Shell shuts down Philippine refinery to convert it into import terminal

14, Aug. 2020

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MANILA, NNA – The Philippine arm of global oil giant Royal Dutch Shell Plc. has decided to permanently shut down its oil refinery in the country after 58 years of operation.

One of only two such facilities in the Southeast Asian country, it has fallen victim to plummeting fuel prices and poor demand.

However, it is not the end of the road for Pilipinas Shell Petroleum Corp. As it announced the closure of the refinery in Tabangao in Batangas province on Thursday, it revealed that it will be transformed into a “world-class” import terminal.

Pilipinas Shell President and CEO Cesar Romero, said, “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.”

Citing data from the Philippines’ Department of Energy, Pilipinas Shell said the demand for fuel products in the country fell by 20 to 30 percent in March and by as much as 60 to 70 percent in April.

During the period, government-imposed lockdowns across the country to contain the spread of COVID-19 had forced the majority of the population to stay at home while public transportation was brought to a halt.

The company said the impact was reflected in its earnings in the first half, which registered a 6.7-billion-peso ($137 million) net loss. It was a far cry from the 3.7 billion pesos income made in the same period last year.

Low oil prices, which plunged to $20 a barrel in April, also caused “substantial” inventory losses at 5.8 billion pesos for the company.

Losses in the second quarter came up to 1.2 billion pesos, which were less severe than that of 5.5 billion pesos in the January-March period.

The company said it remains cautious as the number of COVID-19 cases has continued to rise in the country. Capital Metro Manila and nearby areas have returned to stricter lockdown that limits travel and forces many businesses to suspend operations or run below capacity.

Despite the closure, Pilipinas Shell said its Tabangao facility will serve as an import terminal. It will continue to supply fuel to Luzon Island and the northern part of the Visayas Island.

The 180,000 barrel-per-day facility of Petron Corp., a unit of conglomerate San Miguel Corp., in Bataan province in Luzon Island, is now the only refinery in the Philippines.

The country's Department of Energy has allayed fears that the closure of the Shell refinery will cause oil shortage in the country.

“This will not affect the oil supply in the country as they will continue to fill in their market share through import of refined products,” Energy Secretary Alfonso Cusi said in a statement.

Peter Lee, senior analyst at Fitch Solutions, told NNA that the closure of the Tabangao refinery will make the country more heavily dependent on imported oil.

He said any tight supply as a result of a reduction in refining capacity may further “drive up cost pressure” for consumers, given that fuel prices have remained elevated in the country since the government has imposed higher excise tax on petroleum products under its tax regime.

“This is bearish for a country which already obtains about half of its fuels from abroad and whose total fuel import bill has risen every year without fail since at least the early 2000s,” he said.

Meanwhile, Philippine central bank governor Benjamin Diokno believes the closure of the refinery will not result in an inflation.

"We do not see the price of oil going back to the pre-Covid level any time soon...The price of oil will be muted for a long time,” he said in an online press briefing.