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Manila Standard Today (Philippines): Shell keeps RP refinery

Apr 4th, 2006
by admin.

By Alena Mae S. Flores
The Royal Dutch Shell Group will keep its refinery in the Philippines and even expand its capacity, scuttling an earlier plan to shut it down and transfer it elsewhere in Asia.
An industry source said officials of Pilipinas Shell Petroleum Corp. (Shell), which owns and operates a 130,000 barrel-per-day refinery in Tabangao, Batangas province, are now considering an expansion in the wake of better refining margins.
“Given that refineries all over the world have had greater margins in more than a year now, then that is an encouragement for those who existing refinery facilities to expand,” the source said.
“The environment has changed such that in the past, they were not in a position to even (convince) their headquarters to consider an expansion. They are now at the point where they are serious about considering expansion and therefore are making the appropriate studies. There’s a qualitative change,” the source added.
Shell reported higher refining margins in 2005, the second straight year it posted positive revenues. The margins of oil refineries, including Shell, have turned negative since the economic crisis of 1997.
The source attributed Shell’s positive margins in the past two years to the significant difference in the price of Dubai crude, the benchmark used by refiners, and imported finished products.
The price difference between crude and imported diesel is $20 per barrel at $57.69 per barrel (Dubai crude) versus $77 (diesel) for March.
In February, Dubai crude averaged $57.61 per barrel against imported diesel at $71.90 per barrel. Last year, Dubai crude averaged $50 per barrel against imported diesel at $67 per barrel and unleaded gasoline at $62.10 per barrel.
The source said the government was also keen in granting tariff differential to Shell.
“There is a need to balance, on one hand, the need for more refinery facilities, because we need to secure the energy needs of the country against a situation where (oil refineries) make very little profits and there is no incentive for them to expand,” the source said.
He said the government must ensure that profits that refineries get from the country are reinvested in terms of expansion.
He said Shell would make its decision to pursue an initial public offering once it has undertaken its expansion program.
Shell in the past two years has been weighing its refinery operations in the Philippines. It earlier said it was set to make a decision on whether to shut down its refinery by the end of the year.

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