Petronas, as it is known, will construct a crude oil refinery with a capacity of 300,000 barrels a day, a naphtha cracker, petrochemicals and polymer facilities in Pengerang, in the country’s southern state of Johor, Prime Minister Najib Razak told reporters in Kuala Lumpur today. It may also construct a liquefied natural gas import and re-gasification terminal in the area, he said.

The project, scheduled for completion in 2016, will help the nation compete with Singapore, which has a refining capacity of more than twice as large even though it has no natural energy resources of its own. Malaysia and Indonesia, Southeast Asia’s biggest oil producers, have lagged their neighbor in investing in specialist downstream facilities, which traditionally produce higher margins.

“This signifies the depth of Petronas’s ambition to capture the opportunities that Asia’s dynamic energy and chemical markets are expected to provide in the decades ahead, especially in the specialty chemicals segment,” Najib said. “These efforts will also strengthen and help diversify the country’s export capabilities.”

Boosting Capacity

Petronas, Exxon Mobil Corp. and Royal Dutch Shell Plc operate refineries in Malaysia with a combined capacity of 551,700 barrels a day, according to data compiled by Bloomberg.

Exxon, Shell, Chevron Corp. and Singapore Petroleum Co. operate refineries in Singapore with a daily capacity of 1.32 million barrels, according to data compiled by Bloomberg. They import crude from overseas, including Indonesia, for processing and re-export.

“The threat to Singapore is not Malaysia,” John Vautrain, a Singapore-based senior vice-president at U.S. energy consultancy Purvin & Gertz Inc., said in a telephone interview. “If there was a threat to Singapore, people talk about Shanghai or the Arab Gulf. Shanghai is obviously a much larger consumption center, but the problem is there’s not much free trade. It’s not a shipping hub the way that Singapore is.”

The Johor oil and gas hub will complement Malaysia’s Economic Transformation Program, under which the government has identified $444 billion of private-sector led investment to champion in the current decade.

Deep Water

The Johor hub is likely to attract “significant investments from international companies within and further down the business value chain,” Shamsul Azhar Abbas, chief executive officer of Kuala Lumpur-based Petronas, said in a statement. The company is open to partners joining the project, Shamsul told reporters.

Dialog Group Bhd. (DLG), based in Selangor, Malaysia, is constructing Southeast Asia’s first deepwater petroleum terminal in the same area in partnership with the Johor state government and Rotterdam-based Royal Vopak NV, the world’s biggest chemical and oil storage company.

“Pengerang has been chosen as the site because of its water depth of up to 26 meters, which is one of the deepest in Southeast Asia,” Alex Goh, an analyst at AmResearch Sdn., said in a report on May 11. This would make it accessible for very- large and ultra-large crude carriers.

The Johor refinery will be bigger than the combined capacity of Petronas’s existing facilities in Melaka and Kerteh, Najib said. It will produce refined petroleum products such as gasoline, jet fuel and diesel for local use and export, he said.

Chemicals Complex

The naphtha cracker will produce about 3 million tons of ethylene, propylene and olefins a year, Petronas said in its statement. The accompanying petrochemicals and polymer complex will make highly specialized chemicals it said. This would be bigger that the combined capacity of its existing facilities in Kerteh and Gebeng on Peninsular Malaysia’s east coast, it said.

The Malaysia government wants to help transform Johor into and oil and gas hub. France’s Technip SA (TEC) this month opened a 20- hectare plant in the area to produce flexible pipes and subsea umbilical systems used in deepwater oil and gas fields.

Dialog operates the 500 million-ringgit Langsat storage terminal nearby that opened in February 2010. Amsterdam-based Trafigura Beheer BV, the world’s third-largest independent oil trader, is the main user of the facility.

Langsat is less than 30 miles (48 kilometers) away from Singapore, Asia’s biggest oil-storage and trading center, where Dubai-based Emirates National Oil Co. and closely held trader Hin Leong Trading Pte. have storage facilities.

Petronas will decide on whether to proceed with the Johor LNG terminal and re-gasification project by year-end, Shamsul said. It is already constructing a re-gasification plant in Melaka state which other companies can tap when completed in mid-2012, he said.