Deals signed on pipeline that seeks to divert Malacca Strait oil

KUALA LUMPUR (AFP) - Malaysian, Indonesian and Saudi Arabian firms on Monday signed agreements for construction of a pipeline that aims to divert 20 percent of oil flowing through the strategic Malacca Strait, the project owner said.
Malaysia's Trans-Peninsula Petroleum Sdn Bhd said it signed an agreement with Malaysia's Ranhill Engineers and Constructors Sdn Bhd and Indonesia's PT Tripatra to build the pipeline at an estimated cost of seven billion dollars over seven years.
Trans-Peninsula Petroleum, the owner and promoter of the project, said it signed separate memoranda of understanding with Bakrie and Brothers of Indonesia to supply pipes, while Al-Banader International Group of Saudi Arabia will provide the oil.
Prime Minister Abdullah Ahmad Badawi first announced the development earlier this month as part of the government's effort to develop Malaysia's northern region.
"We have always wanted to do more for that area and that also will take care of the eastern corridor," he said at the time.
Badawi witnessed the signing with Indonesian President Susilo Bambang Yudhoyono on the sidelines of the annual World Islamic Economic Forum, aimed at boosting cooperation among Muslim communities.
"When the entire project is completed in 2014, TRANSPEN pipeline will divert about 20 percent of oil transiting through Straits of Malacca, proportionately easing the congestion in the Straits," Trans-Peninsula said in a statement.
Half of the world's oil shipments currently pass through the 960-kilometre (595-mile) Strait of Malacca, the busiest seaway in the world, which links the Indian Ocean and the South China Sea.
The Strait was notorious for pirate attacks but security officials, who fear the economic and strategic ramifications of any disruption to the vital maritime traffic, say security has vastly improved.
"Everyone can use the pipeline. It is to direct traffic away from the international waterway of the Straits of Malacca," Rahim Kamil Sulaiman, chairman of Trans-Peninsula Petroleum, told a news conference.
In its statement, Trans-Peninsula said the pipeline, about 300 kilometres in length, will cut across Malaysia's northern states of Kedah, Perak and Kelantan. It will have support facilities for deep-draught tankers at either end.
Rahim said the oil will come mainly from the Middle East but also from Africa for "the East Asian oil market".
He said "we have made known our projects to both China and Japan, especially China".
Government data in China say the country's crude oil consumption rose 7.1 percent year-on-year in 2006.
Phase one of the oil pipeline project is expected to begin in 2008 after land acquisition and environmental and social impact assessments, Trans-Peninsula Petroleum said.
Plans call for an initial 48-inch (122-centimetre) pipeline with a throughput of two million barrels a day and storage capacity of 60 million barrels. It would be operational by 2011, the company said.
After four to five years of operation, capacity would be upgraded to a maximum of 180 million barrels of storage and six million barrels per day throughput, it said.
Deputy Prime Minister Najib Razak has said the proposed project was intended to reduce transport costs and security risks for tankers on the Malacca Strait.
"It's a very expensive solution to a problem that doesn't seem that severe, frankly," said Jason Feer, of energy market analysts Argus Media Ltd in Singapore.
While traders would save three days' sailing time, the logistics involved and the cost of using the pipeline would leave "a pretty marginal benefit," he said.
"In the end, the big test will be, will banks loan them money to build this?" Feer told AFP.