Thai pipeline bill scares off China firms
Karen Teo
February 15, 2005
China's biggest oil companies are showing little interest in investing in an estimated US$700 million (HK$5.46 billion) pipeline that would ship oil across Thailand's Isthmus of Kra rather than by tanker through the congested and pirate-infested Straits of Malacca south of Singapore.
Without their backing, industry sources say, the project, a showpiece infrastructure development for the Thai government, could be doomed unless it foots all or most of the bill.
Thailand hopes to become an oil transport and refining hub rivaling Singapore, and its main selling point has been safety. But cost, not safety, is the main concern of China's state-run oil companies, and on that score, they say, the project does not add up.
``It's more costly to transfer the oil from very large crude carriers to the pipeline and then load the oil on to smaller tankers,'' said a source at Sinochem, one of China's largest oil importers. Constructing new terminals would only add to the costs, he said.
Thailand's Energy Ministry has been wooing potential investors from China, South Korea, Oman, Kuwait and Japan for more than a year seeking to line up financing for the project.
Among those it approached are China National Petroleum Corp, parent of PetroChina, and Sinochem Corp and China Petrochemical Corp - three of the country's biggest oil importers.
Winning the backing of mainland companies is vital because that country is by far the fastest-growing importer of oil in East Asia.
The pipeline would have an estimated capacity of 1.5 million to two million barrels a day and would cut transport times for oil from the Middle East destined for mainland and other Asian ports, Thai officials argue.
Political problems have also given would-be investors pause. Southern Thailand is home to a separatist movement made up of Muslim Malays and has seen repeated clashes between militants and the Thai military.
If Thailand wants to realize its dream of becoming an Asian refining center, it may have to foot all or most of the cost of the project itself, including a 500,000 barrels per day refinery at the its proposed Gulf of Thailand terminal.
This would allow the crude to be refined into oil products before shipping to Asian markets, a role now filled by Singapore refiners.
``I think there is little incentive for the Chinese to use Thailand as a trading hub unless the Thai government invests in the necessary infrastructure such as the pipeline and refinery,'' said Ong Eng Tong, an oil and gas consultant based in Singapore.
This, he said, might encourage companies to switch from using Singapore to Thailand as an import and export center.
The Thai government is also wooing South Korean companies, including state-owned Korean National Oil Corp (KNOC), SK Corp and LG Caltex, to invest in the project, though they too have voiced concern about the economic viability of the project.
``It is difficult to say whether KNOC will invest in the project because we are not sure about the cost effectiveness at this stage,'' a company source said.
karen.teo@globalchina.com
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