Photo shows an illustration of the Pengerang project. Analysts have pegged positive sentiments on the ‘green light’ to the project, with some stating that the project would further strengthen Petronas’ position and stimulate Malaysia’s oil and gas (O&G) sector.
KUCHING: Petroliam Nasional Bhd (Petronas) has recently announced that it has approved the Final Investment Decision (FID) for the development of the Pengerang Integrated Complex (PIC) which comprises of the US$16 billion Refinery and Petrochemical Integrated Development (RAPID) and associated facilities.
Overall, analysts pegged positive sentiments on the ‘green light’ to the project, with some stating that the project would further strengthen Petronas’ position and stimulate Malaysia’s oil and gas (O&G) sector.
CIMB Investment Bank Bhd’s research arm (CIMB Research) in a report, commented; “We are thrilled that PIC and Rapid, a cornerstone project of the government’s Economic Transformation Programme (ETP), will progress as scheduled with no investment cutbacks.
“The project will further strengthen Petronas’s position as a key player in the Asian chemicals market, focusing on key growth areas of differentiated and specialty chemicals and capturing the growing automotive, pharmaceutical and consumer products sectors.
“Domestically, the project will contribute towards meeting the growing demand for petroleum products and Euro 4M and Euro 5 specification fuels.”
Similarly, the research arm of Public Investment Bank Bhd (PublicInvest Research) in a separate report, viewed that the initiative of the project is expected stimulate domestic O&G production, growth in downstream ventures and to make Malaysia the No.1 hub for oil field services while exploring alternative energy sources.
However, MIDF Amanah Investment Bank Bhd’s research firm’s (MIDF Research) analyst Aaron Tan cautioned that although the development is a positive catalyst in the industry, it remains cautious as there are some unresolved near term teething problems such as the relocation of villages and settlements, relocation of Muslim and Chinese cemeteries, sporadic land acquisitions and water supply issues.
In addition, Tan highlighted, “Apart from these short term stumbling blocks, a greater risk would be the potential construction of the Kra Canal (now known as the Thai Canal) which will pass through southern Thailand.
“The length of the proposed canal could range from a mere 50 kilometres to 100 kilometres, bypassing over 1000 kilometres distance around Peninsula Malaysia and Singapore.
“Recently, media sources reported that three Chinese firms have formed a work team to start preliminary operational activities on this canal.
“The Chinese firms are Sany Heavy Industry Co Ltd, Xuzhou Construction Machinery Group Co Ltd, and Guangxi Liugong Machinery Co Ltd.”
Nevertheless, Tan observed that while the construction of the PIC will not directly benefit most of the Bursa-listed O&G players as most are upstream service providers, the project would benefit oil and gas civil contractors and manufacturer such as Dialog Group, KNM Group, Muhibah Engineering and Eversendai, amongst other.
In a separate report, Ta Securities Holdings Bhd’s research arm (Ta Research) highlighted that direct beneficiaries of PIC include Petronas Chemicals (PChem) on the back of significant new refining and petrochemicals capacity from RAPID. It also said that Petronas Gas will also benefit from increased volumes from the new regasification terminal within PIC.
However, earnings for PChem will only materialise from 2019 onwards upon startup of the refinery said Ta Research, noting “we believe that PChem should not encounter difficulties in funding RAPID’s capital expenditure (capex) requirements given its robust cash flow generation capability, strong balance sheet that is devoid of debt, conservative dividend policy, and chunky cash pile of RM10.1 billion.”
Indirect beneficiaries of RAPID include EPCIC contractors, fabricators, and O&G equipment suppliers, including SapuraKencana, MMHE, TH Heavy Engineering, Pantech Group, KNM Group, and so forth.
These contractors, whom will be involved in PIC’s construction phase, will be first to benefit from order flows to fill their respective orderbooks. “We understand that completion of RAPID in 2019 coincides with the period where petrochemicals prices are expected to experience an upcycle. Therefore, this will provide a much needed boost to PChem’s earnings.”
To note, Petronas’ partners with interests in RAPID, include Evonik Industries AG, Italy’s Versalis SpA, Japan’s Itochu Corp, and Thailand’s PTT Global Chemical PCL, which will announce their respective FIDs in due course.
Ta Research explained that PIC will be built on a 6,242-acre site, and comprises part of the larger Pengerang Integrated Petroleum Complex (PIPC). PIC consists of a 300,000 barrels per day (bpd) refinery and a petrochemical complex with a combined production capacity of 7.7 million tonnes per annum (tpa).
Petrochemicals that will be produced include differentiated and specialty chemicals products such as synthetic rubbers and high grade polymers.
It further added that PIC will commence construction upon full handover of the project site by the Johor state government. Based on current progress, the refinery will likely commence operations by early 2019.
Upon completion, PIC will require over 4,000 employees at its operational stage.
“In–line with our expectations, RAPID’s project value was downscaled to US$16 billion from US$20 billion announced earlier. However, this is partially offset by investments in associated facilities worth US$11 billion,” said Ta Research.
Petronas in a press release, said that the PIC is part of the larger PIPC proposed and promoted by the Johor.
“With its strategic location along one of the world’s busiest shipping lanes and its proximity to international trading hub, the PIPC is well positioned to be the next regional downstream O&G industrial hub,” it said.