Economic Update
Brunei Shell Petroleum (BSP) is to supply natural gas to Brunei Darussalam’s first world class methanol manufacturing plant, a landmark project for the country, which will kick start its downstream activities as well as stimulate economic diversity.

The agreement signed between BSP and Brunei Methanol Company (BMC) will secure the supply of natural gas to the plant for 21 years. BMC is an international joint venture between Mitsubishi Gas Chemical Company (MGC), Brunei National Petroleum Company (PetroleumBRUNEI) and Itochu Corporation (ITC), a Japanese trading company. MGC holds a 50% stake in the company as well as the production licence while PetroleumBrunei and ITC hold 25% each.

At the signing ceremony, Grahaeme Henderson, the managing director of BSP, said, “Since natural gas is the feedstock required to produce methanol, we fully appreciate the pivotal role that has been entrusted to us in BSP to shape the eventual success of this flagship industrial project.”

The methanol plant will be located at Sungai Liang Industrial Park, a 16 acre area created by the government to spur economic growth by leveraging Brunei Darussalam’s hydrocarbon resources. This is the country’s first mega industrial project since its independence in 1984.

Construction at Sungai Liang is already underway with mechanical completion expected at the end of 2009. The plant is scheduled to begin commercial operation in the first quarter of 2010. It is expected to have a production capacity of 2,500 metric tonnes per day or 850,000 metric tonnes a year.

“We see the development of our energy sector in three waves. The first wave occurred in 1929 when oil and gas was discovered of the coast of Seria. This was the beginning of upstream activities and the birthday of the modern Bruneian economy. The second wave was 35 years ago in 1972 when we started producing LNG for export to Japan. Now, this year, we are entering into the third wave, which is the emergence of downstream industries. We refer to this process as extending the energy value chain,” Timothy Ong, the chairman of Brunei Economic Development Board, told OBG.

The project will be targeting the Asian methanol market where the demand is expected to see remarkable growth over the coming years compared to other markets worldwide. In 2005, the demand for methanol stood at 33m metric tones and is predicted to grow at an annual rate of 2-3% worldwide. Within the Asian market, the demand for methanol is expected to grow at 5-6%.

Kinya Tsuji, the CEO of Brunei Methanol Company, told OBG, “100% of the methanol will be exported with MGC as our secure buyer. They have very good experience in Saudi Arabia and Venezuela with methanol production so we are able to use their operational experience, knowledge and support. This way, we can also contribute to building human capital in Brunei Darussalam.”

Methanol was chosen as an ideal primary material for chemical production due to its potential to develop a variety of derivatives. The largest use of methanol is for the production of formaldehyde. The second largest user is found in the production of Methyl Tertiary Butyl Ether (MTBE), which is blended into automotive fuel as an octane enhancer. Methanol also has numerous end products which can be moulded into plastic parts, hand tools, plumbing and hardware.

Such spin off industrial opportunities from the methanol project could become available in Brunei Darussalam once the plant begins producing. The government aims to set up derivative industries at the industrial park, which would likely involve foreign direct investment or local-foreign joint ventures. A few project proposals have already been brought to the table, including a world class fertiliser plant and a bio-diesel plant.

In addition to widening the country’s petrochemical base, the plant will create fresh employment opportunities as well as generating positive involvement from local small to medium enterprises (SMEs). 27 jobs will be created between now and 2008 with an additional 125 jobs opening up once the plant is fully operational. Once the plant begins commercial operation in 2009, servicing companies will be in a position to provide supporting business to the project such as general maintenance, equipment provision, transportation, security, cleaning, legal and accounting services.

The government has also consented to the establishment of the Sungai Liang Authority, a one-stop-shop authority to help facilitate the involvement of investors into Brunei Darussalam’s downstream industrial developments. The authority will undertake all approvals required for projects in Sungai Liang Industrial park and it is hoped the authority will help reduce the time taken to grant and process approvals.