Shell to close its oil refinery in Philippines as margins decline
The facility in Batangas province is no longer economically viable and will be turned into an import terminal
The Philippine unit of Royal Dutch Shell would permanently shut one of the country’s two oil refineries, blaming a pandemic-led slump in margins, with other regional closures likely to follow, according to analysts.
Pilipinas Shell Petroleum Corporation said its 110,000-barrel-per-day Tabangao facility in Batangas province, which began operations in 1962, was no longer economically viable and would be turned into an import terminal.
Singapore’s complex refining margin, the bellwether in measuring profitability at Asian refineries, has been mostly negative since March prompting many refiners to cut output or temporarily shuter operations.
“We definitely see the possibility of more closures in Asia over the next 6-12 months,” said Mia Geng, consultant at FGE, adding that refineries in Japan, Australia and New Zealand could be likely candidates for closure.
“Given the uncertainties in demand and our subdued margin outlook, it would be challenging for those less complex and efficient refineries to continue running.”
The permanent closure of Tabangao comes ater both of the Philippines’ refineries halted operations as coronavirus lockdowns pummelled oil demand.
“Due to the impact of the COVID-19 pandemic on the global, regional and local economies, and the oil supply-demand imbalance in the region, it is no longer economically viable for us to run the refinery,” Pilipinas Shell President and Chief Executive Officer Cesar Romero said in a statement.
The other local refinery, Petron Corporation’s 180,000-bpd facility in Bataan province, has been on a scheduled turnaround since May for maintenance.
Energy Secretary Alfonso Cusi sought to allay concern over domestic fuel supply saying Pilipinas Shell is expected to fill its market share through imports of refined products.
But a Singapore-based gasoil trader said that imports may not happen anytime soon.
“I think they will import a bit more (gasoil) now. But demand is substantially disrupted due to the reoccurring COVID-19 situation.”
Wood Mackenzie research director Sushant Gupta said in a note the challenging environment would put pressure on weaker Asian refineries, particularly ones in mature markets, or with litle or no integration with petrochemicals.
“We could see closures becoming a reality in many markets,” he said.
Pilipinas Shell booked a net loss of 1.2 billion pesos ($24.55 million) in the second quarter, narrower than its January-march net loss of 5.5 billion pesos. Its shares fell as much as 6.9% to 16.30 pesos, a one-year low.
Meanwhile, oil prices held steady on Thursday ater the International Energy Agency lowered its 2020 oil demand forecast following unprecedented travel restrictions and data showing a decline in US inventories provided some support.
Brent crude fell 7 cents, or 0.1%, to $45.36 a barrel , and West Texas Intermediate (WTI) was down 3 cents, or 0.1%, to $42.64 a barrel.
“The oil market enjoys some calm summer weeks, seemingly taking a break from the turbulent times earlier this year,” said Norbert Rucker, analyst Swiss bank Julius Baer.
The International Energy Agency cut its 2020 oil demand forecast on Thursday and said reduced air travel because of the COVID-19 pandemic would lower global oil consumption this year by 8.1 million barrels per day (bpd).
The Organisation of the Petroleum Exporting Countries ( OPEC) also said on Wednesday that world oil demand will fall by 9.06 million bpd this year, more than the 8.95 million bpd decline expected a month ago.
Russian Energy Minister Alexander Novak said on Thursday he did not expect any hasty decisions on output cuts when a monitoring commitee of OPEC and its allies, known as OPEC+, meets next week as the oil market has been stable.
Last month OPEC+ eased the cuts to around to 7.7 million bpd until December from a previous reduction of 9.7 million bpd, reflecting a gradual improvement in global oil demand.
Prices found some support as US crude oil, gasoline and distillate inventories dropped last week as refiners ramped up production and demand improved, a government report showed.
Oil prices have been range-bound since mid-june with Brent trading between $40 and $46 per barrel, and WTI between $37 and $43.
“The market moved from chronic oversupply in April-may to a deficit by June,” said Ehsan Khoman, head of MENA research and strategy at MUFG. “The underlying oil market deficit is becoming more evident and, along with a broader reflation narrative, is keeping oil prices on an even keel.”