Under the plan, crude oil shipped from the Mideast would be refined in Kedah on the northwestern coast and pumped through the 300-kilometer (185-mile) pipe to Kelantan on the eastern coast. It would then be loaded onto tankers bound for Japan, China and South Korea, completely bypassing Singapore and the Malacca Strait.

Work on the pipeline will begin next year and finish in 2014, said Rahim Kamil Sulaiman, chairman of the project owner, Trans-Peninsula Petroleum Sdn. Bhd.

"This is not a political project. It is a commercial undertaking. The project is economically viable," he told a news conference.

Rahim said the pipeline will be a substitute for the Straits of Malacca, through which half the world"s oil is shipped.

The strait is also notorious for robberies and hijackings, although the number of attacks has fallen since Malaysia, Indonesia and Singapore, which share the waterway, increased patrols in 2005.

Around 30 percent of vessels that transit the strait are oil tankers, he said, adding that the company aims to divert 30 percent of the traffic once the pipeline is completed.

Rahim said the timing of the pipeline is perfect as the oil market is shifting to East Asia, with China now being the world"s second-largest oil consumer.

Earlier Monday, Trans-Peninsula signed an agreement with Malaysia"s Ranhill Engineers and Constructors as well as Indonesia"s PT Tripatra for the design and construction of the pipeline. The signing was witnessed by Prime Minister Abdullah Ahmad Badawi and visiting Indonesian President Susilo Bambang Yudhoyono.

Trans-Penisula has also tied up with Saudi Arabia"s Al-Banader International Group for oil supplies but has given no details.

Funds for the construction of the pipeline will come from local and foreign investors, Rahim said but declined to reveal details.

Kedah Chief Minister Mahdzir Khalid told reporters that two refineries, costing a total of US$9 billion (€6.92 billion), will be built in Kedah by 2010 with a combined refining capacity of 450,000 barrels a day.

Malaysian companies SKS Ventures and Merapoh Resources Corp. are expected to unveil details of the refineries in August, he said.

In a statement, Trans-Peninsula said the project will create reserve oil facilities for Asia, which accounts for about a third of world oil consumption.

It said offshore mooring facilities will be built in Yan in Kedah and Bachok in Kelantan to accommodate very large crude carriers, while a major storage tank will be built in Jeli in Kelantan.

In the first phase to be operational by mid-2011, it said the pipeline can carry 2 million barrels of oil a day with a 60 million barrels of storage capacity. This will triple to 6 million barrels a day of throughput and 180 million barrels storage when fully completed in 2014, it added.

"There will be a faster turn around of oil tankers. Congestion in the Straits of Malacca will be eased. There will be ample strategic reserve of crude oil reachable within seven days to East Asia," it said.

It currently takes oil tankers up to three weeks to sail through the strait to reach east Asia.

Rahim said construction will abide by environmental guidelines and will be designed to traverse through the least settled areas to minimize social impact.

PIN/AP