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Greater Singapore could be world's largest oil storage hub

Greater Singapore – Singapore together with new terminals in Malaysia and Indonesia – could increase capacity by a third

Independent oil storage capacity in the Singapore area is seeing unprecedented growth, which could lead to Greater Singapore becoming the world’s largest storage hub. Over 2014 and 2015 new terminals in Malaysia and Indonesia – directly facing the shipping lanes into Singapore – and an expansion in Singapore will have added capacity equivalent to 32% of Singapore’s early-2014 petroleum storage capacity. Plans under study could add an even larger increment a few years later.

Some say that construction of so much new capacity in neighbouring countries will attract business away from the Singapore terminals and weaken the hub. But others argue that a growing Greater Singapore will have the capacity and clout to maintain the area’s dominant position in Asia’s oil supply. The oil business likes hubs, and Greater Singapore is the supreme hub for the world’s largest oil consuming region. 

Singapore’s development as a supply hub has been breathtaking, although volumes have been flat since the peak year of 2011. Sales of bunker fuel – Singapore is the world’s largest bunkering port – are seen as an indicator for total oil product movements through the port. Bunker fuel sales doubled in the eight years to 2011, when they reached 43.2 million tonnes, but then slipped to 42.7m tonnes in 2012 and 2013. Over the first nine months of 2014 sales amounted to 31.7m tonnes, unchanged from the same period in 2013, according to the Maritime and Port Authority.

However, Singapore’s main terminal operators claim their capacity is almost fully-utilised, so it is possible that the apparent plateau in oil movements points to the migration of some trade to terminals further afield. If so, the growth of capacity in Greater Singapore could attract it back.

Start-ups and plans

In April 2014, a new Vopak-operated terminal at Pengerang, Malaysia, received its first cargo of refined products. The Pengerang Independent Terminal, built on reclaimed land in the southern part of Johor state, and just east of the eastern tip of Singapore, opened with a clean-products capacity of 432,000 cubic metres (cm). Two further phases, due for completion by the end of 2014, will lift capacity to 1.284m cm.

The total includes 420,000 cm for crude and, with a draft of 24 metres, the terminal can accommodate tankers of very large crude carrier (VLCC) size. According to Singapore sources, the terminal has been able to attract business from traders which previously used floating storage, in VLCCs moored in international waters. Ownership is Malaysia’s Dialog with 45.9%, Vopak with 44.1% and Johor state government with 10.0%. 

There are plans for the expansion of the Pengerang terminal, eventually to 5.0m cm, to serve Malaysia’s planned 300,000 barrels a day (b/d) refinery and petrochemicals development in Johor. Petronas gave the go-ahead for the $16bn project – Refinery and Petrochemicals Integrated Development (Rapid) – in April, targeting start-up in early-2019. 

A second new Singapore-area terminal, to be operated by Oiltanking, is under construction at Karimun, one of Indonesia’s Riau islands. Karimun terminal, about 45 km southwest of Singapore’s storage installations, will have an initial capacity of 760,000 cm and is due to be ready for business in the third quarter of 2015. 

Oiltanking has cited the existing moored-tanked storage off Karimun as evidence of a market for fixed storage at the location, which is less than two hours’ sailing from Singapore. Trading company Gunvor will use part of the capacity, and has taken a minority interest in the terminal. The initial capacity will accommodate fuel oil and clean products, and the terminal will be VLCC-capable with a draft of 18 metres. An expansion to add 500,000 cm of capacity is being considered.

Another Singapore-area increment is due in mid-2015 when a 250,000 cm expansion at the Tanjung Bin terminal, on the coast of Johor, Malaysia, and just west of Singapore, is completed. The expansion will raise the capacity of the terminal, which opened in 2012, to 1.143m cm. The facility is owned by VTTI, a 50:50 venture between oil trader Vitol and MISC, the shipping subsidiary of Malaysia’s Petronas. Main main users are Vitol and Petronas.

Also in Johor and close to the eastern tip of Singapore is the Tanjung Langsat terminal, developed over the past five years and now with a capacity of 747,000 cm. Of that total, the original 100,000 cm facility is owned by the port while two expansions of a combined 647,000 cm are owned by Dialog with 44.0%, MISC with 36.0%, and a subsidiary of oil trader Trafigura with 20.0%. Part of the capacity is dedicated to Trafigura’s use. 

Meanwhile, two plans for large new terminals are being progressed. At Batam, Indonesia, China’s Sinopec has ambitions to construct a facility of 2.6m cm – which would make it the largest storage installation in Asia. The company is said to be in the design and pre-engineering stages of the project. Almost as large is the 2.0m cm terminal which Singapore company Concord Energy and Dialog plan to build at Pengerang, Malaysia. A feasibility study for the facility was started in late-2013. 

In land-limited Singapore, one expansion project is in progress. Kuo, the Singapore trading company which owns the Tankstore terminal on Busing island, is constructing 800,000 cm of new capacity. The expansion, on reclaimed land, will raise the capacity of the terminal to 2.0m cm.  Completion was targeted for first-quarter 2015 but the work is said to be ahead of schedule. Most of the additional capacity has been contracted, with Shell taking 530,000 cm and Total taking 150,000 cm, both for fuel oil. 

With no more land available for storage use, the city authorities are implementing an ambitious plan to provide underground storage in caverns blasted out from the rock under Jurong. In 2014, the first phase of the Jurong Rock Caverns facility, owned by state development corporation JTC and operated by Vopak, was completed. The first phase provides 480,000 cm of capacity and there is another 990,000 cm under construction. 

User of the initial capacity is the Jurong Aromatics joint-venture, whose 100,000 b/d condensate splitter started-up in August 2014. The facility’s 4.5m tonnes a year of condensate feedstock is being stored in the caverns, while the capacity under construction is designated for naphtha and gasoil. 

Increased competition

The start-up of new capacity, with more to come in 2015, has taken some of the fizz out of the Singapore storage market. Volumes are still high, capacity is well-utilised, but traders are less frantic than they have been to secure tank-space.

Mohamed Merican, a Singapore-based independent consultant in the storage business, says the new terminals in Malaysia and Indonesia are tempting users with discounts of 5%-10% against Singapore fees. Some customers have switched, but he says new users have been taking up the released capacity in Singapore. 

The main losers have been the operators of floating storage, in moored tankers, which have seen their users switch to Malaysian terminals. Floating storage is disadvantaged logistically compared with land terminals, but develops at times of high demand.

Oiltanking, whose new terminal at Karimun, Indonesia, is due to be completed in third-quarter 2015, links the squeeze on storage demand with the less-favourable trading environment. “Products trading remains highly competitive and margins are thin”, says Douglas van der Wiel, vice-president commercial of Oiltanking Asia Pacific. “Therefore, customers are critical of costs. This year we saw a few parties deciding to downscale or unwind certain desks, and demand has flattened slightly.” But, “a potential contango for middle distillates in 2015 may change that”. 

Meanwhile, “utilisation is still healthy, although it depends on each terminal’s customer portfolio, and tank-turns are good”, Van der Wiel says. The start-up of the Pengerang terminal has so far not had an effect on the Singapore business, “but the market is aware of significant capacity being added”.  

Oiltanking is already marketing its new capacity at Karimun – 760,000 cm for fuel oil, middle distillates and light ends. “We have base-load customers but also have capacity available to the market”, Van der Wiel says. The firm’s lists Karimun’s selling-points as segregation, flexibility, and high pumping-rates to give a quick vessel turnaround. One of the four berths is VLCC-capable. 

Oiltanking refers to Singapore together with the Malaysian and Indonesian terminals as the “Straits hub”. Van der Wiel says the new capacity is approaching the limit of the market “until the market catches up, which it is projected to do”. The growth in demand could start in 2015 and 2016, with the new refining capacity due on stream.

Other terminal operators stress Singapore’s attractions, and argue that logistical advantages can outweigh the fee discounts elsewhere. Cuthbert Choo, commercial manager at Horizon Singapore Terminals, says “the Pengerang terminal has attracted some customers who would otherwise have taken up storage capacity in Singapore”, and he expects the start-up of Karimun also to be felt in Singapore. 

But he says “business conditions are stable compared with 2013 – with some customers moving towards Malaysian storage, new traders have had the opportunity to take up storage capacity in Singapore”. Accordingly, “utilisation and tank-turns have not changed significantly over the past year”.

Bunker fuel supply continues to dominate Singapore storage. BP and Sentek have retained their, respectively, number-one and number-two positions in the bunker trade, according to port statistics, but Transocean has moved into third place followed by SK Energy and Shell. In total, there are 63 accredited suppliers. 

Of the 42.7m tonnes of bunker fuel sold in 2013, the MFO 380 grade accounted for 75%, down from 79% the previous year. The MFO 500 grade increased its share to 18%, from 15%. Over the year, more than 139,000 ships arrived in Singapore port, of which 22,617 were tankers.

New terminals to join price reporting

The increasing trade in refined products at the new terminals of Malaysia and Indonesia is set to be picked-up in Singapore prices. Platts, the price reporting agency, plans to widen its free-on-board (fob) Singapore prices to include trade at new Malaysian terminals from 1 July 2015, and is considering including Indonesian terminals subsequently.

Platts is carrying out a consultation on the proposal, which will cover prices for fuel oil, middle distillates and gasoline. The agency’s fob Singapore price assessments already include cargoes loaded at three Malaysian terminals – Pasir Gudang, Tanjung Langsat and, added most recently, Tanjung Bin. The firm says 54 trades at the three terminals were reported in 2013.

If implemented, the new system will allow the seller to nominate a loading-point in Singapore or Malaysia, and possibly Indonesia. If the loading-point imposes “demonstrable costs above the standard costs associated with loading from a Singapore terminal, extra costs would be borne by the seller”, Platts says. 

Platts is considering methodologies to compensate for freight costs and differing port costs. It recognises there could be other problems, including costs resulting from congestion at some terminals, unpredictable freight charges, and contract restrictions requiring fob Singapore cargoes to  have actually been loaded at Singapore. 

Another issue is that buyers of cargoes loaded at Singapore can benefit from the concentration of storage terminals nearby – perhaps to load multiple cargoes into a single vessel, or to buy in-tank, with no freight costs. Elsewhere, the options might be more limited.

Singapore fee indications

Sentiment in the Singapore oil storage market is in unusual territory. While volumes in-tank and movements through terminals are high and little-changed, the availability of new capacity is having a dampening effect on fee negotiations. 

The new terminals in Malaysia are pricing their capacity at 5%-10% below Singapore fees, market sources indicate. That discount – about $0.30-$0.60 a cubic metre (cm) – has become the terminal users’ starting-point for Singapore renewals.

However, there is plenty of room for negotiation. The Singapore operators know that being at the heart of Singapore’s oil installations has advantages, and even the short sailing across the Johor Strait has a cost. Users, on the other hand, know that operators of the new terminals argue their turnaround times are faster and their full package of costs is lower.

Also, it is not yet evident that capacity uptake in the new terminals is leading to empty space in Singapore’s tanks. Operators say that new users have emerged to take up such capacity as has been released, so utilisation is still close to maximum. The main losers from the new capacity appear to be the more-distant terminals in China and South Korea, and the operators of floating storage around Singapore.

The largest-volume products stored in Singapore are heavy fuel oil (HFO) and bunker fuel, together accounting for well over half of the storage business. Based on discussions with terminal operators and large users in November, Petroleum Economist’s assessment is that HFO/bunker fuel capacity is renting at $4.40-$4.70/cm per month, with the most recent contracts agreed at about $4.50/cm. A year previously, our assessment was $4.50-$4.80/cm. 

Terminal facilities can make a big difference to the logistics of handling HFO/bunker fuel. HFO is often delivered to Singapore – typically from Rotterdam – in tankers of very large crude carrier (VLCC) size, so terminals capable of accepting VLCCs, and unloading them quickly, can charge more than less advantaged facilities. The best terminals are understood to be achieving up to $5.25/cm for HFO. 

For middle distillates, the availability of new storage capacity is being countered partially by rising volumes. Historically, middle distillates flowed into Asia, through Singapore, from the Middle East but in recent years there has been an additional flow from the new refineries of Asia out to Europe. Nevertheless, middle distillate fees have declined since our survey a year ago. 

Petroleum Economist’s assessment is that middle distillates capacity is renting under recent contracts in the range $5.30-$5.60/cm, although some users with older contracts are understood to be paying $6.00/cm or a little more. A year previously, our assessment was $6.00-$6.30/cm. 

For low-flashpoint capacity, fees are now close to the middle distillate range, with a number of operators having converted some of their low-flashpoint tanks to handle middle distillates. Low-flashpoint capacity was attracting $5.30-$6.00/cm, according to Petroleum Economist’s soundings.

For all products, there are reports of lower fees being offered to win a contract. As always, the volume required, the term and the standing of the user have a bearing on the fee – large and established users will be able to secure a better deal than a little-known trader, wanting space for one cargo. 

All fees are monthly and include one fill and discharge per month. The exchange rate at the time of writing was S$1.29 to $1.00.

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