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Petronas to pull out of Pengerang project in Malaysia?

Malaysia’s state oil company Petronas’s CEO Shamsul Azhar Abbas has been quoted by Bloomberg News as having said that the company may scrap the US$20 billion refining and petrochemicals project in the Pengerang Integrated Petroleum Complex (PIPC) project at Malaysia’s southern Johor state that borders Singapore. The company is said to be undertaking a strategic review on the costs and potential returns before making a final investment decision by the first quarter of next year.

Meanwhile, Taiwan’s Kuokuang Petrochemical Technology has also been reported to be thinking of scrapping its plans to build an integrated refining and petrochemical complex in PIPC due to unfavourable project economics. According to CPC Corp., the main shareholder in Kuokuang, the firm is still waiting for results of an environmental impact assessment before it decides. Kuokuang signed a letter of intent on land investment with the Johor government in July last year. The investment proposal passed a detailed environment impact assessment (DEIA) and the report is now under the scrutiny of the Environment Ministry.

Reasons for the flagging interest in PIPC could be the up and coming shale gas extraction, that has taken off in the US and China, as opposed to naptha cracking. The global trend of shale gas extraction has had an impact on the performance of naphtha cracking. Using ethane in shale gas, as the raw material for ethylene, only costs half of the amount as compared to using the traditional raw material of naphtha.

Shamsul was quoted as having said that the upstream costs will be high and that “anything with negative returns would be scrapped.”

Petronas reported a 3.6% drop in its second-quarter profit as lower crude prices countered an increase in output. Its net income fell to US$3.8 billion in the three months while revenue climbed 5.2%. “Looking around there’s nothing to be excited about in the global economy,” Shamsul said. “There are strategies we have put in place to achieve targets and commitments.”

Spanning 22,500 acres, PIPC is the country’s largest ever infrastructure project and will house oil refineries, naphtha crackers, petrochemical plants as well as a liquefied natural gas (LNG) import terminal and a regasification plant. Petronas, Malaysia’s only Fortune 500 company, has signed heads of agreements with Italy’s Versalis, Japan’s Itochu and Bangkok-listed PTT Global Chemical to build speciality chemical plants. Germany’s Evonik also stepped in to the project after compatriot BASF pulled out, citing differences in business strategies.

Petronas’s RAPID project includes a 300,000 barrel/day refinery, which would supply naptha and liquid petroleum gas to the chemical plants and produce gasoline and diesel for European markets.


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