China's Sinopec to build big oil storage in Indonesia

By Luke Pachymuthu and Chen Aizhu

SINGAPORE/BEIJING, Oct 9 (Reuters) - China's Sinopec hasstarted work to build Southeast Asia's largest oil storageterminal at Indonesia's Batam Free Trade Zone, industry sourcessaid on Tuesday.

The first phase of the construction will be a 16 millionbarrel oil storage facility that will be built on a plot of landof about 80 hectares, at least one source familiar with theproject details said.

About 360 hectares of land in Batam's Free Trade Zone hasbeen set aside, with a refinery and petrochemical project beingconsidered as part of the second phase of development, thesource said.

Indonesian officials were not immediately available forcomment.

"For the moment, the immediate priority is to get thestorage facility built, the refining and petrochemical projectsare not at the execution phase yet," the source said.

"This has been a project which they (Sinopec) had beenthinking about for a while now... at least two years in themaking, this project is on a cluster of islands where somereclamation has taken place."

Industry sources said the project was originally planned asa joint-venture between the Chinese refiner and OilTanking, aunit of the privately held Marquard & Bahls.

"The deal fell through after Oiltanking decided to go aheadto build a storage facility in Karimun (Indonesia), to be honestthis came as a surprise," the source said.

"It's happened all very quickly and frankly we don't haveall the details, we only received this invitation and that's asmuch as we know."

The invitation which was sent out to select industryexecutives, said Indonesian president, Susilo Bambang Yudhoyonowould preside over the ground breaking ceremony which was slatedto take place on Wednesday.

The new storage facility is likely to take anything between18-24 months to construct, industry sources said. It willcomplement Singapore's position as the region's top trading hub.

Singapore, which is about three and half times the size ofthe U.S. capital, Washington D.C. has been struggling in recentyears to cope with the expanding demand for oil storage in theregion.

The reluctance of the Economic Development Board, its mainagency for economic strategy, to free up more land to build oilstorage facilities has triggered a series of oil infrastructureprojects in southern Malaysia over the past 24 months.

In late 2011, commercial storage operator, Vopak ,the world's largest independent oil storage operator, beganconstruction of a terminal project at Pengerang, a seaside townat the southern tip of Malaysia's Johor state.

The 1.3 million cubic metre (cu m) facility, being developedwith Malaysia's Dialog Group, is estimated to cost up to $700million and be fully operational in 2014.

Earlier this year, Vitol, the world's largest independentoil trader, kicked off operations at its $290 million storagefacility at Tanjong Bin in southwest Malaysia.

(Editing by James Jukwey)

((Luke.Pachymuthu@thomsonreuters.com)(+65 68703573)(ReutersMessaging: luke.pachymuthu.thomsonreuters.com@reuters.net))