An unprecedented expansion of oil infrastructure in southern Malaysia over the next five years is set to create a “Greater Singapore” trading hub that will help the region retain its edge over competitors such as China.
Instead of competing with Singapore, the new infrastructure — including a state-of-the-art petroleum complex and capacity increases to storage — will lead to greater flows of oil and help meet growing demand from traders for more liquidity to feed increasing pricing activity.
“The new infrastructure should be regarded as part of the ‘Greater Singapore’ oil hub, rather than as competing with the current established order, as it is essentially the same players trading the same markets but in a larger way,” said Richard Yap of GE Consulting.
Singapore is the largest oil trading hub in Asia and the third-largest in the world, where traders regularly engage in pricing activities by taking speculative trading positions to optimize profits. It is also the world’s No. 1 bunkering port.
In the longer term, players see the region becoming an oil trading center similar to the Amsterdam-Rotterdam-Antwerp (ARA) hub in Europe, expanding its boundaries southwards into neighboring Indonesia and northwards deeper into Malaysian territory.
The ARA region is the main gateway for oil flows into Europe, particularly for distillates and fuel oil, which are stored and blended before being redistributed inland. It is also the world’s second-largest bunkering port after Singapore.
“Malaysia is well-placed to complement Singapore in this industry. Together, Malaysia and Singapore could operate to form a hub like Amsterdam-Rotterdam-Antwerp, which complement each other in areas of refining capacity, independent storage and blending capacity as well as access to markets,” said Malaysian think tank Pemandu.
Malaysia has not seen this kind of expansion before in terms of scale and size. This territorial expansion could occur from as early as the next month, as dredging works along the shallow waterway separating mainland Malaysia from Singapore to accommodate new structures force the displacement of about 2 million metric tons of oil stored on seven floating storages off Pasir Gudang in southern Malaysia.
The alternative locations for these vessels could be in Indonesian waters off the islands of Karimun and Nipah, or further north in Malaysian waters, extending the boundaries of “Greater Singapore,” traders said.
