Boost for Asia's energy security in the pipeline

PUBLISHED : Wednesday, 06 June, 2007, 12:00am
UPDATED : Wednesday, 06 June, 2007, 12:00am

Since the 1970s, various plans have been proposed to bypass the Malacca and Singapore straits, one of the world's busiest international shipping channels. This would be done by cutting a canal or building oil pipelines through the relatively narrow neck of Thai or Malaysian land that separates the northern entrance of the straits from the South China Sea.

None of these projects has advanced beyond the planning stage. Why? Because the distance and time saved did not justify the cost and problems. Will the latest plan, for three parallel pipelines to carry oil 320km across northern Malaysia, fare any better? The venture was confirmed by several Malaysian, Indonesian and Saudi Arabian companies last week.

The big unanswered questions are whether the pipelines will save significant time and money for major Asian oil importers. If they do, the US$7 billion project will attract commercial support; if not, it is likely to fail. The distance (1,130km) and time (just over a day's steaming) saved do not appear compelling.

However, there could be a geopolitical test, as well. China, Japan, South Korea and other big East Asian oil importers might, for supply security reasons, want to open an alternative route for their vital oil imports from the Middle East and Africa. They each depend on the waterway for over 75 per cent of these imports. Near Singapore, the shipping channels narrow and could be closed to commercial vessels if a serious accident, attack or blockade took place. Such a crisis is unlikely. Nonetheless, if governments invested in the project, it would, in part at least, be for energy security reasons.

This has not happened yet - and the consortium behind the new venture admits that much has still to be finalised. Promoters of the project say it could handle as much as 50 per cent of the 12 million barrels of crude oil now being shipped through the straits past Singapore to East Asia, or around 30 per cent of the increased quantity of oil that is forecast to be flowing from the Middle East and Africa to the region by 2014, when the planned Malaysian pipeline network reaches full capacity. This, they argue, would reduce congestion and the risk of accidents and pollution.

Would this adversely affect the interests of Singapore? Not much, because the tankers shipping oil to and from the pipeline would, in nearly all cases, have bypassed the city state, anyway. Only if oil refineries are built at either end of the pipeline project could Singapore's status as a leading oil refining and trading hub take a hit.

The International Energy Agency estimates that 11 million barrels of oil per day passed through the straits in 2002, 32 per cent of the recorded global oil trade. The IEA forecasts that by 2030, that will rise to 24 million barrels per day, or 37 per cent of the global trade.

So, it is clear that the straits are an important energy artery. For that reason alone, the pipeline project will be watched closely by those with stakes in the global energy trade.

Michael Richardson is an energy and security specialist at the Institute of Southeast Asian Studies in Singapore.