Singapore oil-storage demand drives area plans
The strength of the Singapore oil-supply hub has led to the firming-up of refinery and terminal plans close by in southern Malaysia
Singapore's oil traders and storage terminal operators did not exactly shrug-off the world’s economic difficulties, but they felt less pain than most. Flows through the Singapore hub have continued to grow, although traders say margins have been trimmed, while storage fees have increased.
But Singapore’s strength has given confidence to the backers of plans for competing oil installations in Johor, the southernmost state of Malaysia, separated from Singapore only by the narrow Johor Strait.
In May, state-owned Petronas firmed-up its plan to build a world-scale refinery and petrochemicals complex in southern Johor, with a start-up target of end-2016. The refinery will have a capacity of 300,000 barrels a day (b/d) and will supply its naphtha to the petrochemicals complex’s cracker, which will produce 3 million tonnes a year of ethylene, propylene and higher olefins. The $20 billion investment, said to be at the detailed feasibility-study stage, will include downstream plants for polymers and other products.
A month later, Vopak and Malaysia’s Dialog took the final investment decision on a new storage terminal at Pengerang, Johor – just east of the Singapore storage installations. The first phase of the development is due to start up in 2014, providing a capacity of 1.3 million cubic metres (cm), with tanks for crude oil and refined products. Another 1.0 million cm of capacity is to be built later.
Dialog envisages further expansion. The company says the Pengerang site – 500 acres of land reclaimed from the sea – will provide space for a capacity of 5.0 million cm, which it sees as being developed over 10 years. As well being close to international shipping routes and close to Singapore, Pengerang benefits from deep water – up to 26 metres. The initial six berths will be able to accommodate very large crude carriers (VLCCs). Vopak and Dialog, in a venture with Petronas, already have a 395,900 cm terminal for chemicals in Malaysia at Kertih, Terengganu.
Another new terminal is under construction in Johor. VTTI, the joint-venture between Vitol and Malaysia’s Misc, is building a facility at Tanjung Bin, for start-up in February 2012, with an initial capacity of 322,100 cm. By June, capacity is due to have been increased to 845,200 cm. Access is to be dredged to a 17 metre water-depth, allowing VLCCs to use the facility. Already operational in Johor is a terminal at Tanung Langsat, owned by a venture between Dialog, Trafigura and Petronas, and used exclusively by Trafigura.
Even more Johor capacity will come from the long-planned Asia Petroleum Hub, if engineering and financial problems can be resolved. Asia Petroleum Hub is a storage and bunkering facility, being built on an artificial island offshore from Tanjung Pelepas – and the island is said to be 60% complete, but work stopped when the soil was found to be unstable. The Asia Petroleum Hub company, controlled by Malaysian terminal firm KIC, went into administration, but there has been talk of a re-financing in recent months.
The facility, to be bridge-linked to the mainland, is planned to offer storage capacity totaling 940,000 cm. Multiple jetties will facilitate the transshipment, as well as offloading, of products and there will be a single-point mooring to allow ultra large crude carriers to offload.
Space-limited Singapore’s answer to the capacity problem is yet-more ambitious: the S$950 million ($749 million) Jurong Rock Cavern project. Caverns blasted-out of the rock 100 metres below Jurong island will provide a storage capacity of 480,000 cm on start-up in, it is targeted, 2013, with capacity set to rise to 1.47 million cm on completion of the first phase of the development.
The government’s development corporation, JTC, is paying for the Hyundai-managed construction work and will hand the project over to an operator on completion – JTC indicated that it will be calling for tenders for the operatorship soon, although little is known about the business model.
The first user is due to be the Jurong Aromatics venture, which is building a petrochemicals facility for start-up in 2014 and will store condensate feedstock in the caverns. JTC is in talks with other users, and plans that crude oil and naphtha will also be stored in the facility.
JTC is also moving ahead with another land-saving project: a floating-storage terminal to be built on a very large floating structure (VLFS), which will be installed adjacent to land at Pulau Sebarok. The facility, being referred to as Megafloat, will provide at least 300,000 cm of storage – the capacity of a VLCC tanker – and will be constructed on two steel or concrete modules.
Like the rock caverns, the floating terminal will be paid for by JTC and managed by an operator, which will have the option to take over the ownership subsequently. Vopak, whose existing terminal at Sebarok is adjacent to the planned Megafloat location, has been tipped to win the operator role, but the company says nothing is decided yet and JTC is "talking to many potential partners".
The volume trends point to a need for new Singapore-area storage capacity. Mohamed Merican, a Singapore-based consultant in the storage business, cites the planned new refinery and the new terminals in Johor as evidence of the emergence of a "Greater Singapore oil trade hub", building on Singapore’s existing independent capacity (see Table 1). But he warns that the new terminals will "aggressively entice customers with discounts off Singapore rates".
Volumes of oil products flowing through the port have continued to increase through the recession, driven by rising demand in China and elsewhere in Asia. Data compiled by Singapore’s Maritime and Port Authority (MPA) point to sales of ships’ bunker fuel in the port exceeding 42 million tonnes in 2011. Over the first nine months of the year, 32.2 million tonnes of bunker fuel was delivered, an increase of 5.6% over the 30.5 million tonnes of the same period in 2010. Deliveries have increased year-on-year for more than a decade and have doubled over the eight years to 2010, when they totalled 40.9 million tonnes.
With more than 127,000 vessels calling each year, Singapore is the world’s largest bunkering port by far. The arrivals included 15,093 oil tankers in 2010, together with 6,262 chemical and gas carriers. MPA’s figures show a sharp increase in use of the heavier 500 centiStokes grade of bunker fuel, MFO 500, in 2010, with deliveries up by 43.3%, to 5.3 million tonnes. Deliveries of the standard grade, MFO 380, were up by 10.6%, to 31.5 million tonnes.
BP is the largest operator in the bunker trade, according to the MPA, followed in 2010 by ExxonMobil and South Korea’s SK Energy. Greece’s Aegean Bunkering moved up to fourth place, with Turkey’s Global Energy Trading in fifth and Singapore’s Chemoil in sixth. Many small companies also operate, with a total of 80 firms listed as holding accreditation from the MPA.
With bunker fuel and heavy fuel oil accounting for over half of Singapore’s independent storage capacity, the growth in bunker demand has led to pressures on availability of land terminals. For some years, VLCC tankers have been moored nearby as floating storage units. But demand for clean-products storage has also increased, with gasoil volumes being particularly high in the second half of 2011. The late-September fire at Shell’s 500,000 b/d Bukom refinery, and its subsequent part-capacity operation, lifted gasoil prices and attracted large additional volumes to Singapore.
Even before the fire, trading company Glencore had hired a tanker to store gasoil in Singapore waters. In August, the company contracted a newly built VLCC from Hin Leong’s shipping arm for six months, paying a day-rate of $25,000. Merican says floating storage can cost less than 50% of land-based storage, Glencore’s day-rate being equivalent to a monthly fee of about $2.50/cm.
While the big picture looks positive, storage operators point out that users of their capacity focus on product margins and can take a more cautious view. At Vopak, Yeoh Sau Kin, commercial manager for petroleum storage in Singapore, says business conditions for the firm’s customers have weakened. "There is some price backwardation – when futures prices are lower than spot prices – fuel oil is not enjoying good margins and customers are facing tough times," he says.
Over 2011, Vopak saw strong interest from new customers. Yeoh Sau Kin says the new users include national oil companies and small start-ups, mostly wanting relatively small volumes of capacity – 50,000-100,000 cm – for clean products. He says demand is likely to support the new capacity being built in Johor and forecasts three to five years of interesting conditions for traders – "China is the driving engine for the world, and Singapore is where the action is." But beyond that period "a storm could be brewing", he says.
At Horizon Singapore Terminals, commercial manager Cuthbert Choo says the new Johor capacity "will affect the Singapore market as these new storage terminals are essentially targeting the same audience of traders based in Singapore". But, so far, the new capacity has seen "healthy subscription rates".
Choo says business conditions in Singapore in 2011 have been similar to the previous year. "Commercial utilisation has been virtually 100% and tank-turns have remained fairly stable, at around 10-12 turns a year," he says. "Traders continue to enquire about the availability of storage capacity for lease."
Singapore fee indications
For the second year running, fees for independent storage in Singapore have shown strong growth. With tank-space in such high demand, spot storage capacity is no longer available. Instead, sub-letting has developed as a significant feature of the market, allowing newer and smaller users to gain a foothold in Singapore – but at a premium.
High demand has widened the range of fees within each product-category, with newer and smaller traders having to pay top rates while long-established and high-volume users might do better. Advantaged terminals – those able to accommodate larger tankers and unload them quickly – can demand top fees.
The past year has also seen some divergence in fees for the different product-categories – low-flashpoint (held in tanks with vapour-recovery equipment), middle-distillates and heavy fuel oil (HFO, for which heating facilities are needed). HFO and bunker fuel was historically the lowest-value segment of the storage business, but a year ago, after a strong increase in demand for dirty-products storage, fees increased towards comparability with the other categories.
In 2011, however, demand for gasoil storage developed strongly, driven by the trade into China. Consequently, fees for middle-distillates capacity can now exceed fees for low-flashpoint capacity, reversing the previous relationship. (Although middle distillates do not require vapour-recovery facilities, most terminals have installed them on all clean-products tanks to give flexibility of use.)
Petroleum Economist’s assessment, based on discussions with terminal operators and large users in November, is that capacity for low-flashpoint products is renting at up to $6.00 a cubic metre (cm) a month. One large trading company indicated that it was paying about $5.60/cm, while a terminal manager said that if a tank became available he would ask $6.20/cm – the same as he asks for middle-distillates capacity.
Middle-distillates capacity is assessed as renting in the range $5.30-6.20/cm, although there was talk of a trader agreeing to pay $6.50/cm for capacity needed immediately. Singapore buzzes with rumours – hardly ever verifiable – about traders’ positions, but this figure might have gained support from a terminal manager’s opening offer of $6.70/cm for capacity next year.
Most HFO and bunker-fuel capacity appears to be renting at around $5.50/cm, but some large users are likely to have contracted capacity in the range $5.00-5.50/cm. Large volumes of HFO arrive in Singapore in very large crude carriers (VLCCs) and terminals able to accommodate these vessels can charge a premium fee. One large trading company is said to have sub-let some HFO capacity for $5.90/cm, which it has on contract at $4.35/cm.
Although Singapore’s facilities are in high demand, competition from floating storage in VLCCs and from terminals elsewhere can set a limit on asking prices. HFO and bunker storage in a VLCC, hired at a day-rate of about $25,000, can cost only $2.50/cm for a month, although the logistics are less favourable than for a land terminal. Singapore sources said new terminal capacity at Yeosu, South Korea, due to be available in the second half of 2012, is being offered by GS Caltex and SK Energy in the range of $4.70-5.70/cm for clean products.
Also putting a brake on fees is the trading margin for the product. A trader said selling bunker fuel, quoted at $710 a tonne in November, might provide a margin over the import cost of about $45/t – but selling it as cargo would give a margin of only about $3/t, "so you would not want it in-tank for long".
Storage-fee forecasts for 2012 evidently price-in the possibility of squeezed product margins, with one market authority envisaging lows in the range of $5.25-5.35/cm for clean products and a low of $4.35/cm for HFO. But the more optimistic view sees fees for clean products of up to $6.00/cm, with fuel-oil capacity attracting $4.85/cm. The exchange rate at the time of writing was $1.27 to S$1.00.