Seven Billion Dollars Pipeline – A Rusty Project

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Jun 13 2007
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In a blow to Malaysia’s plan to develop another mega project, oil industry players have given only cautious approval to the multi-billion-dollar northern pipeline project, citing slowing oil demand in the Asian region and cost concerns, reported AFP. On completion in 2014, the pipeline will divert about 20 percent of oil transiting through the Strait of Malacca.

The project which will cost seven billion dollars over seven years to build has the goal of transporting Middle East oil to East Asia (especially China) by diverting it from the congested Malacca Strait. The project’s owner, Malaysian firm Trans-Peninsula Petroleum, last month said the 300-kilometre (188-mile) pipeline will cut across the north of Malaysia’s peninsula with facilities for storage and transit of crude oil on both coasts. Malaysia’s Ranhill Engineers and Constructors Sdn Bhd and Indonesia’s PT Tripatra are to build the pipeline, while Al-Banader International Group of Saudi Arabia will provide the oil.

The chairman of the Asia Oil and Gas Conference, Fereidun Fesharaki said “It saves you some money but it also costs a lot to build the pipeline … Studies should be done to see if it is really economical”

Fesharaki, an expert on Asia-Pacific energy markets and a former energy adviser to Iran’s prime minister, downplayed rising energy demand in Asia as the justification for building the multi-billion project. His reasoning makes a lot of sense as the demand for oil in the rest of the region is slowing because of higher prices with the exception of China. From the business point of view, this is tantamount to putting all your eggs in one basket – if the China’s economy collapse or slows-down within the next couple of years (the project will only be operational by 2011, mind you) the seven billion dollars will be worth as much as the rusty steel pipes.
Officials from Iran’s state oil company said the firm will invest in the construction of one of the two refineries to be constructed in northern Kedah state. Iran will also put money into a separate pipeline to transport Iranian-supplied crude from ships berthed in deeper waters off Malaysia’s west coast to the refinery. However Ghanimi Fard, the executive director for international affairs with the National Iranian Oil Company (NIOC), said the success of the trans-peninsular pipeline would depend on the amount of oil demand from East Asia but based on latest information, Iran is not sure of the feasibility of the project. Well, at least this guy has some business sense ant not simply invest in mega project without a proper cost-benefits justification.
The smartest of all would be the Saudi Arabia of which the involvement is to provide oil, without the new pipeline the kingdom will revert back to normal route – nothing to loose. Iran’s main intention might be to divert its’ oil commodity elsewhere with the threat from the U.S. but then it doesn’t mean the country does not do cost-justification for the project. So far Malaysia is the only country obsessed in pushing for the project to kick-off without much feasibility study. So who’s the stupidest of all?

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