Energy pricing agency Platts has approved a new storage terminal in southern Malaysia set up by a joint venture of oil trader Vitol to participate in its assessment process for oil products, a step that could strengthen the region’s role as a trading hub.

The move will also allow the Geneva-based trading house, which is a major player in the Asian market, to take bigger trading positions and gain greater flexibility.

Platts, which provides Asian benchmark assessments for most oil products traded in the region, will include Malaysia’s new Tanjung Bin storage terminal in its pricing process for fuel oil, diesel, jet fuel and gasoline from Dec. 1, the unit of McGraw Hill told subscribers.

“Platts will continue to review the relative value of deliveries from southern Malaysian terminals compared with deliveries from landed storage within Singapore itself, and adjust normalisation values,” it said in a note this week.

Vitol, the world’s largest independent oil trader, has a combined storage capacity of more than a million cubic metres of both dirty and clean products in commercial terminals in Singapore, which is Asia’s largest oil trading hub.

In recent years, Singapore, which is just about three and a half times the size of the U.S. capital, Washington D.C., has been struggling to meet Asia’s expanding demand for oil storage.

The city state’s reluctance to allot more land to oil storage facilities has triggered a series of oil infrastructure projects in southern Malaysia, as well as a move to get them recognised in the pricing process.

The Tanjung Bin terminal, a joint venture between Vitol and Malaysian state-run shipper MISC, started operations in April.

It comprises 41 storage tanks with total capacity of 841,000 cubic metres of fuel oil, gasoline and middle distillates. Another 1.6 million cubic metres of storage are planned to be added by the third quarter of 2013.

On the Platts’ list, Tanjung Bin joins more than 10 terminals in Singapore, the Malaysian port of Tanjung Langsat and the adjacent Pasir Gudang, as well as some floating storage units.

PROS AND CONS

Some traders saw the approval of Tanjung Bin as a move to increase liquidity in the pricing process, but doubted it would provide a viable alternative to Singapore, since costs might prove a deterrent to some dealers.

“It is good for Vitol, but might be bad for those active Platts players who have (cargoes in) Singapore storage, as it will mean one more major competitor, (and) the freight differential may kill it,” said a Singapore-based trader.

He was referring to port charges traders must pay to move cargoes to Tanjung Bin from Singapore, the world’s third largest oil trading hub, once they change hands on the Platts’ platform.

“If you buy at Tanjung Bin and discharge in Singapore, there will be two port charges and it will take more time as well… about half a day,” a second trader said.

Although storage costs at the Malaysian terminal are estimated to be about 15 to 20 percent lower than in Singapore, some traders were reluctant to move away from their client base.

“Who it will benefit will depend on your operations … if I’m a tenant at Tanjung Bin, I’d like it, as I gain by being close to Vitol, and in addition, Vitol has to discount its price further,” the first trader added.

Tanjung Bin has five berths, the largest of which can accommodate a very large crude carrier (VLCC), with a maximum draft of 17 meters. The jetty carries four 30-inch fuel oil pipelines and six smaller pipelines for clean products.