Hyundai Engineering Secures $594 Million Construction Contract for Oil-Storage Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--South Korean engineering and construction major Hyundai Engineering and Construction Company (SEO:000720) (Seoul, South Korea) has been awarded a construction contract worth $594 million to develop oil-storage caverns, tunnels and associated facilities for the first phase of the Jurong rock cavern project in Singapore.

The Jurong rock cavern project will be completed in two phases. The first phase of the project, entailing a cost of $940 million, will involve the construction of five caverns with a total capacity of 1.48 million cubic meters, a 7-kilometer tunnel and galleries. The storage units will be designed to hold gas oil, crude oil, condensate and naphtha. The first two caverns in this phase, which have a combined storage capacity of 480,000 cubic meters, are expected to be ready by 2013. A second phase of construction has also been planned that will increase the storage capacity of the facility by 1.3 million cubic meters. While this facility will be used primarily for stock storage, it will also be used in limited commercial activity.

Hyundai Engineering will begin construction by the end of this year after carrying out a detailed design process. The company outbid another South Korean firm, SK Engineering and Construction Limited (Seoul), to win this contract. Hyundai Engineering is also carrying out similar projects in Taiwan and South Korea. In Singapore, the firm is developing the third and fourth phases of the Pasir Panjang container terminal, as well as the One Shenton Way residential complex.

The Jurong rock cavern facility is an initiative undertaken by Singapore's state-owned JTC Corporation (Jurong East, Singapore) to augment the storage capacity of the manmade Jurong Island. The island was formed through land reclamation of seven smaller islands: Pulau Seraya, Pulau Ayer Merbau, Pulau Pesek Kecil, Pulau Sakra, Pulau Ayer Chawan, Pulau Merilau and Pulau Pesek. More than 90 companies in the specialty chemical, manufacturing, refining and petrochemical sectors have a presence on Jurong. The island, which refines around 1.3 million barrels per day of crude oil, is linked to Singapore by a 2.3-kilometer causeway.

The rock caverns will be developed under the seabed of the Banyan basin through drilling and blasting of the sedimentary rock on the island. The caverns will be located 132 meters below the ground and will be connected through access shafts. Once completely operational, the storage facility will free up about 60 hectares of land on the island, which will be used to set up new manufacturing and refining complexes. The development activity for the first phase of the project started in 2006. The first contract for construction of start-up galleries and access shafts was awarded to Japanese company Sato Kogyo (Tokyo, Japan) and is nearing completion.

JTC Corporation will also name the operator of the project by June of this year. The announcement was previously scheduled for February 2009, but has been delayed several times. The tender for the project was issued in 2007, but the company deferred the announcement, citing complexity of the project and safety issues as reasons. While there has been no official communication on the bidding companies, industry sources have indicated that infrastructure consultants Parsons Brinckerhoff (New York, New York), Horizon Terminals Limited (Dubai, United Arab Emirates), and Royal Vopak NV (Rotterdam, Netherlands) are in the race. Royal Vopak is already operating a storage facility close to the proposed site.

Globally, underground storage units are a popular choice for holding long-term stocks. These facilities are more expensive to construct and maintain in comparison to traditional above-ground storage sites. South Korea and the U.S. use underground storage extensively. Post-9/11, the U.S. developed four underground storage sites for critical crude reserves. South Korea has leased out its tanks to refining companies for the same purpose.

Singapore is the third-largest refiner in the world. Upon completion of the first phase, the Jurong rock cavern storage facility will be bigger than the existing storage facility, which has a capacity of 1.24 million cubic meters and was developed by Horizon Terminals. Singapore has more than doubled its storage capacity since 2005, but the market is facing a shortage of storage space, despite the decline in demand and consumption. With the commissioning of both phases of the Jurong rock cavern project, JTC Corporation expects the total storage capacity of Singapore to increase to 11 million cubic meters.

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