Oil spice: With $3 billion port, Malacca eyes slice of shipping giant Singapore's pie

Wed Nov 23, 2016 2:38am EST
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By Roslan Khasawneh

KUALA LUMPUR (Reuters) - Once at the heart of the global spice trade, Malacca is pumping nearly $3 billion into an ambitious plan to put itself in demand in a different hot commodity - oil.

The Malaysian state is reclaiming land along the Straits of Malacca to build a port that can handle the biggest tankers on the planet. The target: a slice of traffic sailing on to nearby Singapore, the top but congested trading hub in a region with $600 billion in annual oil trade - a third of global oil demand.

Funded largely by Chinese investors, port operator T.A.G. Marine and developer Linggi Base are building the 12.5 billion ringgit ($2.82 billion) Kuala Linggi International Port (KLIP) to offer storage, repair and refueling services. At Singapore, 200 kilometers away, ships can spend costly time just waiting to deliver or take on goods, refuel or undergo maintenance work.

With Singapore's port rules also banning floating storage and ship-to-ship (STS) transfers, the potential for savings and streamlined business is clear for KLIP users like trading company Agritrade Resources (1131.HK: Quote).

"Through our clients who are oil majors and oil traders, we see a competitive edge in locating our floaters (storage facilities) in KLIP resulting from lower costs and less congestion," said Ng Xinwei, Chief Executive of Agritrade, which owns three supertankers.

Using 620-acres of reclaimed land, KLIP this month launched construction of a port with 1.5 million cubic meters of oil storage capacity, and dry docks to handle the biggest of oil tankers, hoping for completion within a decade.

KLIP is aware business is now dwarfed by Singapore, which handles well over 100,000 vessel calls a year, compared to KLIP's few thousand per year. KLIP did not provide targets, but analysts estimated it could handle three times current volumes within a decade.

"Many of the shipyards in Singapore have been fully booked for three years," said Saifullah Noor, Chief Executive of T.A.G. Marine. "Given the close proximity, we aren't competing with Singapore, but are actually complementing them."   Continued...

A fisherman drives his boat off the southern coast of Johor, Malaysia, as ships travel between the Singapore Strait and the Strait of Malacca November 12, 2016. Picture taken November 12, 2016.  REUTERS/Henning Gloystein