China's Sinopec to build $850m oil storage in Indonesia

* Sinopec eyes storage for upto 16 million barrels of crudeand fuels

* About 360 ha land set aside; refinery, petrochemicalproject seen in 2nd phase

* Groundbreaking ceremony said set for Wednesday By Luke Pachymuthu and Chen Aizhu

SINGAPORE/BEIJING, Oct 10 (Reuters) - Asia's top refiner,China's Sinopec, has started work to build Southeast Asia'slargest oil storage terminal at the Batam free trade zone inIndonesia, the company and industry sources said, in an$850-million investment aimed to boost petroleum trading.

Sinopec Kantons Holdings , a unit of the SinopecGroup, will hold a stake of 95 percent in the PT West PointTerminal project covering the construction of storage for up to16 million barrels of crude and refined fuels, the company toldthe Hong Kong Exchange in a filing on Tuesday.

This would be Sinopec's first facility of such a size nearSingapore, Asia's oil trading hub, where the Chinese refiner hasestablished its presence over the past 15 years, trading refinedproducts with a team of 50.

"It should boost Sinopec's trading opportunities...andSingapore has run out of space to build such facilities," said acrude oil trader based in Beijing who deals with Sinopec.

Sinopec's Asia crude teams are based in Beijing and HongKong.

"Sinopec has a trading presence in Singapore and I imaginehaving a storage terminal in Batam, bordering Singapore, wouldbe used to support their trading activity in the region," saidVictor Shum, managing director at IHS Purvin and Gertz inSingapore.

"I think the terminal has very little to do with energysecurity for China. It is a commercial decision."

About 360 hectares of land in Batam's Free Trade Zone hasbeen set aside, with a refinery and petrochemical project beingconsidered in the second phase of development, a source familiarwith project details 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," said a second industryofficial.

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

The project edges the Chinese oil major closer to domesticrival PetroChina , Asia's largest producer of oil andgas, which has a stake of 35 percent in the 14-million-barrelUniversal Oil Terminal on Singapore's Jurong Island.

Industry sources said the project was originally planned asa joint venture between the Chinese refiner and OilTanking, aunit of privately held Marquard & Bahls, but did not work out.

"The deal fell through after Oiltanking decided to go aheadto build a storage facility in Karimun (Indonesia)," an industrysource said. "To be honest this came as a surprise. It'shappened all very quickly."

An invitation sent to select industry executives saidIndonesian president Susilo Bambang Yudhoyono would preside at aground-breaking ceremony set for Wednesday.

The new storage facility is likely to take anything between18 and 24 months to build, industry sources said. It willcomplement Singapore's role 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 meet the region's expanding demand for oil storage.

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, Vopak , the world's largestindependent oil storage operator, began construction of aterminal project at Pengerang, a seaside town at the southerntip 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 Clarence Fernandez)

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