INQ7 Interactive, Inc. (Philippines): Shell weighs refinery options; closure seen sans incentives: Tuesday Oct. 04, 2005

Abigail L. Ho

Inquirer News Service

OIL refiner Pilipinas Shell Petroleum Corp. will decide next year whether to expand its Philippine refinery or close it down, a company official said.

The UK-based multinational is seriously studying several different options right now, taking into consideration the competitive environment in the region's downstream oil sector and additional concessions that it is awaiting from the government, Shell general manager for external affairs Roberto Kanapi said.  

It is looking at the market landscape and how refineries in Singapore, Taiwan, Thailand and Korea are expanding and upgrading their plants, and will soon have to tread the same path if it is to remain competitive in the region, Kanapi said.

Also being considered is that by 2009 more stringent emission requirements under the Euro 2 standards will take effect, under which Shell will either have to keep up by upgrading its refinery or close it down and become an importer of finished products, he said.

"We have to prepare for the future," Kanapi said. "There's no point in staying if we don't meet the requirements of the future. We will not be competitive with the regional refineries."

"We're looking to the government right now" regarding Shell's final decision on its refinery, he said.

Shell is waiting for the government's decision on providing a tariff differential between crude and finished oil products, and on possible new incentives for oil refiners, Kanapi said.

It is also looking at a 12-percent return-on-rate base (RORB), which oil companies were assured of before deregulation, he added.

At present Shell has an RORB of only three to four percent, he said.

"We really want to know what the government's strategy is with respect to refineries," he said. "Are they happy with just one refinery? Why is it that nobody's investing in the country? The government should make [the environment] right and good for people to invest."

Considering current demand and economic growth projections over the next several years, the country will likely be importing 44 percent of its fuel requirements by 2008, Kanapi said.

As the refining capacities of Petron Corp. at 180,000 barrels a day and Shell at 110,000 barrels no longer meet the current demand of about 376,000 barrels a day, the country has to import 41 percent of its total requirements.

If Shell closes its Philippine refinery, imports could go up to as high as 70 percent of demand, Kanapi said. With INQ7.net

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