Oil and Gas


Labuan has been making international headlines so far as the oil and gas industry is concerned over the last one year or so and placing Labuan as an important onshore base for the industry.
Nevertheless, Labuan is also fast becoming an oil and gas hub particularly upon recent discovery of oil and gas offshore Labuan and the ongoing construction of a second Mega Methanol by Petronas in Labuan. In line with that, various support service providers (upstream and downstream) are converging in Labuan to participate in related projects. Many of them are multinationals with operations throughout the world. Reliable and efficient logistic services are being sought to ensure the projects are running on schedule.

Second Petronas Mega Methanol Plant
The construction of the second Petronas Mega Methanol Plant is now underway. The project which is adjacent to its existing plant at Rancha-Rancha Industrial Estate in Labuan was awarded to Lurgi AG of Germany which also constructed the first plant. The scope of work comprises all engineering services, procurement, construction supervision and commissioning. The first plant with daily capacity of 2,000 metric tons went on stream in 1985.
When commencing its operation at the end of 2007, the new plant will have a production capacity of 1.7 million metric tonnes annually or 5,000 metric tons per day of methanol derived from about 150 million standard cubic feet per day of natural gas from gas fields offshore Sabah. At present, the worldwide methanol output stands at around 30 million tons per year. This new plant will double the output of methanol in South East Asia. So far, three methanol plants are in operation in South East Asia. Lurgi’s Mega Methanol technology allows for the currently most cost-efficient processing of natural gas to methanol, an important base material for the petrochemical industry. Methanol produced from the new plant will be supplied to the domestic market as well the growing markets in Southeast Asia, North East Asia and India. It is understood that, upon completion, Labuan will become the world's third largest supplier of methanol after Trinidad and Iran.
The RM1.5 billion plant is expected to create jobs for about 2,400 workers, including main contractors and sub-contractors' employees and bring in over 150,000 MT of construction materials and equipment into Labuan. This huge project has created excitement among industry players, not least from LLPM as the vast majority of cargo would be handled at Labuan Liberty Port. LLPM is working around the clock to ensure cargo is handled efficiently and speedily. Apart from storage services, LLPM is capable of providing other value added services such as container handling, transportation and freight forwarding. Senior executives representing contractors and support service providers for the project have visited the Port and held discussions with LLPM over the last six months to learn more about the facilities and services available at the Port. Among them are Lurgi AG, Murphy Oil, MISC, Ramunia Fabricators Sdn Bhd, Single Buoy Moorings Inc, Lehnkering Projects & Logistics, and Rohde & Liesenfeld. These meetings are critical in establishing standards and expectations of these multinationals and how LLPM and the port can meet their requirements and support the oil and gas industry. Methanol is a chemical building block used to produce formaldehyde, acetic acid and a variety of other chemical intermediates, as well as methyl tertiary butyl ether (MTBE), an oxygenate used in cleaner burning petrol.
Methanol is also the basis for silicones, refrigerants, adhesives, specialty plastics and coatings, textiles and water treatment chemicals.
Good Times To Keep Rolling for Oil & Gas
THE Malaysian oil and gas (O&G) industry is looking forward to a period of exponential growth driven by rising exploration and production activities globally.
ANALYSTS expect the good times to continue rolling in for the local oil and gas (O&G) players. Frost & Sullivan programme manager (power and energy) Subramanya Bettadapura sees Malaysia emerging as a focus area for many multinational oil companies for exploration and production.
“The upstream O&G industry in Malaysia should see a lot of investments in the coming years. Deepwater exploration is expected to grow this year, driven by higher oil prices. At the same time, soaring oil prices will increase demand for natural gas as industrial, business and residential consumers switch to natural gas to meet their energy needs,” he said in a research note.
Subramanya anticipates the O&G fields discovered during the last two to three years to come onstream from this year to 2010.
“Equipment and service providers to these industries stand to gain. Deepwater and ultra deepwater oil fields are areas of development and provide opportunities. It is estimated that 10% of offshore oil came from deepwater fields in 2004. In 2015, this percentage is expected to be nearly 25%,” he said. He sees rejuvenating old oil fields as another activity that holds promise since over 50% of oil fields in the country are more than 15 years old. “Retrofitting new technologies to existing facilities to increase production provides service and technology companies with opportunities,” he said. OSK Investment Research senior manager Chris Eng expects a slew of contracts to be announced this quarter and the next. “Coming up should be increased contracts in relation to the deepwater fields offshore Sabah as they move into the development stage. With eight deepwater fields being developed from 2010 to 2013 and with development times for deepwater likely to be longer at three to four years, we expect to see more contracts,” he said.
Eng believes another area of growth is in the downstream business with Petroliam Nasional Bhd (Petronas) building a mega methanol plant in Labuan and a base oil refinery in Malacca. In addition, Singapore is also ramping up its refinery and petrochemical activities. Another development is the Kimanis O&G receiving terminal in Sabah and the gas pipeline from Kimanis to the LNG complex in Bintulu. “So downstream players will get a lot of contracts,” Eng said. According to Eng, demand for drilling fluids and services to support developmental drilling should also continue rising. He reckoned with an expected 15 to 20 new drilling rigs in Malaysian waters over the next five years – at a cost of US$200,000 per day for each rig – should require some RM4bil of spending.
“Add on the expected 65 to 70 new platforms, of which the larger ones can cost US$400mil and require at least one marine support vessel each, it should be clear that O&G companies – as long as they maintain their costs – should be in for a great time in the next four years at the least,” he said. He expects the O&G companies to register double-digit growth in terms of revenue and profit this year. OSK has buy calls on KNM Group Bhd, Tanjung Offshore Bhd, Dialog Group Bhd and Petronas Gas Bhd.
Avenue Securities Sdn Bhd analyst Tursina Yaacob sees good prospects ahead for O&G players. “Many of these companies have successfully landed new contracts as well as extensions of their current ones. The mergers and acquisitions, which took place over the last 18 months had been positive and had started to contribute to bottom lines,” she said. The stockbroking firm favours O&G companies with niche operations, especially in the upstream segment where margins are higher, have international operations and strong earnings stream to support growth. Companies with international operations are less dependent on businesses in Malaysia. “They not only get to leverage on the growth in the industry in other regions but also stand to benefit from the global demand for O&G and capital expenditure (capex) by oil majors,” Tursina said. Avenue’s stock picks are KNM, Wah Seong Corp Bhd and Petra Perdana Bhd. However, she cautioned that a sudden fall in oil prices could affect the industry. “A significant decline in crude oil prices could cut the oil major’s capex, thus reducing job opportunities for the local players. While the long-term trend has been stable, short-term fluctuations may throw off expansion and maintenance schedules,” she said. She added that many of the listed O&G companies were also dependent on Petronas and the domestic market for job opportunities. This will not only limit their order book and earnings growth, but also the potential of commanding higher margins. “Expansion funded by borrowings would also weaken O&G companies’ balance sheet and deter them from further capacity expansion and/or acquisitions,” Tursina said.
Another challenge is the rising prices of raw materials, especially for some manufacturing-based O&G companies. For instance, raw materials used in anti-corrosion systems and pipe coating are exposed to price fluctuations.
Written By The Star Online
Government Ponders New Petrochemical Zones
THE Government is considering new petrochemical zones to promote the industry, according to the IMP3. Potential areas include Bintulu, Gurun, Tanjung Pelepas and Labuan, while existing zones such as Kerteh, Terengganu, Gebeng in Pahang and Pasir Gudang-Tanjung Langsat, Johor will see upgrading in facilities. Such initiatives are important since the industry offers much growth amid the rising demand for petrochemical products in the region, especially in China, Cambodia, Laos, Myanmar and Vietnam.
Nevertheless, the development of new areas will be costly, given the high investments required to set up facilities such as upstream linkages to a refinery or gas processing plants.
Additionally, three new crackers are expected to be built to provide additional feedstock to encourage capacity expansion of existing petrochemical plants.
The targeted investments amounted to RM34bil and exports projected at RM36.7bil in 2020. The private sector will be encouraged to invest in the support facilities, infrastructure and supply services. These investments will be undertaken via a consortium or joint ventures to enable the sharing of costs in building and maintaining the facilities.
Written By The Star Online