WATCHING THE WORLD: Saudi Aramco looking east

Nov. 13, 2006
Situated in a relatively quiet corner of Southeast Asia, Malaysia tends to be overlooked by some oil and gas analysts.

Situated in a relatively quiet corner of Southeast Asia, Malaysia tends to be overlooked by some oil and gas analysts. But there can be no doubt that the Twin Towers of Petroliam Nasional Bhd. (Petronas) in Kuala Lumpur are trilling with stepped up activity.

After all, Petronas not only markets and exports crude oil, petroleum products, natural gas liquids, and sulfur, it also ships crude oil and LNG around the world and participates in joint ventures and other affiliates at home and abroad to refine crude oil and market products.

One sign of that came last week as a consortium consisting of the UK’s Petrofac (30%), Petronas (30%), Kufpec (25%), and the PetroVietnam Investment & Development Co. (15%) announced first oil to the start of production from Block PM304 in Cendor oil field off Malaysia.

Saudi interest in…

But an even more important sign came with the decision by Saudi Aramco, the world’s largest oil corporation, to open an office for one of its subsidiaries, Aramco Overseas Co., in Kuala Lumpur.

The primary function of this office will be to coordinate contracting, purchasing, and materials inspection activities with regional suppliers. At the same time, Aramco Overseas is opening a similar office in Shanghai, China.

The Saudi decision is said to be partly due to cost, as Kuala Lumpur is a cheaper base than Singapore, but also because Malaysia itself is an oil-producing nation and, in MISC Corp. Bhd., has the world’s largest fleet of LNG carriers.

Something else the Saudis clearly value, though, is Malaysia’s good relations with China, underscored by the landmark LNG deal struck between Petronas and Shanghai LNG Co. Ltd.

…Gas to China

Under terms of that 25-year agreement, Petronas’s subsidiary Malaysia LNG Tiga Sdn. Bhd. will supply 3.03 million tonnes/year of LNG from its facility in Bintulu, Sarawak.

With some 10 Chinese LNG projects earmarked for development, Malaysia’s prospects for more LNG export contracts to China are bright, according to research by OSK Securities.

No less significantly, OSK noted that MISC will naturally fit the bill as the transport provider.

“This large China contract could take up to 50 shiploads/year to fill,” OSK said in a report, which concluded, “Given that Petronas is MISC’s major shareholder, it would naturally utilize MISC vessels in the transportation of the LNG.”

Petronas is leaving nothing to chance regarding future gas deals with China, with construction under way of a natural gas pipeline between the Bintulu gas fields and Kimanis to be operated by Petronas Gas.

“With the pipeline scheduled for completion in 2010, it is positioned to support further contracts with China, and we remain confident that this pipeline may boost Petronas Gas value by some 10%,” OSK Securities said.

Little wonder the Saudis have taken down some of the “For Rent” signs in Kuala Lumpur and Shanghai.