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.
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.
- 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.
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.”
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.