* Platts proposing FOB Straits benchmarks to replace FOB
* New benchmarks aimed at storage growth in Malaysia,
* Move could boost liquidity and lower storage costs
By Jessica Jaganathan and Jane Xie
SINGAPORE, Aug 21 Oil pricing agency Platts is
consulting with traders on proposed changes to its key oil
product benchmarks in Asia to include ports in Malaysia and
possibly Indonesia as cargo loading points to take advantage of
new storage facilities.
Singapore, Asia's largest oil trading hub, faces land
shortages that have driven billions of dollars of spending on
the construction of storage facilities in neighbouring Malaysia
Giving traders more flexibility in using those sites as
cargo loading points could encourage even more investment and
improve market liquidity, industry sources said.
"There is an underlying growth in terms of supply and demand
with many countries expanding refinery capacity," said Jorge
Montepeque, global editorial director of Platts' pricing group.
"Trade flow is growing massively and all the trade flow is
resulting in changes in logistical facilities around the region
with ports and storages growing."
Platts, a unit of McGraw Hill Group, is consulting
with the oil industry on a proposal to change the loading points
in its pricing assessments for fuel oil, gasoil, jet fuel and
gasoline from July 1, 2015.
It wants to introduce new free-on-board (FOB) Straits
benchmarks to replace the existing FOB Singapore benchmarks.
With the FOB Straits benchmarks, traders would not have to
specify a loading port at the time of placing a bid or offer in
Platts' assessment process.
Sellers would instead nominate an approved port within
Singapore or south Malaysia 7 to 10 days before loading. Under
the proposal as it stands now, buyers would have to accept a
deal in the Platts assessment process without knowing if the
cargo would load from Singapore or Malaysian ports.
Platts' current benchmarks require sellers to declare
upfront if they are planning to load the cargoes from Malaysia
or Singapore storage facilities.
And while the proposed model might be emulating trade in the
Amsterdam-Rotterdam-Antwerp (ARA) region, most cargoes in ARA
are priced on a delivered basis, which presents less of a
logistical problem for buyers, according to traders.
Trades done on an FOB Malaysia basis made up about 3 percent
of total trades in 2013 for cargoes to be loaded under the
Platts' assessment process for Malaysia and Singapore, the
DIFFERENT FREIGHT, PORT CHARGES
The proposed changes could attract more companies to expand
beyond Singapore, which has a total storage capacity of about
20.5 million cubic metres, traders said. And that could in turn
bring down high storage costs in the city state, they said.
Malaysia has announced plans to build about 10 million cubic
metres of oil storage by 2020 with oil and gas developments in
the southern state of Johor. Indonesia will add at least 2.6
million cubic metres of storage capacity in Batam - an island
near Singapore - by 2016.
"If Platts keeps dividing Singapore from other regions,
traders have no choice but to keep paying high tank fees in
Singapore," a Singapore-based middle distillates trader said.
Singapore's storage fees are currently about 10 to 50
percent higher than in Malaysia, with much of the capacity fully
leased out, traders said.
Logistics, varying port and freight charges could pose
problems in implementing the new benchmarks, traders said.
"In terms of port performance, the Malaysian ports cannot
match Singapore yet, so this could cause delays and more
operational costs," said a trader from a company which has a
storage facility in Singapore.
Some of the industry sources Platts has consulted have said
there could also be an issue with tax and free trade agreements
for cargoes loading beyond Singapore, the pricing agency said in
a report on Thursday.
Still, the move could boost liquidity in the region which
faces competition from the Middle East and South Korea which are
also investing in large storage projects, traders said.
"There is no more space in Singapore, so if you want to
increase storage and if you want a bigger marketplace with more
participants, there is no reason why ports in Malaysia cannot be
added," said a trader with a company that has storage
investments in Malaysia.
Thomson Reuters, parent of Reuters news, competes
with Platts in providing news and information to the oil market.
(Additional reporting by Seng Li Peng; Editing by Tom Hogue)