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MALAYSIA
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July 11, 2007

Malaysia set to be oil hub 
Malaysia is to become a hub for oil trading, futures and securitisation involving Islamic oil-structured financial derivatives in East Asia after a US$7-billion Trans-Peninsular Oil Pipeline (TranPen) project kicks off, local media reported on July 10.

With its storage facilities, the project will create a new and hitherto non-existent concept in East Asian oil market --commercial crude oil-in-place, said the New Straits Times.

"Producers will be able to store oil at TransPen, ranging from 30 to 90 days, paid by the net savings in logistics cost when the pipeline is fully operational," an industry observer said.

"This creates a tremendous potential. Oil, thus stored, becomes assets which can be monetized or securitised, creating liquidity in the East Asian oil market," the observer added.

When compared to the current 12 million barrels per day (bpd) of oil transiting through the Straits of Malacca and growing to about 20 million bpd by 2020, the 30 days of storage in TransPen will be sufficient to justify an oil exchange for East Asia in Malaysia, he said.

Noting that Malaysia Bank Negara and a Saudi bank have signed an accord on commodity Murabahah, the observer said middle Eastern and Malaysian banks can capitalize from this arrangement to help realise the proposed oil-structured derivatives, since oil is a viable financial asset to facilitate liquidity management and investment.

Being strategically located in the East Asian market, Malaysia is also in the time zone between the major consumers of Northeast Asia and the major producers of the Middle East.

"Thus, the Malaysian oil exchange will be able to function between the working hours of the three time zones, a major advantage when compared to London's IPE or New York's NYMEX," the observer said.
According to the observer, at current prices, securitisation of oil through the TransPen system could be worth US$30 trillion a year in the first phase and will exceed 100 billion U.S. dollars in the third phase. PNA/Xinhua

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