SAUDI ARABIA - Saudi Aramco Weighs Stake In Trans-Malay P/L Venture.

One of the ventures in which Saudi Aramco might join is one which is proposing to have a US$7 bn crude oil pipeline built across Malaysia. This infrastructure will become extremely useful in the next few years as it will help Middle Eastern oil producers bypass the Strait of Malacca - one of the world's busiest trade routes. Trans-Peninsula Petroleum Sdn. (TPP), the developer of the pipeline project, has been in talks in recent months to sell some of the venture to Middle Eastern oil producers. The promoters of the project say overseas oil companies, which will be the pipeline's biggest users, may own up to 70%.

Syed Izhar, deputy chairman of TPP, was on June 18 quoted as saying in Kuala Lumpur the company was talking to three to four Middle Eastern investors. Izhar then said: "We're not just talking about the pipeline, we're also talking about [crude oil] storage [facilities to be built there]". Investments by oil producers may help ensure the profitability of the 300-km pipeline across northern Malaysia, providing NOCs such as Saudi Aramco and Kuwait Petroleum Corp (KPC) a shorter route to East Asia than through the Malacca Strait. The strait is the world's fourth waterway most prone to piracy, with 11 incidents including attacks against oil tankers recorded in 2006, according to the International Maritime Bureau (IMB).

Wan Azhar Mustapha, an analyst at OSK Securities Sdn. in Kuala Lumpur, was on June 18 quoted as saying: "The success of the pipeline would depend greatly on who is the paymaster for this project, who are the buyers and the sellers".About 10m b/d of crude oil, or 12% of the world's output, pass through the Malacca Strait, according to the IEA.

A plan by neighbouring Thailand to build a $719m pipeline near Phuket island has yet to materialise, more than seven years after it was first proposed.

Ranhill Bhd., the proposed builder of the trans-Malay pipeline, may want to buy a minority stake, its executive director Chandrasekar Suppiah said in an interview in Kuala Lumpur published on June 18.

The Malacca Strait is a narrow stretch of water between Malaysia and the Indonesian island of Sumatra. About 40% of global trade passes through the waterway. Most crude oil from the Middle East to Asia is shipped through this route. Ships using the passage carry half the world's supplies of crude oil and refined petroleum products.

Malaysian Prime Minister Abdullah Ahmad Badawi approved the Trans-Malay project in May 2007, saying it will help boost the economies of the states the proposed pipeline will run through. Trans-Peninsula, owned by two former executives of the state company Petroliam Nasional Bhd. (Petronas), was appointed the project's promoter and developer.

The pipeline would have to traverse the Main Range, peninsular Malaysia's most prominent set of mountains, running from the south towards Thailand. Syed Izhar in June said the state government of Kedah, on the west coast, had approved the project and may start relocating about 40 houses for the sake of the project.

The first of three pipes, valued at about $2.3 bn, will be ready in 2011 and the project is due to be completed in 2014. Trans-Peninsula and Ranhill in May said the pipeline, which will join Yan in Kedah to Bachok in Kelantan, will initially transport 2m b/d of crude oil. Offshore mooring facilities will be built at both ends of the pipeline to accommodate VLCCs.

Syed Izhar in June said building storage facilities will account for about 60% of the project's cost. The first facility, to be built in Kelantan on Malaysia's east coast, will have the capacity of storing 60m barrels.

The pipeline will cut the number of tankers passing through the Strait of Malacca and reduce cost by shortening travel time. The cost to transport crude oil from the Persian Gulf to the Far East may fall by $1.50/, according to Nazery Khalid, a researcher at the Maritime Institute of Malaysia. Project Study

A May 30 report by OSK Research Sdn says: "Demand for an alternative shorter route does make sense". The pipeline will save three days compared with transporting crude oil through the 960-km Malacca Strait.

Not everyone is convinced, however. Opposition leader Lim Kit Siang from Malaysia's Democratic Action Party wants the government to "freeze" the project. Lim on June 18 was quoted as saying: "The project lacks transparency. How can they approve the project" without conducting a study to determine its "feasibility, its viability" and its impact on the environment? Lim also questioned the capability of TPP, with a paid-up capital of 150,000 ringgit (US$43,500), to undertake the project.

Syed Izhar said TPP did not intend to own the project and may end up with "only 1 or 2 percent" stake. Wan Azhar said the project needed "considerable more time to take off in view of the time consuming issues like land acquisition, environmental impact assessment, and off-take agreements, to name a few".

Trans-Peninsula said it did not plan to build any refineries at either end of the pipeline, though it was willing to supply crude oil to refiners.

A separate project, which may cost about $3.5-5 bn, is being proposed to develop a refinery in Kedah, according to an April 16 report in the Edge weekly. The paper quoted Syed Izhar as saying SKS Ventures, owned by Malaysian billionaire Syed Mokhtar al-Bukhary, will build the refinery.

Ranhill's Chandrasekar was in June quoted as saying: "The promoters have, in principle, the right equity partners", declining to name the potential investors.

Norziana Mohd Inon, an analyst at CIMB Investment Bank Bhd., wrote in a June 15 report about the proposed Malaysian venture: "Until the ambitious pipeline project manages to rope in a significant stake holder and a financier, there will be a big question mark over the feasibility of the project".

Ranhill stock, which by June had doubled since the beginning of 2007, on June 17 rose to a three-year high. The shares climbed as much as 6.9% to 2.65 ringgit in Kuala Lumpur. According to the CIMB report, Malaysian firms like pipe coater Wah Seong Corp. and contractors and fabricators such as Dialog Group Bhd. and Kencana Petroleum Bhd. may benefit from the project.

TPP announced in late May that it might go public and sell shares on Bursa Malaysia in 2010 to fund the project. TPP on May 28 signed a master alliance agreement with its partners for the project: Ranhill, to handle the construction work, and Indonesia's PT Tripatra Engineers & Consultants to be the project manager. Ranhill was represented by its CEO Tan Sri Hamdan Mohamed, while TPP was led by its chairman Mohd Kamil Sulaiman. PT Tripatra was represented by its director Pandri Prabono. The signing was witnessed by Prime Minister Badawi and Indonesian President Dr Susilo Bambang Yudhoyono.

Also represented at the signing were Indonesia's PT Bakrie & Brothers Tbk, which was proposed to supply steel pipes for the project and al-Banader International Group of Saudi Arabia which was proposed to help secure the crude oil supplies. Foreign investors, particularly those from the Middle East, were then said to be keen to buy stakes in the project.

TPP was then busy with land acquisition issues with the help of the three state governments involved - Perak, Kedah and Kelantan. Construction is expected to start in the middle of 2008. TPP's Mohd Kamil then said: "Timing of the project is perfect now as the oil market has shifted to East Asia, particularly China". There will be a major storage which will hold 90% of the entire system's capacity.