Singapore Secures Position as Petrochemical Hub of Southeast Asia

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Researched by Industrial Info Resources (Sugar Land, Texas)--The swift development of Singapore's petrochemical capabilities can be attributed to its established petroleum refining capacities. Jurong Island stands testimony to this strong base. Bhamy V. Shenoy, who worked with Conoco for 21 years in all phases of the international petroleum industry and is a former board member of the Georgian National Oil Company (Tbilisi, Georgia), spoke on Singapore's development as a petrochemical resource hub in Southeast Asia: "If one looks at the hydrocarbon endowments of Singapore, it is not a place for the development of the petrochemical industry. However, since Singapore had a well-established refining industry with an exporting capacity of 2.6 million barrels per day, it gained the advantage of getting cheaper feedstock, like naphtha and gas oil, for expansion of their petrochemical industry. Since there are many East Asian countries with an increasing demand for petrochemical products, Shell, with a huge refining capacity, decided to expand its petrochemical operations here."

Among other recent petrochemical developments in Singapore is the startup of a second naphtha cracker by the Petrochemical Corporation of Singapore Pte Limited (PCS) (Singapore), which was joined by downstream partners such as ConocoPhillips (NYSE:COP) (Houston, Texas), The Polyolefin Company Singapore Pte Limited (Singapore), and Seraya Chemicals (Jurong Island, Singapore).

Besides this, the Messer Group (Sulzbach, Germany) and Texaco, which is part of Chevron Corporation (NYSE:CVX) (San Ramon, California), have erected a $200 million synthetic gas plant on Jurong Island, which is being used to provide feedstock for petrochemical and refining customers on the island. With ExxonMobil Chemical (NYSE:XOM) (Irving, Texas) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) recently completing their new crackers, critical mass will have been achieved. "Creating Shell's largest integrated site will bring considerable synergies in terms of feedstocks, operations and logistics," said Shell's Chief Executive Officer Peter Voser about the Shell Eastern Petrochemical Complex. These two crackers will step up Singapore's total ethylene output 4 million tons per year by 2012.

This is where Singapore stands in the present petrochemical world. The country's location is crucial to its being a hub for the industry. Several players have been investing here with the aim of making a good value proposition. However, Singapore was not immune to the global economic slump. Lanxess AG (ETR:LXS) (Leverkusen, Germany) had to delay the construction of its 100,000-ton-per-year butyl rubber set up. Similarly, the huge aromatics project of Jurong Aromatics Corporation (Singapore) has been facing a number of delays. Due for completion in 2011, it most likely will be non-functional till 2013.

Elaborating on the effect of the economic downturn, Liang Ting Wee, the director of the Singapore Economic Development Board (EDB), said, "Global demand for petrochemicals and specialty chemicals were suppressed, and there was an overhang of supply as new ethylene capacities in China, India and the Middle East came on-stream.

"Nonetheless, outlook for our energy and chemical industry is positive, and we are already seeing a strong pick-up of investment interests from companies this year. For example, Lanxess announced that it was bringing forward its butyl rubber project plans in Singapore. Production will now start in 2013 instead of 2014. Likewise, major chemicals projects, including Shell's SEPC plant, were successfully inaugurated earlier this year."

He continued: "Besides Shell and Lanxess, companies like Huntsman Corporation (NYSE:HUN) (Salt Lake City, Utah) and Mitsubishi Financial Group (NYSE:MTU) (Tokyo, Japan) have recently set up headquarters for their various business units in Singapore. We are also seeing a strong interest from Asian enterprises seeking to leverage Singapore as a launch pad to internationalize business growth from Singapore. This is a strong testimony to Singapore's attractiveness as a strategic location for leading energy and chemicals companies to drive growth plans in the region."

Singapore earned this quality from its concerted efforts at development, as well as investments from several countries. India is one such investor.

According to the recent information published in the Reserve Bank of India (RBI) bulletin, India's outward investment proposals for the July-September 2009 quarter shows a leaning toward Singapore, Mauritius, Cyprus and the Netherlands. These countries combined to account for 64% of the outward foreign direct investment ($5 million or more). Singapore and Mauritius remain foremost as destinations for India's outward investment. Between April-September 2009, Singapore, Mauritius, the U.S., the Netherlands, the UAE and the U.K. combined to account for 72 % of India's outward foreign direct investment in the same time frame. In terms of return on investment (ROI), India looks at dividends, resultant royalties, licensing and/or branding fees, technical know-how fees, and repayment of loans.

Besides outward investment, Singapore, over the years, has emerged as an attractive city for Indian professionals. It has been described as a home away from home, with almost 300,000 Indians having made Singapore their permanent location. Singapore has about 35,000 Indian professionals at present. Of them, about 700 are alumni of Indian Institutes of Management and about 1,000 of Indian Institutes of Technology. Low-income jobs in Singapore tend to be filled by foreigners, with Indians, Chinese, Sri Lankan and Malay forming this population.

Providing an outlook for Singapore as a petrochemical hub in the coming years, Liang Ting Wee said: "Located in the heart of Asia with strong connectivity links to Asia and beyond, Singapore is well-positioned to be the home in Asia for companies to seize new growth opportunities in Asia and beyond. In light of this, we expect to see announcements of several key projects over the next couple of years. In addition to manufacturing, these investments are also in HQs and R&D activities.

"The direction for us moving forward is essentially to build on what we have achieved so far, to make Jurong Island more successful and competitive. This is why Singapore has embarked on the 'Jurong Island version 2.0' initiative, a whole-of-government effort that will create new game-changing differentiating advantages to drive the next phase of growth for the chemical industry.

"The Jurong Island version 2.0 initiative will focus on investments in new infrastructure developments and system-level optimization of valuable resources, such as energy, carbon, water and land. Jurong Island will also be a 'living lab' for companies to develop and demonstrate integrated innovative solutions, such as tapping into waste heat to power productive processes, and converting 'waste' products to become useful products.

"Beyond infrastructural developments, we are also stepping up investments to enhance R&D and technological capabilities. Coupled with our strong respect and track record for intellectual property rights protection, we believe Singapore is well-positioned to be the launch-pad for companies carrying out high-tech manufacturing and innovative activities.

"Underlying this optimistic sentiment is our strong belief that the long-term growth of this industry will be driven from Asia, fuelled by strong growth in India, China, and the southeast Asian region. With Asia becoming an increasingly important consumer market for energy and chemical products, companies are seeking a vantage point to manage and serve growing regional needs."

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