An eye on Asia

Ng Weng Hoong, Contributing Editor, provides an overview of the oil and gas sector in Asia, commenting on China’s dominance over the region’s oil storage and stockpile decisions.

Amid worsening tensions between China and the West, the prospects for confl ict in the Asia Pacifi c region are rising, raising worries about energy security for a region that is increasingly dependent on imports for its oil and gas supplies.

Australia has started increasing its oil stockpiles while India has just approved investment to more than double its strategic petroleum storage capacity.

China itself has been investing heavily in expanding and upgrading its oil storage and logistical infrastructure.

According to the Baker Institute in Texas, US, China has built up enough capacity to officially store 791 million bbl of crude oil and at least 360 million bbl of products. Unoffi cially, analysts believe China’s crude oil storage capacity exceeds 1.4 billion bbl. Its 210 refi neries have a combined capacity to process up to 22.7 million bpd of crude oil.

Platts Analytics, an analysis arm of S&P Global, expects China to add 70 million bbl of commercial tank capacity in 2021 to follow through on last year’s increase of 100 million bbl.

The Chinese government is becoming more guarded about information pertaining to its oil stockpiling progamme and domestic energy infrastructure. As policy,

the Chinese government already does not reveal how much crude and products it maintains in its strategic and commercial stockpiles. The country’s growing capacity to stockpile both crude and products is empowering state planners to better manage market volatility.

China is also building up oil stockpiles and storage assets abroad. In Asia, state-owned Chinese firms have invested in storage tank operations in Singapore, Sri Lanka, Japan and Myanmar.

In Singapore, PetroChina owns a 25% stake in Jurong Universal Terminal, the island state’s largest independent oil storage terminal with 2.33 million litres of capacity. In March, Singapore’s state-owned Jurong Port became the terminal’s largest shareholder when it acquired the 41% stake previously held by the collapsed Hin Leong trading group. Australian investment bank Macquarie Group owns the remaining 34% through a subsidiary called MAIF Investments Singapore.

In Myanmar, PipeChina, a subsidiary of Chinese oil giant CNPC, is the majority owner and operator of a crude oil terminal and a major pipeline system that started up in April 2017.

Crude oil is shipped to the storage terminal at Kyaukphyu Port on the Bay of Bengal before it is

delivered to the Kunming refinery in China’s southwest Yunnan province through a 771 km pipeline that runs mostly inside Myanmar.

CNPC has also built oil storage tanks on the island of Maday or Made to support trade and infrastructure development in southwestern Myanmar.

Australia to boost oil stockpile

Australia is now showing signs of urgency to boost its strategic oil stockpiles. Years of encouragement from the International Energy Agency (IEA) and threats of supply disruptions in the Middle East failed to do the job, but increasingly hostile relations with China seem to have fired up Australian fears about fuel shortages.

With the equivalent of just 33 days of consumption, Australia’s landed oil stockpiles remain among the lowest in the world’s industrialised economies. The IEA publicly rebuked Canberra’s laidback approach through most of the 2010s when successive governments saw little risk in operating a ‘just-in-time’ policy for oil supplies.

But sentiments are changing. In April, Australian Prime Minister Scott Morrison announced a massive US$500 billion upgrade of military facilities over the next five years.

Data from the Department of Industry, Science, Energy and Resources show that Australia has made progress raising fuel stockpiles since Morrison took office in August 2018. From around 25 days in the 2010s, Australia’s landed oil inventory has risen to 33 days at the end of April 2021. The latest count includes 35 days of stockpile for crude and refinery feedstocks, 32 days for gasoline, 59 days for jet fuel, and 20 days for diesel.

Still, they remain woefully short even in the best of peace times, never mind during war. The IEA wants its 30 member states to maintain at least 90 days of emergency fuel stockpiles.

Insufficient storage capacity

The Morrison government has stepped up to address Australia’s domestic fuel vulnerabilities over the past year.

In May, it unveiled an AU$2.3 billion plan to subsidise the operations of the country’s remaining two oil refineries. Without the funding that will last through 2027, Ampol’s plant in Lytton in Brisbane city and Viva Energy’s refinery in Geelong near Melbourne were headed for closure. Following the lead of other Australian refiners, the two companies said they had planned to convert their small ageing plants into storage terminals.

The subsidies will buy time for the two refineries but not reverse their lack of competitiveness against bigger and more efficient rivals in Asia and the Middle East.

In February, the Morrison administration became the first foreign government to purchase crude oil directly from the strategic petroleum reserves (SPR) operated by the US government. The US Department of Energy (DOE) said it sold 195 000 bbl of SPR crude oil to its Australian counterpart. The deal is part of Canberra’s plan to increase reliance on the US for its energy security.

In June 2020, the two governments signed an historic agreement for Australia to stockpile part of its crude reserves in the US. In a joint statement, the governments announced that their SPR Lease Agreement allows for Australia to include crude oil stockpiled in the US as part of its compliance with IEA regulations.

In January 2021, Canberra announced an expanded domestic fuel storage programme, including an AU$200 million grant for companies to build new diesel tanks in Australia.

“Holding more fuel stocks in Australia will increase our resilience to supply disruptions, thereby protecting consumers and the economy from fuel shortages. An additional 780 megalitres of diesel storage is expected to be required to allow industry to meet the new minimum stockholding obligation,” said the Department of Industry, Science, Energy and Resources.

Despite these efforts, analyst Tony McCormack said Australia’s energy security is still a long way from guaranteed. “Increased storage capacity is all for nothing without fuel to fill the tanks. The key vulnerabilities for fuel supply in Australia continue to be the lack of domestic production and the fragility of logistics supply chains,” said the Australian Strategic Policy Institute fellow.

India to more than double crude oil storage capacity

India will add 6.5 million t of crude oil storage capacity in a second-phase expansion to lift the nation’s total to 11.83 million t (87 million bbl).

In a written statement to Parliament in late July, the Minister of State for Petroleum and Natural Gas Rameswar Teli said the government will build a 4 million t terminal in the northeastern state of Odisha and a 2.5 million t facility in southwestern Karnataka. He did not give a schedule for the start of construction and expected completion.

The government has disbursed 2.1 billion rupees to Indian Strategic Petroleum Reserves Ltd (ISPRL) for the purchase of land for the new terminals at Jaipur district in Odisha and Padur in Karnataka. ISPRL is the state agency that builds, owns and operates the country’s strategic petroleum storage terminals.

To date, it has established three storage facilities with a total capacity of 5.33 million t at Vishakhapatnam (1.33 million t) in the eastern state of Andhra Pradesh, and in Mangaluru (1.5 million t) and Padur (2.5 million t), both in Karnataka state.

As the world’s third largest crude oil importer after China and the US, India is badly lagging behind in its oil stockpiling programme. The ISPRL’s current storage capacity meets just nine days of the country’s domestic oil consumption. With its limited capacity, the company could not take full advantage to build up inventory last year when the US WTI crude price plunged below zero.

For years, the business community has lobbied the Indian government to boost the country’s oil stockpiles to reduce the risk of supply disruptions.

Sri Lanka to expand Hambantota’s oil storage and supply role

Sri Lanka is hoping to expand its oil supply role in southern Asia as it continues to beef up the logistical infrastructure in and around the island state’s second largest port of Hambantota.

Backed by Hambantota International Port Group (HIPG), Sri Lanka’s energy ministry and state-owned Ceylon Petroleum Corp. (CPC) have unveiled a vision to develop the southeastern port into a ‘strategic energy centre’ to serve shipping traffic through the Indian Ocean.

HIPG is 85% owned by a Chinese consortium comprising Hong Kong-listed China Merchants Port Holdings and Fujian TMSR, a state subsidiary of the government of China’s Fujian province. Sri Lanka Ports Authority is the junior partner with a 15% stake.

In June, HIPG and CPC announced their plan to expand Hambantota port’s oil storage capacity that will boost the country’s fuel stockpiles to meet three months of domestic consumption.

CPC said the country’s antiquated terminals currently can only store the equivalent of one month of Sri Lanka’s estimated oil consumption of 104 000 bpd. The partners did not reveal the project’s estimated cost and a deadline for its completion and start-up.

CPC has allocated a 50-acre plot of land located 15 km from Hambantota for the new storage terminal. HIPG will build a network of pipelines to connect the terminal to the port and facilitate fuel distribution to the rest of the country.

CPC Chairman Sumith Wijesinghe said the new storage capacity will enable the company to better manage “the impact of global fuel price fluctuations” on the domestic market.

As Sri Lanka depends on imports to meet 70% of its fuel demand, he expects the expanded storage capacity to strengthen the company’s bargaining positioning with suppliers.

Johnson Liu, HIPG’s CEO, said CPCs support is crucial to Sri Lanka’s vision to turn Hambantota into a major international port serving the maritime trade route between Asia, the Middle East, and Europe. Liu said Hambantota’s expansion “will support the smooth and efficient supply of fuel to customers” and “strengthen the position of this Sri Lankan port on the global maritime map.”

HIPG has signed a strategic partnership with Sinopec Fuel Oil Lanka Ltd (SFOL) to supply bunkering fuels and support services for vessels calling on Hambantota.

Sri Lanka’s neighbour, India, is increasingly concerned about China’s growing maritime ambitions in the Indian Ocean. China has made clear that the Indian Ocean is a key part of its ‘Belt and Road’ Initiative to connect the economies of Asia with those of other regions.

India suffered a setback early this year when the Sri Lankan government of President Gotabaya Rajapaksa announced the cancellation of their bilateral agreement to develop oil storage and port facilities on the island state. India was looking to the projects to counter China’s growing influence in Sri Lanka. But India has only itself to blame for the loss as state Indian Oil Corp. had made little progress with its 18-year promise to develop the northeastern Sri Lankan port of Trincomalee into an oil storage and supply hub. In 2003, IOC had presented Colombo with a vision for the port’s revival when it secured a landmark 30-year deal to lease 99 oil tanks in Trincomalee.

Frustrated by the lack of progress, the Sri Lankan government offered to cancel the agreement in 2012. When New Delhi stood firm, Colombo turned to Beijing for help to develop Hambantota into a competing project. Eight years on, Hambantota has grown rapidly to become a major hub of industrial activity and fuel supply for the country, while Trincomalee remains mired in its colonial past as a port built by the British nearly a century ago. India fears Trincomalee too might end up in the hands of the Chinese.

Malaysia’s Dialog starts up oil terminal

Malaysia’s southern Johor state is continuing to expand its oil storage role in Asia with the start-up of another 430 000 m3 of capacity off the port of Pengerang.

Dialog Group Berhad launched the phase 3A of its terminal to store clean petroleum products. The RM1.6 billion project, underpinned by a long-term contract with BP Singapore signed in December 2018, received its first shipment of products in March.

The company’s storage facilities serve the region’s oil supply chain connecting refineries and petrochemical plants, including those located within Johor’s US$27 billion Pengerang Integrated Petroleum Complex.

Dialog’s Executive Chairman, Ngau Boon Keat, said the company has grown since signing a memorandum of understanding with the Johor state government in 2009 to develop the complex. To date, the company has invested a total of RM13.5 billion, contributing to Johor state’s emergence as a viable oil storage and supply centre to rival neighbouring Singapore.

Johor’s Chief Minister, Hasni bin Mohammad, said the terminal’s latest expansion, including shared infrastructure and deepwater marine facilities, will help attract more refining and petrochemical investments into the state.

Listed on Malaysia’s main stock exchange, Dialog started in 1984 as an engineering services company before expanding to become an oil terminals owner and operator.

Indonesia’s eastern provinces to gain from oil storage projects

Indonesia is hoping to jump-start the economy of two of its poorest provinces with the construction of oil