SINGAPORE (Reuters) - Saudi Aramco plans to deliver the first crude oil cargo to its joint-refinery project with Petronas in Malaysia in October as the companies prepare for trial runs at the new plant, several sources with knowledge of the matter said on Tuesday.
The project, Refinery and Petrochemical Integrated Development (RAPID), is a $27 billion complex located between the Malacca Strait and the South China Sea, conduits for Middle East oil and gas bound for China, Japan and South Korea.
RAPID is one of four new refineries in Asia, with a combined crude processing capacity of nearly 1.3 million barrels per day, scheduled to start up from late 2018 to 2019. These plants will increase Asia’s crude demand while adding to fuel output in the region, traders and analysts said.
“Together with the other mega-refineries poised to start up around the same time, there is potentially a brief window for margins to be awful before IMO effects kick in the second half of 2019,” said Nevyn Nah, a Singapore-based analyst at Energy Aspects.
Nevertheless, RAPID is expected to put Malaysia in a competitive position, not only for its own targets for switching to producing Euro V fuel, but also ahead of the IMO 2020 ruling by increasing its net length in diesel, he said.
International Maritime Organization (IMO) rules will cap ships’ sulfur emissions at 0.5 percent of fuel content in 2020, from 3.5 percent now. Shippers have several ways to comply – including investing in costly “scrubbers” to allow them to keep burning high-sulfur fuel oil, or shifting the roughly 4 million bpd of fuel they burn to more expensive low-sulfur gasoil.
RAPID will contain a 300,000-bpd refinery and a petrochemical complex with a capacity of 7.7 million tonnes a year. Refinery operations are set to begin in 2019, with petrochemical operations to follow six to 12 months afterwards.
Saudi Aramco will supply 50 percent of the refinery’s crude oil with an option of increasing it to 70 percent.
While the first crude for RAPID has been scheduled for delivery in October, the timeline for trial runs at the new plant has not been firmed up, some of the sources said.
Saudi Arabia has increased its oil production to above 10 million bpd since June to meet rising global demand. It is also in talks with new Chinese refiners Dalian Hengli Petrochemical and Zhejiang Rongsheng Petrochemical to supply long-term crude.
Aramco and Malaysia’s Petronas approached banks earlier this year to refinance an $8 billion loan for the project.
Saudi Aramco and Petronas did not immediately respond to a request for comment.
Reporting by Florence Tan and Jessica Jaganathan; Editing by Dale Hudson