2012 Independent Storage Survey: Singapore and the Malaysian challenge
Some say the construction of oil storage terminals in Johor, Malaysia, will strengthen the “Greater Singapore hub” – but others say new capacity will spoil the fun
Demand for independent oil storage capacity in the Singapore trading and supply hub has been increasing year-on-year, generally a step or two ahead of growth in capacity. But that could change. The Malaysian government is promoting the construction of oil terminals along the coast of Johor, separated from Singapore by the narrow Johor Strait.
Malaysia sees a future for itself as an oil hub, with operations in trading, supply, refining, petrochemicals and gas. The government is offering special benefits – including a corporate tax rate of only 3% – to attract trading companies to the country. Trading companies need independent storage capacity, so incentives and land are on offer and a target has been set of constructing 10 million cubic metres (cm) of capacity by 2017 – a volume greater than Singapore’s present independent petroleum storage capacity.
The government agency responsible for developing the Johor area says the new capacity will "complement" that of Singapore. With continuing growth in Asia’s oil use and in regional refining capacity, demand for hub services is certain to increase. Accordingly, new storage capacity in Johor will allow what some are referring to as the "Greater Singapore hub" to keep business which might otherwise go elsewhere.
But the Malaysia Petroleum Resources Corporation (MPRC), set up in 2011 to implement the expansion plan, and reporting directly to the prime minister, seems to have a more competitive target. It says it wants to position Malaysia as "the number-one oil and gas hub in the Asia-Pacific region by 2017". MPRC’s flagship project, the Pengerang Integrated Petroleum Complex, is to provide "oil refineries, naphtha crackers, petrochemical plants and a liquefied natural gas (LNG) import terminal", all on a single site of 8,100 hectares, facing the eastern tip of Singapore.
Also in this year's survey:
Capacity growth driven by refining trends
ARA is better in Rotterdam
US fundamentals shaky for oil storage
The refinery planned for the complex, Petronas’s Rapid (Refinery and Petrochemicals Integrated Development) facility, is due for a final investment decision in mid-2013, after the front-end engineering and design work is completed, by Technip, in the second-quarter. The 300,000 barrels a day (b/d) refinery is due on stream at the end of 2016 and will supply its naphtha and liquefied petroleum gas (LPG) streams to adjacent petrochemicals facilities, for which Petronas has been signing contracts with chemicals producers.
Meanwhile, the storage terminal at Pengerang, the Pengerang Independent Deepwater Terminal, is under construction by a venture made up of Malaysia’s Dialog, 45.9%, Vopak, 44.1% and Johor state government, 10.0%. The facility is due to open in the first quarter of 2014 with an initial capacity of 1.3m cm. An expansion of 1.0m cm is planned and land for further expansions is available, eventually to give a total capacity of 5.0m cm.
The terminal will handle incoming crude for the petroleum complex – with a water-depth of up to 26 metres, it will be able to accommodate VLCC tankers – and also clean products. Vopak said it has almost finished the land reclamation and has started laying foundations for the tanks.
Dialog and Vopak already have a terminal in Malaysia – a 395,900 cm facility for chemicals at Kertih, Terengganu, in which Petronas holds 40% and Dialog and Vopak have 30% each. Another Dialog venture – Dialog, 44.0%, the Petronas subsidiary Misc, 36.0% and a Trafigura subsidiary, 20.0% – has the Tanjung Langsat terminal in Johor, which opened its doors in 2009. Tanjung Langsat, used solely by Trafigura, provides 130,000 cm of capacity for naphtha and middle distillates. Dialog says 270,000 cm of fuel oil capacity is under construction.
The most recent Johor start-up was in April. The ATB terminal at Tanjung Bin was constructed by VTTI, the 50:50 venture between Vitol and Misc, and provides 890,000 cm of capacity for fuel oil, gasoline and middle distillates. VTTI says the new capacity is fully leased-out and it is about to start work on an expansion, adding 222,000 cm by August 2014. There is land available to raise total capacity to 1.7m cm (see box).
Singapore’s options for responding to Malaysia’s development plans are limited by its lack of land – hence the ambitious Jurong Rock Caverns project, under which storage caverns are being blasted out of the rock below Banyan basin, Jurong island. The government’s development corporation, JTC, which is paying for the work, confirmed in November that the first two caverns will be completed in 2013, providing a capacity of 480,000 cm. The first phase of the development is due for completion at the end of 2014, when capacity will be 1.47m cm.
JTC says it has started the process to select an operator for the caverns and expects to name the company by early-2013. The user of the first two caverns will be the Jurong Aromatics venture, which is constructing a 100,000 b/d condensate splitter and facilities to produce aromatics and transport fuels on Jurong island. Condensate feedstock will be stored underground. Completion of the complex is on target for early 2014, Jurong Aromatics says.
But with expansion possibilities limited, Singapore’s existing terminals are desirable assets. Oiltanking acted quickly to buy the Helios terminal, on Jurong, in October when the owner, Glencore-controlled Chemoil, said it wanted to sell to pursue "an asset-light business model that is more able to respond quickly to volatility in volumes and margins". Chemoil, a marine fuels supplier, is to continue to operate its bunkering business from Helios.
Oiltanking paid $285m for the facility, with a capacity of 503,000 cm. Helios was purpose-designed for the storage and blending of fuel oil, and was completed in 2008. The acquisition lifts Oiltanking’s petroleum capacity in Singapore by 37%, although it is still number-two to Vopak (see Table 1).
An Oiltanking executive described the acquisition as "a rare opportunity" to add capacity in the Singapore trading and bunkering hub. "Helios terminal is fully rented-out on long-term contracts, and it poses the least-risk project profile in this area" he said. Additionally, "the acquisition of Helios terminal allows [us] to balance our portfolio by increasing our storage capacity for fuel oil". Oiltanking does not plan large-scale changes at Helios "because the customers there are already storing on a long-term basis".
With its concentration of oil facilities and its vast physical trade, Singapore is still the main attraction for traders – although some complain about the costs of being there. Mohamed Merican, a Singapore-based consultant in the storage business, says Malaysia’s new capacity will be competitive for Singapore storage fees but "will further enlarge the environment for oil trading".
Why Tanjung Bin?
VTTI, the 50:50 venture between Vitol and Malaysia’s Misc, opened its first terminal in Asia in April and has a list of reasons why users should be attracted to the facility at Tanjung Bin, on Malaysia’s Johor coast. Jasper Schmeetz, commercial manager for VTTI in Asia, says: “First, it is cheaper than Singapore”.
“Port costs in Tanjung Bin are 60% lower than Singapore’s, and storage rates are discounted to Singapore rates”, he says. According to market sources, Tanjung Bin rates are about 15% lower than those in Singapore. Wharfage fees are only 50% of those in Singapore, with Schmeetz citing inbound fees of Malaysian Ringgit 0.25/t ($0.08/t) compared with S$0.20/t ($0.16/t) in Singapore.
Additionally, he says Tanjung Bin’s jetties are much less congested than those in Singapore, giving faster turnarounds and fewer demurrage claims. There are other customers at the terminal to trade with and to transfer products to directly. The terminal provides blending facilities, and there are SGS and ITS laboratories on-site.
Schmeetz says Tanjung Bin has won accreditation from Platts from 1 December to allow clients to trade ex-Tanjung Bin “in the window” – the period before the market closes – at prices on parity with the Platts Singapore MOC (market-on-close) assessment.
There could be one other incentive for prospective long-term customers. Market sources say VTTI is prepared to offer a small equity participation in its planned expansions, returning annual dividends and reducing storage costs. Schmeetz says there is land available to construct another 820,000 cubic metres (cm) of capacity, in different phases.
The Phase 2A expansion, on which construction work is to start in January, will add 222,000 cm of new capacity by August 2014. The expansion will accommodate all products, two tanks having heating facilities for fuel oil. The new tanks will be connected to all five existing jetties, and additionally a new VLCC berth is to be constructed. Draft at Tanjung Bin is 17.5 metres but VTTI is discussing increasing it to 21-22 metres.
Tanjung Bin’s existing capacity – 890,000 cm – is made up of 343,000 cm for fuel oil, 220,000 cm for gasoline, 222,000 cm for middle distillates and 105,000 cm which can handle gasoline and middle distillates. The main users are Vitol and Petronas.
Storage capacity elsewhere in Asia and in the Middle East is increasing and operators are eyeing Singapore business, Merican says. But an enlarged Singapore-Johor hub will have the size, location and efficiency to fend-off the opposition.
The physical trade through Singapore continues to increase, although the rapid expansion in bunker-fuel deliveries was trimmed in 2012. According to the Maritime and Port Authority (MPA), bunker deliveries totalled 32.3m tonnes over the first nine months of the year, only slightly up from the 32.2m tonnes in the same 2011 period. Bunker deliveries have been growing at high rates – the 2011 total, 43.2m tonnes, was 5.6% up compared with 2010, while 2010 showed growth of 12.3% over the previous year. Deliveries have doubled over the past eight years.
Positions in this profitable trade showed an upheaval in 2011: China’s Brightoil leaped to the number-two position, after having been outside the top-10 the previous year. The largest bunker supplier in 2011 was BP – which in 2010 lost most of its fuel oil traders in Singapore to Brightoil, although it is said that Brightoil is now losing some to other firms. ExxonMobil and SK Energy held third and fourth places in 2011, with 79 companies participating in the bunker business in total.
MPA statistics say the swing from light bunker fuel to the heavier grades has accelerated. Over the first nine months of 2012 deliveries of light 180 centiStokes bunker fuel, MFO 180, declined by 25.8% compared with the same months the previous year, while deliveries of the heavy MFO 500 grade increased by 8.2%.
Over January-September 2012, the main bunker grade, MFO 380, accounted for 79% of deliveries, while MFO 500 accounted for 14% and MFO 180 held a share of 3%, with marine gasoil and other fuels contributing 4%. Of the nearly-128,000 vessels calling at Singapore in 2011, 22,280 were tankers – 15,861 oil tankers and the others carrying chemicals, LNG and LPG.
Products and margins
After years of growth in the bunker trade it is estimated that 65% of Singapore’s independent storage capacity is now occupied by bunker fuel and heavy fuel oil. Merican says bunker trade margins have been attractive, at $30-50/t. Gasoline margins are in the range $10-20/t.
Traders, however, report that their margins have been squeezed over the past year – and trade margins track back into storage fees. At Horizon Singapore Terminals, commercial manager Cuthbert Choo says "Business conditions in storage remain fairly stable", despite the "increasingly difficult trading environment". He says utilisation and tank-turns are little changed from a year previously.
On the challenge from new capacity in Malaysia, Choo says "storage in Singapore is still the preferred choice among traders". The start-up of the VTTI terminal in April "has not had a significant effect on the Singapore storage market", he says.
Oiltanking agrees. "The start-up of new capacities in Malaysia has thus far not had much of an effect on the Singapore storage market" an executive said. "The terminals in Malaysia have not been fully operational, and more storage capacity is required to cater for the anticipated increased volume in this region. Singapore will remain the preferred location due to its strength as a major pricing and trading hub, excellent facilities and ease of doing business. Unfortunately, Singapore has no more land for terminal expansions."
Oiltanking says business conditions in Singapore tank-storage are stable "although there have been more-cautious sentiments being expressed by clients as a result of economic conditions in Europe, the US and major Asian countries". Utilisation and tank-turns are at similar levels to the previous year but "we are seeing more customers looking into system-supply", instead of trading, the company says.
VTTI Asia’s commercial manager, Jasper Schmeetz, agrees that the market is strong enough to support new capacity. "We see a very strong demand for storage capacity, and this is additional capacity being asked for – not people who want to relocate their existing storage position to our terminal necessarily", Schmeetz says.
As evidence of the demand, he cites the 13 VLCC tankers, permanently moored off Singapore as floating storage to fill in the gap between supply and demand. The ships provide a capacity of about 3.5 million cm, which Schmeetz views as indicating a shortage of that volume of land-based storage. "In other words, the market is definitely there to support more capacity", he says.
Floating storage has logistical disadvantages compared with storage in land terminals, but there is one big attraction: substantially lower costs. For much of 2012, day-rates for VLCCs were significantly below $20,000, which for a vessel capable of holding 2m barrels corresponds to a monthly cost of less than $2.00/cm.
Singapore fee indications
The main theme of the Singapore storage market continues to be high demand. Accordingly, most capacity is let long-term, under contracts running from one to three years. For some years now, spot capacity has been virtually unobtainable. Instead, sub-letting has become a significant feature of the market, allowing newer users to gain a presence in the world’s fastest-developing oil supply hub.
The market structure – predominantly long-term with some short-term and sub-letting – has widened the range of fees generally, with long-established and large users paying significantly lower fees than the newer and smaller traders. Terminal facilities also have a bearing on fees, with the ability to accept VLCC tankers, and to unload them quickly, supporting higher rates.
The main market development over the past year has been a decline in fees for heavy fuel oil (HFO) and bunker oil capacity. Petroleum Economist’s assessment, based on discussions with terminal operators and larger users in November, is that HFO capacity is renting in the range $4.60-5.10 a cubic metre (cm) a month, down from our assessment of $5.00-5.50/cm towards the end of 2011. However, one operator with VLCC capability said he had rented-out capacity at $5.50/cm and was looking for a higher fee for 2013 renewals.
Competition from floating storage, in VLCC tankers moored off Singapore, sets a base-line for HFO storage. With vessel costs to the operator being as low as $2.00/cm (see above), the fee to users can substantially undercut the fees at Singapore’s terminals – although bunkering logistics can be less favourable from a tanker moored offshore than from a land terminal, so many bunker suppliers prefer to pay a premium to use a land facility.
Demand for clean-products capacity was driven over the past year, as it was in 2011, by the volume of gasoil flowing in to Singapore and out to China. Consequently, fees for middle distillates capacity have risen to, at least, parity with low-flashpoint fees. As most large operators have now installed vapour-recovery facilities – necessary for low-flashpoint products – on all their clean-products tanks, to give flexibility of use, the distinction between two categories of the market is blurring.
Petroleum Economist’s assessment is that middle distillates capacity was renting in November in the range $5.60-6.20/cm – similar to our assessment of $5.30-6.20/cm a year previously. One large trading company indicated it had contracted capacity for 2013 at $5.75/cm, saying gasoil volumes were certain to increase. A terminal operator said he would ask for $6.25/cm for any capacity which became available.
Low-flashpoint capacity was renting in the range $5.40-6.20/cm, with a long-established trading company saying it was paying the lower figure. A year previously, our assessment was up to $6.00/cm. There were reports of a Chinese trader agreeing to pay “nearly $6.50/cm” to sub-let capacity for a few months.
All fees are monthly and include one fill and discharge per month. The exchange rate at the time of writing was S$1.22 to $1.00.