oil corporation’s statement that the project is going ahead. “Petronas would like to clarify that its Pengerang Integrated Complex project will continue to be the focus of its downstream growth agenda in the coming years,” it said in its statement to Reuters. However, the statement made no reference to Aramco.

Aramco said it would not respond to rumour or speculation on the matter, emphasising that it would continually evaluate new businesses. It’s possible move to suspend plan for the Malaysian venture comes at a time when Petronas is struggling with the depressed oil price. Early last year, Petronas announced it would cut spending by up to RM50 bil over the next four years.

Rapid is part of PIC, and both are within the much larger Pengerang Integrated Petroleum Complex.