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Asia’s smaller refiners flounder

in face of weak margins

With even the region’s largest players struggling under the
weight of COVID-19, the outlook for smaller refiners is grim

COMMENTARY THE news this week that Royal Dutch Shell Southeast Asian nation fell into recession in the
intends to permanently shutter its refinery in the second quarter, registering a 16.5% contraction
Philippines underscores the challenges the cur- in GDP, according to the Philippine Statistics
WHAT: rent economic climate presents for Asia’s smaller Authority.
Shell will convert one refineries. Pilipinas Shell Petroleum blamed a pandem-
of the Philippines’ two Asia’s gross refining margins (GRMs) have ic-led slump in GRMs for its decision to convert
refineries into an import been under consistent pressure since March, its 110,000 barrel per day (bpd) Tabangao facil-
terminal. when the coronavirus (COVID-19) pandemic ity in Batangas Province into an import termi-
drove governments across the region to impose nal. The company said the refinery, which first
WHY: work-from-home orders. Results have been opened in 1962, was no longer economically
Smaller refineries are not mixed and COVID-19 continues to weigh on viable.
economically viable in regional demand for oil products. “Due to the impact of the COVID-19 pan-
the current climate. While this is forcing the largest operators demic on the global, regional and local econo-
to trim refinery runs as they seek to manage mies, and the oil supply-demand imbalance in
WHAT NEXT: swelling stockpiles, the reality for smaller the region, it is no longer economically viable for
Additional closures seem facilities is much grimmer. Without the econ- us to run the refinery,” Pilipinas Shell president
likely in the near term omies of scale, smaller refineries are unable and CEO Cesar Romero said.
as demand remains to compete with the region’s mega refineries While Philippine Energy Secretary Alfonso
depressed. and the problem is only set to worsen as new Cusi said Pilipinas Shell was expected to import
facilities come on stream and target the export oil products to meet consumer demand, a Sin-
market to soak up new output. gapore-based gasoil trader told Reuters that
current demand levels did not warrant an sub-
Re-lockdown stantial uptick in imports.
The Philippine government tightened lockdown “I think they will import a bit more [gasoil]
measures in Metro Manila earlier this month now. But demand is substantially disrupted due
after a surge in infection numbers threatened to to the re-occurring COVID-19 situation,” the
overwhelm the health service. unnamed source said.
The return to strict quarantine measures is The Singapore complex GRM has mostly
a blow for an economy that had already been been negative since March and stood at negative
rocked by the world’s longest lockdown. The $0.3 per barrel in the first week of August – the

P4 www. NEWSBASE .com Week 32 13•August•2020