Shell shuts down Batangas refinery

MANILA, Philippines — The local unit of multinational oil giant Royal Dutch Shell Plc. is closing its refinery operations in Tabangao, Batangas to give way to the conversion of the facility into a world-class import terminal.

In a statement sent to the Philippine Stock Exchange yesterday, Pilipinas Shell Petroleum Corp. (PSPC) said it is permanently shutting down its 110,000-barrel per day refinery operations and shifting to imports as the price of fuel products is now lower than or almost equal to the cost of refining crude oil.

The company said the move would optimize its asset portfolio and enhance its cost and supply chain competitiveness.

PSPC said it would also further strengthen its financial resilience amid the significant changes and challenges in the global refining industry and the shift to the new normal brought by the COVID-19 pandemic.

“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. 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,” PSPC president and CEO Cesar Romero said.

He said the shutdown of refining operations would not affect the company’s capability to supply high-quality fuels as it shifts its supply chain strategy from manufacturing to full import-based.

“Shell remains committed to the Philippines and will pursue opportunities where we can leverage our global expertise in line with our growth strategy,” Romero said.

The Tabangao refinery, which was put up in 1960, has been shut down since May 24 to help insulate the firm from further deterioration of refining margins, and aid in its cash preservation efforts.

“During this time, Pilipinas Shell has been consistently supplying quality products to its customers and motoring public,” Romero said.

The Department of Energy (DOE) said demand for petroleum products declined by 20 to 30 percent in March and by as much as 60 to 70 percent in April during the imposition of enhanced community quarantine.

The demand for fuel products is not yet back to its normal levels, with many of the businesses still suspended or operating below capacity, while travel remains limited due to the varying levels of quarantine restrictions nationwide. The decline in demand may be expected again as Metro Manila and key cities and provinces revert to MECQ.

PSPC said the Tabangao facility will cater to the fuel needs of Luzon and Northern Visayas, while its North Mindanao Import Facility (NMIF) in Cagayan de Oro will serve the growing energy needs in the balance of the Visayas and Mindanao regions.

Energy Secretary Alfonso Cusi said it is unfortunate that PSPC had to permanently close its refinery operations in the country.

“I respect the decision of the Shell management changing their oil downstream business model to adapt to the existing market/ economic situation,”Cusi said

He added that this would not affect oil supply in the country as PSPC will continue to fill in their market share through import of refined products.

“What saddens me is the plight of the workers that will be displaced due to the closure. I hope they will find employment with the other industry players,”Cusi said.

PSPC said it will ensure that the employees directly impacted by the transition are well taken care of.

“I salute all the men and women whose sacrifices and contributions over the years have made the Tabangao refinery an icon for Shell in the Philippines and most especially in Batangas,” Romero said.

Moreover, PSPC said the transformation of the refinery means that the company will maintain its presence in Tabangao, likewise preserving the support to its stakeholders, particularly the communities that benefit from its corporate social responsibility programs.

“As we embark on this new exciting chapter for Pilipinas Shell, we wish to reiterate that we are here to stay, and we remain to be a partner in nation-building. We have been serving Filipinos for 106 years and we intend to continue to do so for the next 100 years or more,” Romero said.

PSPC narrowed its net loss from P5.5 billion in the first quarter to P1.2 billion in the second quarter as crude oil and product prices slightly improved and stabilized during the second quarter.

For the first semester, however, its net loss stood at P6.7 billion compared to a net income of P3.7 billion in the same period last year.

Inventory holding losses were substantial at P5.8 billion, as the price of crude oil plummeted from $67 per barrel at the end of December 2019 to $20 per barrel in April.

Its non-fuel retailing business contributed 13 percent to gross margin, aided by partnerships forged with delivery companies to help transport non-fuel retail products to selected parts of the country.