Petronas board approves US$27 bn Pengerang development

Malaysia’s state oil and gas company Petronas will proceed to invest US$27 billion towards the development of the Pengerang Integrated Complex (PIC) in Malaysia’s southern Johor, which comprises a world scale Refinery and Petrochemical Integrated Development (Rapid) and petrochemical development as well as other associated facilities. Rapid is estimated to cost US$16 billion, while associated facilities, including raw water supply and power co-generation plants, and a liquefied natural gas regasification terminal, will involve an investment of about US$11 billion. The first stage of the project is the refinery, which is expected to start up by early 2019, more than a year later than the targeted 2017 announced earlier.

Petronas CEO Shamsul Azhar Abbas said that the company undertook a rigorous review of the project, including independent third-party assessments to ensure it meets the criteria for long-term profitable and sustainable growth, calling it a “commitment to capital discipline.”

He added, "We will continue to work closely with the federal and Johor state governments to ensure the project's smooth implementation. In a relatively condensed period of time, we have accomplished a lot of work in establishing an excellent base to move forward with confidence to implement our plans."

Drop-outs early in the project

The project was announced in 2011 and initially scheduled for 2017 completion, but it has encountered problems with land acquisition and relocation of residents. Last year in August, a Bloomberg report quoted the Petronas Chairman as having said that the firm may not proceed with the investment in Pengerang if the costs and returns proved unfavourable.

In December, Taiwan’s Kuokuang Petrochemical Technology, a subsidiary of state refiner CPC Corp, decided to pull out of Pengerang. Its US$12 billion petrochemicals plan comprised a refinery, naphtha cracker and other plants. The firm said the project no longer seemed competitive and feasible due to the shale gas boom in the US, as opposed to naptha cracking, which is driving down the production cost of petrochemicals, and due to an oversupply situation in China.

Later, German chemical giant BASF also ended plans to jointly develop speciality chemicals manufacturing facilities with Petronas, citing differences in business strategies

LOIs signed

Petronas, Malaysia’s only Fortune 500 company, has, meanwhile, signed letters of intents with Italy’s Versalis, Japan’s Itochu and Bangkok-listed PTT Global Chemical to build speciality chemical plants. Germany’s Evonik Industries also stepped in to the project after compatriot BASF pulled out.

The PIC is part of the larger Pengerang Integrated Petroleum Complex (PIPC) proposed and promoted by the Johor state government. Spanning 22,500 acres, PIPC is the country’s largest ever infrastructure project. With its strategic location along one of the world’s busiest shipping lanes and its proximity to international trading hubs, the PIPC is being groomed to be the next regional downstream oil and gas industrial hub.

Developed within a 6,242-acre site, PIC will consist of a 300,000 barrel/day refinery and a petrochemical complex with a combined capacity of producing 7.7 million tonnes/year of various grades of products including differentiated and speciality chemicals products such as synthetic rubbers and high grade polymers.

Construction on PIC will commence upon the full handover of the project site to Petronas by the state government, though no timeline has been stated. Following the decision by Petronas, its partners' respective FIDs will be announced in due course upon the approval of their respective boards.

At the peak of its construction, the PIC project is expected to have a workforce of about 70,000 people with varying skills and disciplines. In its operational stage, the PIC will require over 4,000 employees.

The project will further strengthen Petronas’s position as a key player in the Asian chemicals market, focusing on key growth areas of differentiated and speciality chemicals and capturing the growing automotive, pharmaceutical and consumer products sectors. Domestically, the PIC will contribute towards meeting the growing demands for petroleum products and Euro 4M and Euro 5 specification fuels.


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