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 17 Apr 2009

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Singapore picks Korean firm to build oil cavern

Singapore moved forward with plans to build a 9.5 million-barrel rock cavern oil storage facility by awarding on Thursday an S$890 million ($594 million) building tender to South Korea's Hyundai Engineering, reported Reuters.

The first phase of 1.48 million cubic metres (9.5 million barrels) comprises five caverns on offshore Jurong Island that could hold crude, naphtha, condensate and gas oil, most likely for commercial, rather than strategic purposes. The first two caverns are expected to be operational by early 2011.

A planned second phase could add another 1.3 million cu m of storage but a decision has not yet been made.

For cost and operational reasons, underground caverns are often used to hold long-term strategic stocks rather than more actively traded barrels.

The US government stores its strategic crude reserves in four underground sites, while South Korea leases out its tanks to refiners to be used for strategic purposes.

Industry sources say underground caverns, which normally cost more than an above-ground facility of similar capacity, are typically used for barrels that remain in-tank for longer periods and are not traded in and out of tanks rapidly.

"The cavern facility will be used for commercial purposes, but there will be physical limitations for storage of trading barrels, particularly those that need to move quickly or be blended, as transferring of products will be involved," said a source in the storage business.

State-owned industrial landlord JTC Corp had said it would unveil the winning bid for the operator of the Jurong Rock Cavern project in the April-June quarter, delaying it from end of February.

A spokeswoman said the results would be unveiled before end-June.

This is not the first time the decision has been postponed -- the tenders were first called in late 2007, and the results have been plagued by months of delays since. JTC said that more time was needed to study the design and construction process for the large-scale, complex project, as safety was a key priority.

Industry sources said bidders for the operation tender include Dutch oil and chemicals storage firm Royal Vopak NV, New York-based engineering and infrastructure consultants Parsons Brinckerhoff and storage operator Horizon Terminals Ltd, wholly owned by Emirates National Oil Company (ENOC).

Vopak already operates landed oil storage tanks next to the planned facility. For phase one of the cavern project, there will be about 7.0 km (4.3 miles) of galleries and tunnels.

Once both phases are completed, the project could raise oil storage capacity in land-scarce Singapore to nearly 11 million cubic metres or almost 70 million barrels.

Since end-2005, Singapore has almost doubled independent oil storage capacities, but all of it has been leased out, leaving the market short of tanks despite slowing consumption.

For example, fuel oil storage capacity in Asia , following the opening of three new terminals with a total of 4-5 million cu m since end-2006, has increased substantially but has not been balanced by a similar rise in demand for the residual fuel due to the economic downturn.




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