Land bridge to paradise

The above artistic rendition done within minutes on a sketchpad is not attributable to Banksy, Andy Warhol or even Damien Hurst.

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Rather, it was the fast and furious representation of a 27 billion-dollar project proposal made by His Excellency Srettha Thavisin, the Prime Minister of the Kingdom of Thailand, on October 17 at the Belt and Road Summit in Beijing, China.

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If this project does see fruition past its 350-odd year history of first conception (Thai monarch of the Ayutthaya Kingdom, Narai the Great in year 1677), it will propel the Kingdom into a formidable swing power in the Far East, and transform the balance and structure of geopolitics in South East Asia.

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The proposed project attempts to build 2 deep-sea ports on either side of Thailand’s territory and a land bridge carriage-way between the two about 90 kilometers apart, giving logistical connectivity between the Gulf of Thailand and the Andaman Sea.

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At the moment, about a quarter of the world’s trade passes through the Strait of Malacca, and since the construction of an oil refinery (Royal Dutch Shell) on the island state of the Republic of Singapore in 1961, this narrow maritime lane is becoming congested, which is why many see this land bridge connector as a game-changer.

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https://www.straitstimes.com/business/economy/singapore-prepares-to-swop-its-oil-hub-status-for-greener-future

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It has been argued that this project even if it were to ever to reach construction and operational status in reality, the trouble of unloading thousands of shipping containers from one port to rail carriages then loading back up the same to another ship on the other side just doesn’t justify the time saving span of 2-3 days.

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This is a severe miscalculation.

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The land bridge connector is never about shipping containers in the first place.

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With 2 oil, gas & renewables energy storage and pipeline hub on either side of both seas, the impact on trade dynamics around the entire region alters dramatically.

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Let us now deliberate on the biggest elephant in the room; the People’s Republic of China (P.R.C)

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It is now already adding on solar, wind, nuclear and biomass renewable energy capacity by a rapid pace that electricity generation from renewables in 2022 stood at 2670.18 terawatt hours (tWh).

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This is largely to maintain exports to the European Union (EU) so as to comply with the mandated EU Cross Border Adjustment Mechanism (CBAM) and associated REDII, REDIII directives.

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Thus, it has to continue to build renewables capacity.

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Coal, oil and gas consumption will continue to see rapid expansion to provide affordable energy for domestic use.

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In order for China to recalibrate its economic engine to veer away from its outsized dependence on the land & property sector, any incremental cost optimization to either fossil or non-fossil derived energy will be of significant value.

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In my earlier post at the beginning of 2023, I theorized that China would be pre-occupied in its post-COVID recalibration for much of 6 to 10 months.

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2023 Q2 Prediction

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10 Months have since passed and here we are.

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By focusing our attention on the firm orders around shipyards for both methanol and ammonia powered ships, many of them will transverse both seas and the Malacca Strait, the business of running both energy hubs on either coastal flank of the Kingdom makes tremendous sense.

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At the moment, China is already conducting substantial oil trade flows with Malaysia, with a number of Malaysian refineries being Chinese-owned.

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https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/011323-malaysia-is-top-crude-supplier-to-chinas-independents-in-2022-despite-russian-competition

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The time coordinated linkages between the P.R.C’s port projects in Sri Lanka, Cambodia, Malaysia illuminates a well-planned strategy for a supranational energy network, versus the traditional singular energy hub model.

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To borrow a Bahasa Melayu word, if we were to stop the wayang around the idea of a container port behemoth and container traffic volume arbitrageur, and recognize this project really as an energy mega network node, the perspective and implicative aftershocks for this part of the world then cannot be understated.

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As of the time of publication of this post, the American International Development Finance Corp (IDFC) is providing a loan of 553 million dollars for a port terminal (Adani Ports and Special Economic Zone Ltd.) in Sri Lanka.

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This American move cannot be understated as it indicates the understanding of the US how logistics and supply chain will be the prime denominator in how energy (both fossil and, especially, renewables + low carbon/neutral carbon) will determine the power, influence and economic dependencies of more than 40 nation states, globally for the next century.

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With the recent preliminary non-binding bid and proposal close on November 5 2023 for possible buyers of the Royal Dutch Shell oil refinery on Singapore’s Bukom island, and the recent remarks by Singapore’s second minister for Trade and Industry Dr. Tan See Leng about the importance of the island state to pivot and transform its energy hub status to address the multi-faceted challenge at hand,

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https://www.reuters.com/business/energy/chinas-cnooc-two-chemical-firms-looking-shell-singapore-assets-sources-2023-10-31/

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We have to look at how much work (I will cover this in my subsequent article) is required to pivot, or is a straightforward sale of the refinery asset that had been a pillar to Singapore’s wealth and outsized influence for the last 62 years the best possible move?

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One very reliable strategy the island state of Singapore has relied upon is the multinational cohort of companies from trading partner nations both large and small as a convenient buttress to have a plurality of entrenched stake and interest in its affairs – it has serve the country remarkably well and continues to be a good toolkit.

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Royal Dutch Shell’s decision to sell its entire stake in the Bukom refinery, is based on the cost of carbon emissions compliance versus the price to pivot the refinery to be at least carbon neutral.

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In other words, dollars and sense.

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Given the unprecedented times the world is facing at the moment, where we have at least 6 to 8 global shifts or transitions already occurring towards permanence, the difference between getting it right and wrong now weighs heavily on small nation states like Singapore.

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In view of these perilous changing times, it will be unthinkable not for the Singaporean state to take up direct ownership in this asset, pivot and transform the refinery into a green energy storage and trading hub.

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This Executive Summary of the full article is the work of the 5M Renewables Risk Consulting & Sovereign Services Division and forms part of our “Nation State Series” of analysis and insight.

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