A terminal official was responding to an announcement on Wednesday by Singapore engineering group PEC that it had won a S$245 million (RM588 million) deal to build an 841,000-cu m terminal at Tanjung Bin, Johor, to store fuel oil and middle and light distillates. The new terminal — for oil trader Vitol and MISC — will compete for the same pie as Singapore, a terminal official here said yesterday. The terminal is scheduled for completion by March 2012.
The Tanjung Bin terminal will supplement an existing terminal at Tanjung Langsat that started operating last September with 130,000 cu m of storage. A second phase with a further 270,000 cu m is slated to be ready in March. Tanjung Langsat is operated by MISC with oil trader Trafigura.
This doesn’t include an estimated two million cu m of oil stored by Singapore traders aboard VLCCs anchored off Johor.
International traders operating in Singapore, such as Vitol and Trafigura, have had to resort to using Johor for storage because of the shortage of tank space here.
Trafigura, for instance, has about 250,000 cu m of storage in Singapore but is using VLCCs moored off Johor, as well as Tanjung Langsat’s joint venture terminal.
Vitol, similarly, has tanks in several locations here, including Tuas and Senoko. “But given the volumes it trades, even the new 841,000 cu m Tanjung Bin terminal may not be enough for its own needs,” the Singapore terminal official said. “So, whether the Tanjung Bin terminal spells competition for Singapore depends on whether it is for the owners’ own needs or for third-party use.”
Recent JTC estimates show that even though 3.5 million cu m of new oil storage space will be added to the existing 4.6 million cu m, Singapore still faces a shortfall of at least three million cu m.
This is why JTC is building underground storage such as the first phase S$890 million Jurong Rock Cavern, and will decide by March whether to build very large floating structures for oil storage, once it completes feasibility studies.
“Still, it remains to be seen whether the current strong demand for storage space here is sustainable,” said the Singapore terminal official.
“Vitol, for instance, is not building the Tanjung Bin terminal in Johor because terminalling is good business, but rather because it needs the storage capacity.”
The terminalling business in the past 12 months has been supported by contango in the oil market — delivery prices for futures exceed current spot prices — which encourages traders to store oil.
“Should demand for storage fall in future, most traders would likely not give up their Singapore storage capacity because of the good logistics and lower political risk here,” the terminal official said. “Will they give up Johor storage then? The question is how much discount the terminals there will give”.