7 May 2007 - 14:58
  • News Code: 104029

KUALA LUMPUR -- Malaysia will build a $7 billion pipeline to transport Middle East oil across the north of its peninsula to East Asian countries, Prime Minister Abdullah Ahmad Badawi said Monday.

"Yes we have agreed," Abdullah told reporters.


Abdullah, who is also the finance minister, said that the project was one of the government"s major initiatives to develop Malaysia"s northern region.


"Anything that happens there is part of that, we take into account all of this. We have always wanted to do more for that area and that also will take care of the eastern corridor," he said.

Abdullah declined to elaborate.


The News Straits Times reported Monday that Trans-Peninsula Petroleum Sdn Bhd, the company that will construct the 312-kilometer (194-mile) pipeline, said that it will invest as much as $7 billion in the ambitious project over eight years.


The pipeline will run from northwestern Kedah state, across Perak state to northeastern Kelantan state, which faces the South China Sea, which chairman Rahim Kamil Sulaiman said would bypass the piracy-prone Malacca Strait.


Half of the world"s oil shipments currently pass through the 960-kilometer strategic strait, the busiest seaway in the world.


"The initial phase of 2 million barrels of oil per day is expected to cost about $2 billion, and the investment will increase to $4.5 billion and $7 billion upon completion of the second and third phases of the project, respectively," Rahim told the newspaper.


"Investors will also be invited, among them the key oil producers of the Middle East, Islamic funds, and major consumers in East Asia," he said.


Last month, Deputy Prime Minister Najib Razak said that the proposed project was intended to reduce transport costs and security risks for tankers on the Malacca Strait.


Yin Shao Yang, oil and gas analyst with Kenanga Research, said that there was much excitement over the mega project, with Middle East oil transported by the pipeline to "come primarily from Iran for the hungry Chinese market."


However, Yin cautioned that the "economics of the oil pipeline project is not determined yet," flagging ongoing competition with neighboring Singapore as Southeast Asia"s petro-chemical hub.


"Let"s say they want to transport Middle East oil to China, will it be cheaper through the oil pipeline and refining it in Malaysia or through Singapore. This is the burning question," he said. "If it is cheaper by sea, oil tankers will go to Singapore," he added.


Singapore processes at least 2 million barrels a day while Malaysia produces 550 million barrels per day, according to Yin.


Rahim said that tankers would offload crude oil from the Middle East in the coastal town of Yan in Kedah.


The oil will then be transported through the pipeline to Bachok on Kelantan"s coast, for distribution to countries in the East Asian region, he said.


There will be three storage tanks located in Yan, and Jeli and Bachok in Kelantan, while the initial storage capacity of the pipeline will be around 60 million barrels of oil, the newspaper said.


"This will be upgraded later to serve as the regional strategic reserve of the East Asian countries, especially China, Japan, and South Korea," it said.


Rahim also said that his company was not involved in the proposed construction of two oil refineries.




News Code 104029

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