Pengerang Energy Complex Sdn Bhd Environmental Impact Assessment Pengerang Energy Complex 3 STATEMENT OF NEED 3.1 Overview The justifications for this project cover the benefits of the project to the Project Proponent, Mukim Pengerang, Kota Tinggi District, State of Johor and to the country, which among others, include the economic benefits, increase of standards of living and social life. The PEC project investment is estimated about RM13.0 billion (~US$ 3.4 billion) and this scale of development will definitely spur more economic activities. The PEC project is in-line with the Government’s policy to develop Pengerang into a major oil & gas and petrochemical hub for Malaysia. The Pengerang Integrated Petroleum Complex (PIPC) is creating value to the downstream oil and gas value chain in Johor. Pengerang is considered a strategic location due to: • Access to existing major international shipping lanes; Middle East –Singapore –China; • Water depth of 24m enables Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs) to berth right at the jetty; • Safe and sheltered harbour; • No breakwater required with sufficient seagoing passage for Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs); • Low negative socio-economic impact; • Availability of sufficient development land; • A single candidate plot in excess of 20,000 acres; • Very few Environmentally Sensitive Areas (ESAs) which are easily preserved; and • Proximity to an existing major trading hub adjacent to Singapore. 3.1.1 Malaysia Outlook The National Key Economic Area (NKEA) is defined as an important driver of economic activities that potentially and directly contributes towards the Malaysian Economic Growth measurable by the National Gross Income (GNI) indicator. NKEA also creates job opportunities and attracts best of talents. The NKEA economic development also has a different approach whereby it will be led by the private sector and the government will support and act as facilitator. There are twelve (12) NKEA as the core of Malaysia’s Economic Transformation Program and ‘oil, gas and energy’ is one of them. The goals of this NKEA is the rejuvenation of existing oil fields, the development of marginal ones, the intensification of exploration activities and the building of a regional oil and gas storage as well as trading hub. The oil, gas and energy NKEA is expected to deliver RM131.4 billion to the GNI. Consequently, it is expected to create an additional 52,300 jobs within the sector. The oil, gas and energy NKEA targets a five per cent annual growth from 2010 to 2020. The PEC is part of this initiative. 3.2 Pengerang Energy Complex Sdn Bhd PEC is a world-scale (150,000bpd) Condensate Splitter and Aromatics Complex. It is underpinned by long term perform or pay feedstock supply and off-take agreements from Global names such as Equinor (Statoil) and Mitsui. It will utilise the latest generation of the proven UOP’s design technology which is considered the leading player in aromatics industry that assures excellence in process safety, environmental performance and production capacity. April 2019 3-1 J18-780-MY-PA PEC EIA Rev 00 Pengerang Energy Complex Sdn Bhd Environmental Impact Assessment Pengerang Energy Complex PEC’s long-term strategy envisages the development of core World Class Strategic assets to serve Asia’s growth and demand for as aromatics, refining and petrochemicals. Figure 3.1 – PEC Forecast Plan 3.3 Product Demand and Supply 3.3.1 Benzene According to market analysts, the global benzene market is expected to grow at a compound annual growth rate (CAGR) of 4.42%, mainly driven by increased demand from derivatives, styrene, and cumene segments. One of the key growth contributors to the global benzene market is the increase in demand from the polyester industry, where styrene monomer is used for manufacturing textiles. The toluene market is expected to grow at a CAGR of 3.2 % to reach USD31 billion by 2022. Its growth is mainly driven by the benzene and gasoline demand in the global market. Major demand for aromatics is expected to come from the Asian region, since most of the derivative units (styrene, phenol, PET, and gasoline) are lined up in Asia. The automobile (4-5% growth) and construction sectors (5-6% growth) would be the key segments driving the demand. Around 1.5 Million MT capacity additions planned for styrene in Asia and the Middle East would also contribute to benzene’s demand growth. The global benzene market is expected to witness a CAGR of approximately 4.3% during the forecasted period due to the increase application of synthetic polymers, such as polyester and polystyrene in the end-user industries, such as textile, packaging, building & construction, and electrical & electronics. Ethyl benzene is expected to be the fastest growing derivative market due to the increasing demand in styrene manufacturing industry. Styrene polymers have seen significant increase in its usage in various industries such as the synthetic rubbers and expanded polystyrene manufacturing industry. Polystyrene is utilised widely in packaging and construction. The growth of these end-user industries, especially in emerging markets, like China, India, and Russia is propelling the growth of the market size for styrene which subsequently, further improves the market for benzene as it is the key raw material for the production of styrene. April 2019 3-2 J18-780-MY-PA PEC EIA Rev 00 Pengerang Energy Complex Sdn Bhd Environmental Impact Assessment Pengerang Energy Complex Source: Argus Media, 2017 Figure 3.2 – Benzene Production In 2017, Asia Pacific was considered as the largest market for benzene with a share of almost 50% in the global market. This region is also expected to be the fastest growing market during the forecasted period, with increasing markets for end-users like electronics and home appliances, packaging and construction in China, India, and ASEAN countries. Source: Figure 3.3 – Global Benzene Market 2017 3.3.2 Paraxylene The global Paraxylene (PX) market size was valued at USD 36.1 billion in 2016 and is expected to further increase by 10.5% by 2022 due to the increasing demand from polyester manufacturers. The PX market is projected to grow at a CAGR of 7.2%, due to the increasing demand from the Polyethylene Terephthalate (PET) segment and Asia is expected to remain as a demand-driving region for PX (Beroe, 2018). Paraxylene is primarily used in the production of purified terephthalic acid (PTA) and dimethyl terephthalate (DMT). These products are essential in the Polyester manufacturing industry. Polyester products are utilised in wide range manufacturing industry such as textiles, packaging materials and construction materials. April 2019 3-3 J18-780-MY-PA PEC EIA Rev 00 Pengerang Energy Complex Sdn Bhd Environmental Impact Assessment Pengerang Energy Complex Other than PTA and DMT, the increase of the demand of PET is another factor that further improves the market size of Paraxylene. PET is currently being utilised in various industry especially in the textiles and food and beverage industries. PET is preferred over different grades of polyester in these industries due to its low cost and greater physical properties. In 2016, Asia Pacific was considered as the largest market for Paraxylene with a share of more than 79% in the global market. The market is projected to further increase by 2022 due to the increasing demand of Polyester fibers and rapid industrialisation from emerging economies such as India, Vietnam, Bangladesh, Indonesia and Thailand. Source: Figure 3.4 – Global Paraxylene Market 2017 The market size of Paraxylene in North America accounted for more than 11% in the global market in 2016. This is due to the unstable feedstock supply over the past few years and stringent regulation regarding the manufacturing of petrochemical products which has resulted in tight supply of Paraxylene. 3.4 Johor Economic Growth The proposed project is expected to contribute directly to Johor’s economic growth. According to the Department of Statistics Malaysia, Johor’s economic growth in 2017 was 6.2%, and was above the national average of 5.9%. Johor’s Gross Domestic Product (GDP) per capita in 2017 was RM34,362 which is an increase from the previous year of RM32,005. Johor is one of the three states that have a designated petrochemical zone. According to the Johor State Structure Plan 2020, the area in Pengerang has been designated for industrial development. This is reiterated in the Draft Johor State Structure Plan 2030 which states that Pengerang has been earmarked as an upstream oil & gas development cluster for Johor (Figure 3.5). The Project will not only stimulate economic growth through development and employment opportunities, but also through construction of new housing areas and supporting infrastructure. In addition to the oil & gas and petrochemical hub of southern Pengerang, the Johor government is also developing the Desaru Coast into a tourist attraction. Desaru Coast, approximately 30km northeast of PEC, is touted to be a premium integrated resort destination. Given these ongoing and future activities, there is a rising demand for residential properties. According to news reports, Johor Petroleum Development Corp Bhd had forecast population in Pengerang would swell to 70,000 by 2020, from 30,000 in 2010, with a shortfall of at least 3,500 homes. April 2019 3-4 J18-780-MY-PA PEC EIA Rev 00 Pengerang Energy Complex Sdn Bhd Environmental Impact Assessment Pengerang Energy Complex 3.4.1 Support for the Oil & Gas Hub According to the Ministry of International Trade and Industry (MITI), investments in Pengerang had hit RM15.3 billion in the first four months of 2018. Pengerang Refining And Petrochemical (PRefChem) is a strategic alliance of two of the world’s largest and most successful national oil companies - Petroliam Nasional Berhad (PETRONAS), the national oil company of Malaysia, and Saudi Aramco, the national oil company of Saudi Arabia.