Recent article from DownstreamToday* revealed that …
Singapore’s biggest local Oil Trader Hin Leong Trading is moving on the vertical integration track as it announced plan to construct a 300,000 to 500,000 bpd green-field refining complex in Singapore. The Downstream Today article also revealed the cost is estimated to be around $6.5 to $8 billion USD and the possibility to expand the complex to produce petrochemicals.
The article went on to state the rationale behind the move…
Moving up the value chain into manufacturing oil products and petrochemicals being a natural step for the company and strengthening the bond with its Chinese partner were among the reasons given by Executive Director Evan Lim.
Many of us are aware of the move by US Airline: Delta to operate a refinery in an effort to reduce jet fuel costs. Many had expressed doubts whether this venture can work. We will, of course, find out shortly as the Trainer refinery is restarting operations already. However, the intention of oil trader Hin Leong is not appear as far fetch since they are familiar with crude and product trading as well as operating a storage terminal with its associated facilities such as jetty and piping networks. Never-the-less, the mammoth task of building, commission and operating a 500,000 bpd refinery is still daunting and there are not many refineries of this size in the world.
Hin Leong would probably be depending heavily on its Chinese NOC partner, whoever this may be.
Would this start a trend in the industry? Traders had in the past went for vertical integration to provide synergy and cost savings among: Trading, Transportation and Storage businesses. However, branching (or extending the vertical), to refining is quite rare.
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* From Downstream Today August 15, 2012, http://www.downstreamtoday.com/news/article.aspx?a_id=36979