Koen Verniers, President, Oiltanking, Singapore
Koen Verniers, President Oiltanking Asia Pacific, discusses the role Oiltanking is playing in forging the Greater Singapore zone, especially their Karimum JV with Gunvor. The company’s continued strategic growth in Singapore as exemplified by the acquisition of Helios Terminal Corporation in 2012, as well as its solid commitment to quality in all offerings are also profiled.
Could you please introduce Oiltanking in Singapore and outline the strategic importance of the city-state and the Asia Pacific (APAC) region?
Oiltanking has invested in Singapore for over two decades and today commands a total storage capacity in excess of 2.2 million cubic meters (cbm). This began with a 1.3 million cbm oil terminal in Jurong Island some 25 years ago, followed by a second 0.4 million cbm petrochemicals terminal. The versatile marine terminals are located amid the expanding refining and petrochemical complexes on the consolidated Jurong Island and are well integrated with the surrounding industry through an elaborate network of pipelines.
At the end of 2012, we further expanded our foothold in the country with a third terminal following the full acquisition of the Singapore-based Helios Terminals Corporation. Commissioned in 2008, Helios’ terminal on Jurong Island is a modern and well run operation with a capacity to hold 0.5 million cbm and is equipped with blending facilities and a finger jetty with six berths that can handle up to two Suezmax-size vessels simultaneously.
Although we have other terminals in China and Indonesia, Singapore is by far our largest investment destination in the region and serves as a regional headquarters and center of expertise. Within the global portfolio, Asia Pacific accounts for approximately 20 percent of worldwide assets and revenues. Going forward, our region has been designated as a growth region by the group and, as such, our mandate is to maintain the market share we hold as Asia Pacific continues to expand in terms of demand.
With over seventeen years at Oiltanking, how have you seen the company evolve?
Oiltanking has always been a very entrepreneurial and decentralized enterprise. This helped to promote an atmosphere where a sense of ownership and freedom to act is shared with people in the respective businesses. This has been a fundamental driver of our organization’s impressive expansion over the years.
Since the beginning when I joined, Oiltanking had always enjoyed a strong presence in the world’s terminal hubs including Houston and the Amsterdam-Rotterdam-Antwerp (ARA) region, as well as Singapore. This enduring presence helped us develop these into centers of expertise, specifically in executing capital and integration projects as well as ensuring the safe daily operations of our businesses. Even now, these hubs still represent the growth centers for Oiltanking today and well into the future. Building upon this, our entrepreneurial spirit has enabled us to explore opportunities beyond traditional hubs in locations like Latin America, India and China, which have all demonstrated strong potential.
In aggregate, Oiltanking has a healthy mix between a solid base and the freedom to explore future opportunities, even those outside our core activities. Although we are well focused on the terminals business, a key mandate of our shareholders has been to allow and incentivize management to diversify into other avenues. For instance, in 2012, we acquired a dry bulk terminal in the US, a completely new segment for us. Similarly, we have also developed strong capabilities in the EPC field as a result of our involvement with a partner IOC in India.
This freedom to explore all sorts of opportunities is one of the key drivers behind the continued success of Oiltanking and its Holding company, parent company Marquard & Bahls AG.
What was the rationale behind the 2012 acquisition and subsequent 45% stake sale of Helios terminals?
The initial acquisition was simply a reflection of our APAC growth strategy. Given the inherent strengths of the terminals market in Singapore, we are always on the lookout for such opportunities, and we were very happy to have successfully completed the Helios acquisition.
The subsequent sale of a 45 percent stake of the business was in fact predefined and part of the mandate when we acquired the company. Our shareholders had requested that we look for divestment following the transaction in part as a reflection of our parent company’s financial discipline and ingenuity. This was by no means the first time we divested a share of our assets. In 2007, for instance, we also divested 45 percent in three terminals in Singapore, Amsterdam and Malta in a bid to unlock value to fuel future growth, while also forming strategic partnerships with other players. The part sale of the Helios Terminals did exactly this: unlocking value by leveraging our brand and ownership and commanding a premium in the institutional money markets.
Portfolio management was another motivation behind the predefined part sale. Oiltanking is already heavily invested in Singapore, and we believed spreading the associated risks would be wisest. Doing so left us with enough room in terms of capital and risk exposure to explore other opportunities elsewhere. For instance, we are pursuing and meanwhile executing on the construction of a greenfield terminal on the island of Karimun in Indonesia designed to meet growing demand in Asia.
How has the company’s regional business model and investment commitments evolved over the recent past in the face of the growing and dynamic environment in Asia?
In the context of the Karimun project in Indonesia, we have intensively studied the flow patterns of handled products into Asia and came to the conclusion that APAC will continue to be a hot spot for demand growth driven by the continued expansion of developing regional economies, a growing middle class and the inherent rise in energy demand. Although these factors present a great deal of opportunities, they also introduce a set of unique challenges. These emerging opportunities are attracting a lot of capital, often from the unconventional players in our market who are suddenly showing a lot of interest in storage. These include mammoth organizations such as national oil companies and large integrated trading houses, as well as pension funds.
Not only do these new players help to inflate asset prices with the flood of capital they bring, they also bring with them a different set of market drivers. On the other hand, traditional players like Oiltanking have a long term vision when acquiring assets like Helios, for instance. A pension fund or financial institution is likely to have a different agenda of divesting such an asset within a typically shorter time frame.
We are excited about the emerging opportunities in the region and are following them attentively. Nevertheless, we are also being careful in the investments we make, carefully examining opportunities as they arise in order to avoid situations of overcapacity.
What trends do you see in the regional market in terms of the products you handle?
The region is generally characterized by many imbalances, which lead to a lot of intra-regional trade. With the closure of Australia’s refineries, for instance, there is a surge in demand for gas oil for their mining activities that is being matched out of South Korea’s gas oil surplus.
Inter-regional trade is also on the rise as flows are increasingly diverted from the West to the East. One flow in particular that is still destined to grow is fuel oil, and, as the world’s largest bunkering hub, Singapore is ideally positioned to capture this flow. This was also a key driving factor for our Helios acquisition, which strengthened our local position in that niche. Similarly, the 760,000 cbm Karimun terminal in Indonesia, twenty nautical miles off the coast of Singapore, will largely focus on fuel oil but will also cater for clean petroleum products including diesel, jet and gasoline to a lesser extent.
As the changing global dynamics continue to divert flows from the West to the East – the US’ growing self-sufficiency and declining demand in Europe, as well as growing refining capacity in the Middle East – there is an increased need for storage capacity, particularly in Singapore. Endowed with a unique geographic position, the city-state will continue to develop its role as a pivoting-point for incoming volumes to Asia. We expect this function of Singapore to grow and that is why we’ve embarked on the Helios acquisition and the Karimun venture.
Although Singapore is constrained by space, we are confident it will still be able to capture a significant share of market growth through, what is called, the ‘Greater Singapore’ area. This includes South Johor, in Malaysia, and the immediate northern areas of Indonesia, which includes our Karimun project. From its pivotal geographic location, Singapore is uniquely positioned as a pricing hub. Within that, Platts plays an important role in maintaining Singapore as a unique location for international trade by providing transparency in their pricing window for trades out of the island-state. If this pricing window were to encompass the ‘Greater Singapore’ area, under Platts’ so-called Straits of Malacca window – which already is happening – then this will most likely create a market pricing model akin to the Amsterdam-Rotterdam-Antwerp (ARA) model. In turn, this will enable Singapore to overcome its land and waterfront limitations and capture emerging market opportunities.
How does Singapore compare to other pricing hubs in the world?
Singapore is indeed among the strongest pricing hubs in the world, although not without its limitations. In relation to the volume of trade in Singapore, the level of refining capacity in the country is rather low, especially in comparison to Houston or the ARA region. Despite this shortcoming, Singapore is still a strong and robust pricing hub, and it is surely to remain the hub in the region for the foreseeable future. The transparent governance characterizing its markets is fundamental to this, as is the government’s foresight to implement the right tax schemes and incentives not only to traders, but also to the supporting satellite industries as well. Couple Singapore’s conducive business environment with its advantageous geographical location and you have a winning combination that punches well above its weight.
What strategies and initiatives are you pursuing to maintain the company’s competitive edge and market leadership in the region?
For the past few years, we have been focused on consolidating our strategic vision in Singapore and the APAC region, of which the Helios acquisition was an integral component. Singapore will remain our home market for the region, and we continue to explore local opportunities as they present themselves. Concurrently, we have also dedicated significant resources into setting the Karimun project in motion. This is an exciting development for the company that will strengthen our regional footprint and help us meet growing demand in Asia.
At the same time, we recently established a representative office in Australia to map opportunities through either grass root investments with local partners or acquisitions. Developments in this office provide for some rather exciting prospects, and we will keep a watchful eye on how they progress. Similarly, China is still high on our agenda and we have recently turned an important chapter there by reaching the profitability point a couple of years ago following our initial investment a decade ago. With that page turned, we can now begin to explore new opportunities to expand our portfolio in China.
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