Vopak to Start Malaysian Oil Storage

Vopak storage tanks

By MarEx 2015-02-03 03:28:19

The world's largest independent storage company Vopak will start operations at the first commercial crude oil tank farm in southeast Asia in March, a top company official said on Tuesday.

The facility in Malaysia "caters to a new and growing demand for this service, triggered by growing crude oil and petroleum products import flows into Asia and Australia," Vopak Asia's Division President Patrick van der Voort said in an e-mail.

Located in Pengerang, in the southern state of Johor, just across the Johor Strait from the Singapore trading hub, the site can hold 420,000 cubic metres of crude (2.6 million barrels) and also offers blending and distribution services, he said.

BP has leased more than half of the storage space from Vopak, while Total will use the remainder, industry sources familiar with the matter said.

The leases are likely for more than a year, the sources said, underscoring the strong interest from oil companies to capitalise on the so-called contango trading strategy in which traders store crude for sale in future months at higher prices.

Vopak and BP declined to comment on commercial activities. Total did not reply to an e-mail seeking comment.

In a contango market, cheap prompt barrels can be bought and held in tanks to sell at higher prices in the future. But onshore crude storage space is hard to come by in southeast Asia as most tanks are built for refineries, traders said.

In the absence of available storage, traders have already booked tankers sufficient to store at least 50 million barrels of oil at sea for the contango play.

"Land storage is cheaper than floating, but the problem is there is very limited storage capacity left in the market," a Singapore-based trader said.

The storage cost at the Pengerang terminal was likely on par with that for tankers as freight rates for Very Large Crude Carriers (VLCCs) have increased, a second trader said.

The crude storage facilities are part of a joint venture terminal project between Vopak, Malaysia's Dialog Group and the state government of Johor. When completed, it will have a capacity of about 1.3 million cubic metres to store oil products in addition to crude.

Copyright Reuters 2015.