Malaysia oil pipeline project moves toward reality

KUALA LUMPUR (Reuters) - Malaysia's ambitious plan to build a $7 billion trans-national oil pipeline to ship Middle East crude to big Asian importers moved a step closer to reality on Monday after several regional firms signed on as partners.
The 310 km (193-mile) pipeline aims to cut time and costs by bypassing the crowded Malacca Strait, but observers have been skeptical as similar ventures for a Southeast Asian shipping short-cut over the past few decades have failed to materialize.
Compounding these doubts is the fact that the pipeline project is being developed by a small, loss-making company owned by two little-known Malaysian businessmen.
But Trans-Peninsula Petroleum Sdn Bhd sought to dispel these doubts on Monday, signing a master alliance with Malaysian engineer Ranhill Bhd. and Indonesia's PT Tripatra, a unit of integrated energy group PT Indika Inti Energi.
At a ceremony in Kuala Lumpur, it also signed up Saudi Arabia's Al-Banader International Group and Indonesian steel pipe maker conglomerate PT Bakrie & Brothers Tbk
"We wouldn't be here today, we wouldn't have the support of the Saudi partners, if this project was not feasible or this project cannot be financed," Trans-Peninsula Petroleum Chairman Rahim Kamil Sulaiman told reporters after the signing.
He said the project aimed to divert about a third of the Middle Eastern crude that currently sailed through the Malacca Strait and around Singapore into the South China Sea.
"We are not going to displace the 12 million barrels of oil that pass the Straits of Malacca. We are going only for about 30 percent of the volume that goes through the Strait of Malacca, to ease the congestion in the strait," Rahim said.
Trans-Peninsula Petroleum planned to build the pipeline over eight years from 2008. The first phase, costing $2.3 billion, could transport 2 million barrels of oil per day (bpd). After the final, third phase, capacity would reach 6 million bpd.
Ranhill would undertake the main construction work while Bakrie, controlled by the family of Indonesian chief social welfare minister Aburizal Bakrie, would supply steel pipes.
Bakrie shares were up 7 percent after the news. Ranhill shares were suspended from trade.
Al-Banader would help secure oil supplies from the Middle East and inject capital. Tripatra would manage the project.
The pipeline would stretch from the west coast town of Yan, which the government has designated a petroleum development zone, to the small fishing port of Bachok in the east.
Despite government backing, some analysts have questioned the rationale for the pipeline, saying it remains cheaper to sail around Singapore than to unload a super-tanker at Yan, pump the crude to Bachok and put it on another tanker.
A similar project in Thailand was scrapped two years ago due to rising steel costs, safety issues after the tsunami and environmental concerns.