Wednesday 28 Feb 2024
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This article first appeared in The Edge Financial Daily, on March 1, 2017.


KUALA LUMPUR: The Pengerang Refinery and Petrochemical Integrated Development (Rapid) project opens a new chapter today. The Saudi Arabian Oil Co (Saudi Aramco) is pumping in US$7 billion (RM31 billion) to hold equity stake in selected assets in the massive petrochemical project in Pengerang, southern Johor.

Saudi Aramco has entered into a share purchase agreement (SPA) with Petroliam National Bhd (Petronas) to equally own some facilities, including 300,000 barrels per day (bpd) processing capacity, and a steam cracker plant capable of producing three million tonnes of petrochemicals annually.

Through the joint venture (JV), Saudi Aramco will supply up to 70% of the crude feedstock requirements of the refinery. Petronas, on the other hand, will supply gas, power and other utilities.

The SPA was signed during Saudi Arabia’s King Salman Abdulaziz al-Saud’s visit to Malaysia.

“The signing of this agreement is truly a historic moment for the industry as it is not often that two professionally run national oil companies enter into a partnership in a world-scale greenfield project.

“Now we have long-term crude supply security for the refinery. This region is also a focus for Aramco, and together we will develop this business,” said Petronas group chief executive officer (CEO) Datuk Wan Zulkiflee Wan Ariffin (Wan Zul) said at a press conference yesterday.

Wan Zul noted this will be the only agreement on a JV basis for Rapid.

The deal also ended speculation that the Arab oil giant had pulled out from the Rapid project, valued at US$27 billion in total. “When the news came out, we did not elaborate to the media, as we were planning for this occasion,” Aramco CEO Amin H Nasser said.

“There was no intention to break out of the negotiations. It started three years ago, and we knew from the beginning that it will end with signing of partnership. We came with the intention to stay and to form a strong partnership with Petronas.

“From the Aramco standpoint, this is a final investment decision [on Rapid]. We have always wanted to be here in Malaysia,” Amin added.

The first phase of Rapid is targeted for completion sometime in mid-2019. Other than the aforementioned facilities, Rapid will house petrochemical plants, liquefied natural gas import terminal and a regasification plant.

The complex will sit alongside an existing oil storage site. Other facilities in the pipeline include a 1,220mw power plant, 72km of gas pipeline, a deep-water terminal and a 260 million litre-per-day raw water supply plant.

Rapid forms part of the 22,000-acre (8,903ha) Pengerang Integrated Petroleum Complex, which would become one of Asia's biggest hubs for oil storage, fuel refining and petrochemical production, as well as imports and exports of liquefied natural gas upon completion.

Looking forward, Wan Zul said Petronas will continue to invest in both upstream and downstream. “We have a RM60 billion capital expenditure for 2017. Our aim is to maintain a robust portfolio in both upstream and downstream. As for Rapid, this is a project that has been going on since 2014.”

Malaysia is King Salman’s first of many stops during a month-long Asian tour to promote investment opportunities for his country, with Aramco as the first company to kick-start the initiatives. “Saudi Aramco will support any regional project financing in accordance with the agreement that we have worked out with Petronas,” Amin said.

Aramco chairman Khalid A Falih opines that the JV will be a positive take for the company come its public listing plan next year.

“We believe this will strengthen the equity story of Saudi Aramco. Aramco will go public next year, and investors will be looking for a company that has breadth in portfolio, balance, values for shareholders across the value chain.

We can offer that to more shareholders when the company is listed,” Khalid said.

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