Petronas to Proceed With $27 Billion Malaysia Oil, Chemicals Hub

Petroliam Nasional Bhd., Malaysia’s state oil and gas company, will proceed with a plan to invest in a $27 billion refining and petrochemicals project in the southern Johor state bordering Singapore.

The proposed Pengerang Integrated Complex will comprise of a refinery and petrochemical development and other associated facilities, the company known as Petronas said in a statement yesterday after its board approved the investment decision. The project is poised for its refinery startup by early 2019, it said.

The decision may help a push by Malaysia to turn the fishing town of Pengerang into an oil and gas hub. It comes after Taiwan’s Kuokuang Petrochemical Technology Co. in December ended a plan to build a $12 billion petrochemicals project in the same area.

“Petronas undertook a rigorous review of the project, including independent third-party assessments to ensure it meets our criteria for long-term profitable and sustainable growth,” Chief Executive Officer Shamsul Azhar Abbas said. “This decision is in line with our commitment to capital discipline.”

The refinery and petrochemical integrated development is estimated to cost about $16 billion, Petronas said. Associated facilities including raw-water supply and power co-generation plants, and a liquefied natural gas regasification terminal, will involve an investment of about $11 billion, it said.

Land Acquisitions

The Petronas project, announced by Prime Minister Najib Razak in 2011 and initially scheduled for 2016 completion, has encountered problems acquiring land and relocating residents. The Malaysian company was reviewing the costs and potential returns of the development as Kuokuang, a unit of Taiwanese state-run refiner CPC Corp., dropped plans for its project.

Kuokuang said in December its plan to build a refinery, naphtha cracker and other plants in Pengerang was no longer competitive as a shale gas boom drove down the production cost of petrochemicals in the U.S. and expansion in China had led to an oversupply.

Petronas may not proceed with the investment in Pengerang if the costs and returns prove unfavorable, Shamsul said Aug. 26.

BASF SE also ended plans last year to jointly develop specialty chemicals manufacturing facilities with Petronas in the same area after both companies disagreed on terms. Petronas later signed a letter of intent with Germany’s Evonik Industries AG for a similar partnership.

The Pengerang Integrated Complex is part of the larger Pengerang Integrated Petroleum Complex proposed by the Johor government, according to the statement. Construction on the Pengerang Integrated Complex will commence upon the full handover of the project site to Petronas by the state government, the company said, without specifying a timeline.

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