Riots in Iran over gasoline rationing have refocused the world’s attention on Iran’s petrobusiness dealings in Asia. Strategically, Chinese and East Asian economic growth, Iranian downstream underdevelopment and US antipathy towards Iran’s regional agenda makes the expansion of Asian oil infrastructure not just desirable but perhaps even crucial for the players involved.

It is for this reason that the trans-Malaysian pipeline (TMP) project, which was officially confirmed by Malaysian Prime Minister Abdullah Badawi in early May 2007 after months of speculation, has taken on a new significance.

“Terrorist threats, congestion due to increased volume and rising oil shipping rates have plagued the Malacca Strait.”

Earlier this year Iran and Malaysia pitched the TMP deal as a pure business venture to exploit the limitations of the Malacca Strait shipping chokepoint.

Ghanimi Fard, executive director of international affairs for the National Iranian Oil Company (NIOC), has said the success of the trans-peninsular pipeline depends on future oil demand from East Asia. Malaysian government spokesmen emphasise that neither the government nor Petronas, the state oil company, is officially involved.

However, almost every aspect of the project – from timeline to partners to the project’s components – suggests at minimum a very happy coincidence between commercial and political interests.


Bypassing the Malacca Strait is not a new idea but since 2001 terrorist threats, congestion due to increased volume and rising oil shipping rates have made a trans-peninsular pipeline appear an increasingly attractive alternative to the strait, which boarders Singapore, Indonesia and Malaysia.

The strait itself is only 1.5 miles wide at its narrowest point, but poor policing has left ships traversing it open to attack from pirates.

Last November, a Malaysian delegation led by Foreign Minister Syed Hamid Albar, met senior Iranian officials in Tehran. The two delegations noted their countries’ agreement on many international issues and promised to cultivate closer technological and commercial ties in several energy subsectors, such as oil refining.

Both countries evidently took this commitment seriously: at the beginning of this year, SKS Ventures, an arm of one of Malaysia’s largest utility and infrastructure companies, signed a $16bn agreement to develop two gas fields and an LNG plant in southern Iran. SKS’s owner, Syed Mokhtar Albukhary, is a leading Muslim entrepreneur in Malaysia, and has been a commercial thorn in the side of Singapore, Malaysia’s traditional rival and a staunch US ally.

Malaysia’s government publicly confirmed the TMP project per se in early May. Despite the five-month lag between the two announcements, observers inferred that the entire build-out was presented piecemeal to downplay the political dimensions of Iranian-Malaysian cooperation (Malaysia is not only a majority Muslim country but has a history of opposing US preferences on a range of international issues).

“The TMP will stretch from Yan on the west coast of the Malaysian peninsula to Bachok on the east.”

The broader political implications became apparent in early June, when Iranian Oil Minister Kazem Vaziri Hamaneh announced that Iran has committed to not one but four refinery joint ventures in Asia alone. Along with the TMP initiative, planned refineries in China, Indonesia and Singapore represent a potential capacity increase of 1.1 million barrels a day. Although cagey on details, Hamaneh did state that Iran was ‘to be the partner in these refineries and also to provide the crude oil’ for

Subsequent events have demonstrated that Iran needs all the refinery capacity it can create. On 26 June, Tehran announced that gasoline rationing would begin almost immediately, spurring mob attacks on gas stations. Iran spends roughly $10bn annually to import gasoline, largely because it lacks processing capacity.


In aggregate, the Northwest Malaysia energy build-out comprises a series of projects that, according to projections from local investment powerhouse Aseambankers, will cost close to $15bn and take seven years to reach fully operational status in 2014.

The largest single project is the pipeline itself, which will stretch from Yan on the west coast of the Malaysian peninsula to Bachok on the east. Variously estimated at 300km to 320km (188 to 200 miles) in length, the pipeline will cost $7bn to construct and will come on-stream in 2011. Storage and transit facilities are planned for both ends of the pipeline.

Holding an exclusive contract for the pipeline construction is Trans-Peninsula Petroleum (TPP). Although undercapitalised by industry standards, TPP’s founders were previously senior executives with Petronas, and one of the company’s directors, Osman Aroff, was formerly chief minister of the Kedah State Government.

To perform the heavy lifting, TPP has subcontracted domestically with Ranhill Engineers and Constructors and Indonesian conglomerate Tripatra Engineers and Consultants. Ranhill and Tripatra, both of which were founded in 1973, are among the largest engineering and infrastructure firms in their respective countries and have significant experience with oil infrastructure projects. Another Indonesian firm, PT Bakrie, will furnish the steel pipe.

“Any Malaysian pipeline route would have to traverse several mountain ranges and jungle terrain.”


The overall initiative also involves building two 200,000bpd refinery complexes, one in Kedah and the other in Kelantan. SKS Ventures will partner with NIOC to build the Kedah refinery, while another local firm, Merapoh Resources, will construct the Kelantan refinery with a foreign partner to be determined.

Both refineries are slated to process imported crude into a range of products with output exported from Kelantan throughout East Asia, and most critically to China. Consistent with this consumer base, Far Eastern companies such as China’s Sinochem have been touted as potential partners for the Kelantan refinery.

At the originating end, crude oil will be supplied not only by Iran, but apparently also by Arab exporters: TPP has stated that Al Banader International Group of Saudi Arabia will supply crude from around the Middle East. Given the apparently serious shortage of refined product in Iran, it appears increasingly possible that NIOC could take at least some of the Kedah refinery’s output.

Finally, NIOC has also indicated that it will fund the construction of an offshore pipeline to transport crude from ships berthed in deeper waters off Malaysia’s west coast to the refinery. As is true of most oil trans-shipment centres, Malaysia’s coastal waters are too shallow to handle the very large crude carrier (VLCC) vessels that transport most of the transocean oil volume.

Local reports have indicated that 70% of the initiative’s funding will come from Iran, Saudi Arabia and China, with the remainder coming from private investment. Kedah and Kelantan provinces will each hold a 5% stake in the refineries and the pipeline.


Although four years might seem like a long time for a 200-mile pipeline, consider the location. “This pipeline would take two months to build in Texas,” notes Jim Williams of WTRG Economics, an energy consultancy, “but Texas is flat, dry, and criss-crossed with roads and existing pipelines, unlike Malaysia.”

In fact, the majority of any Malaysian pipeline route would have to traverse several mountain ranges running down the peninsula, in addition to jungle terrain. Moreover, environmental and land acquisition issues have yet to be fully resolved.

In contrast, the coastal refineries and offshore / underwater facilities appear to be less logistically challenging. The most unpredictable risk is that of severe tsunami-causing earthquakes offshore, according to Gibson Consulting, an energy specialist.

“The trans-Malaysian pipeline will cut three days from oil shipment times to East Asia.”

Offshore earthquakes represent a double whammy for offshore infrastructure: the earthquake itself can damage submarine pipelines and mooring structures, and the effects of a strong tsunami were vividly illustrated by the 2004 Sumatra-Andaman

When the pipeline comes on-stream, it will transport up 800,000bpd, according to most sources (although estimates of fully operational throughput have ranged as high as six million barrels a day, this figure seems high – the trans-Alaskan pipeline, for which no comparable shipping competition exists, ships 2.1 million barrels a day). The 800,000bpd estimate represents roughly 10% of Singapore’s current throughput.


The pipeline will cut three days from oil shipment times to East Asia. Piping is almost always cheaper than shipping on an operational basis, according to WTRG’s Williams, but the key question from a commercial viewpoint is whether the owners can earn a worthwhile return on their large upfront investment.

Some local analysts have also expressed concern over projections of more moderate future demand. According to Fereidun Fesheraki, the Asia Oil and Gas Conference chairman, “the [rationale for the] pipeline assumes that demand will explode,” but it is noted that higher prices are causing oil demand to decelerate throughout the region, albeit with the key exception of China.

Interested corporate players have also noted that other regional pipelines offer greater time and cost savings for intra-Asian oil transport. When combined with increases in shipping resources, such projections raise the possibility of cut-throat competition with Singapore, the traditional centre for Southeast Asian energy processing. However, this outcome might actually be welcomed by Malaysia, which has long coveted a larger share of the Asian oil pie.

Moreover, the possibility of a Malacca Strait shutdown looms large in Chinese strategic thinking. In such a case, ships would require several more days to sail around Indonesia’s Sumatra and Java islands – and as one financial analyst notes, “three days here and six days there, and soon you’re talking about real money.”

As Chinese imports of both oil and LNG rise, according to the Institute for the Analysis of Global Security, an independent Washington think tank, more than half of total Chinese energy needs will transit the strait by 2015 unless alternative routes are developed. Indeed, this dependency has motivated China to propose a separate oil pipeline from the Bay of Bengal through Burma into the underserved interior province of Yunnan.

“Poor policing has left ships traversing the Malacca Strait open to attack from pirates.”

Ironically, underlying concerns regarding chokepoint vulnerability may arise more from a blockade by the strait’s ultimate naval protector, the US. In particular, Iran believes that in any strategic showdown, the US would quarantine the strait to prevent Iran from exporting its oil. The TMP build-out would greatly complicate such an action in several respects, of which the military aspect may be the least important.

Iran’s goal in pursuing regional oil infrastructure diversification seems to be the creation of an economic alliance that could deter US military action against its interests, such as its nuclear ambitions. The same rationale works for China, should it ever wish to force a resolution to the Taiwan issue.

For that matter, energy needs are overriding even longstanding national enmities – witness the Iran-Pakistan-India pipeline, which has wrought cooperation between the latter two
nations despite strong US opposition.

Insofar as strategic concerns are paramount, economics and logistics will most likely not be allowed to derail the TMP build-out. From a commercial perspective, cost will always be an issue, and the project may be executed more or less efficiently. But it will most likely get done.