Economic View


How is the Pengerang Integrated Petroleum Complex (PIPC) project progressing?

MOHD YAZID JA’AFAR: Outside of China, the PIPC is the largest project of its type under construction in Asia, and its development will add value to Johor’s downstream oil and gas sector. Given its size, spanning 80 sq km, the PIPC is being developed in phases. At the moment, we are focused on completing phase one of PETRONAS’ Refinery and Petrochemical Integrated Development (RAPID) facility. The project is moving forward within the planned timeframe, with 65% of the work already completed. If construction continues to progress as predicted, PETRONAS’ new refinery is expected to start production in the first quarter of 2019, and phase one of PIPC will be completed in 2020-21.

Further down the road, our objective is to create the right ecosystem to make the PIPC a sustainable project with adequate industry support services. PETRONAS’ RAPID facility will certainly benefit from Dialog’s Pengerang Independent Deepwater Petroleum Terminal (PIDPT), which has been performing very well since it became operational in 2014. The terminal has actually benefitted from the low oil prices by offering oil and gas companies plenty of onshore storage for their crude oil. This is because the industry is said to be in contango, a period in which companies prefer to store their crude shipments and wait for prices to rise above the future market spot price. Notwithstanding the current sluggish demand for oil, the PIDPT has already served around 1000 vessels since 2014. 

To what extent have global economic volatility and other external events affected the development of the PIPC?

MOHD YAZID: From a domestic perspective, a weaker Malaysian ringgit has made the country an attractive place for investors and has helped the exporting sector. Like any other project with the magnitude of the PIPC, its successful implementation depends on the constant and careful evaluation of a number of different issues, including the global economic conjuncture. We are currently reviewing the PIPC’s master plan – a process that is expected to be concluded by the end of 2017. Initially, the plan projected the entire integrated complex to be completed by 2035. However, low oil prices forced us to critically reassess our strategy. That is why we are reviewing the master plan in collaboration with all public entities and state agencies that participate in the project, either directly or indirectly.

Even as the future of the oil market remains hard to predict, we still see tremendous growth potential in refining. One just needs to look around South-east Asia to see that countries such as China, Myanmar, and Vietnam are upgrading their refining capacity. As for other external events, the end of the Trans-Pacific Partnership was negative for regional economies, and China is certainly looking to fill the void left by the US.            

What are your thoughts on the outcome of negotiations between Saudi Aramco and PETRONAS over RAPID?

MOHD YAZID: We are not privy to the details of the negotiations but we understand that they have been long and hard. Both PETRONAS and Saudi Aramco found multiple synergies that they can explore, and I believe the partnership is beneficial for both companies. On the one hand, PETRONAS would have secured access to Middle Eastern heavy crude oil while guaranteeing Saudi Aramco to supply up to 70% of the crude feedstock requirements of the refinery. On the other hand, Saudi Aramco would have gained entry to South-east Asia – a strategic location from which it can easily supply markets such as China, India, Japan or Indonesia – for the next 20-30 years.

What have been the main operational challenges in the development of the PIPC?

MOHD YAZID: Malaysia has all the necessary conditions to commission and develop a project of this magnitude, particularly because of its developed oil and gas industry and know-how regarding construction and infrastructure. Given our solid background in these areas, our biggest challenge is the lack of capacity in retaining domestic talent. Johor’s proximity to Singapore can explain part of the problem since the city-state’s higher wages are extremely attractive for local workers. Furthermore, the devaluation of the ringgit and the ongoing crisis in the oil and gas sector, particularly in the upstream segment, have only contributed to making this challenge more acute. We are working with other government agencies to address this to ensure our oil and gas industry remains resilient.