Pilipinas Shell closing Tabangao refinery, converting site into import terminal

Update: At end-2020, Pilipinas Shell Petroleum Corp. reported a full year 2020 net loss of P16.2 billion, of which 73% or P12 billion are one-off charges related to the cessation and transformation of the refinery in Tabangao into an import terminal. At yearend 2020, the company said it secured jobs for over 134 of the 217 impacted refinery employees within other Shell entities in the Philippines while 26 opted for a voluntary retirement.

Royal Dutch Shell PLC subsidiary Pilipinas Shell Petroleum Corp. (Pilipinas Shell) is permanently shuttering crude oil processing operations at its 110,000-b/d Tabangao refinery in Batangas City, Philippines, about 121 km south of Manila, as a measure to improve the operator’s financial resilience amid changes and challenges facing the global refining industry as well as the shift to a new normal brought about by the coronavirus (COVID-19) pandemic.

Following halt of crude processing activities at the site, Pilipinas Shell will convert the Tabangao refinery into an import terminal to optimize the company’s asset portfolio and enhance its cost and supply-chain competitiveness, the company said.

“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. The regional refining margins which have been weak for some time due to the oil supply-demand imbalance in the region, have worsened due to demand destruction from the [COVID-19] crisis. As such, it is no longer economically viable for us to run the refinery. It is with a heavy heart that we announce the cessation of oil refining activities in Tabangao,” said Cesar Romero, Pilipinas Shell’s president and chief executive officer.

Romero reiterated that conclusion of processing operations at Tabangao will not affect Pilipinas Shell’s capability to supply high-quality fuels as the operator shifts its supply-chain strategy from manufacturing to full import-based operations.

Pilipinas Shell said the Tabangao refinery-cum-import terminal will continue to cater to fuel needs of Luzon and Northern Visayas, while the North Mindanao Import Facility (NMIF) in Cagayan de Oro will serve growing energy needs in the balance of Visayas and Mindanao regions.

“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.

Pilipinas Shell said it has been consistently supplying products to customers since the Tabangao refinery halted crude processing operations on May 24 as a cash-conservation measure during reduced fuel demand amid the country’s enhanced community quarantine to fight the spread of COVID-19 (OGJ Online, May 6, 2020).

According to Kagawaran ng Enerhiya, the Philippines’ Department of Energy, the country’s demand for petroleum products during imposition of the enhanced community quarantine declined by 20-30% in March and by as much as 60-70 %in April compared to February levels, Pilipinas Shell said.

Regional demand for fuel products is not yet back to its normal levels, with many businesses still suspended or operating below capacity, while travel remains limited due to varying levels of quarantine restrictions nationwide.

Pilipinas Shell said it expects another decline in demand now that Metro Manila and key cities and provinces revert to modified enhanced community quarantine, or MECQ.

In addition, refining margins, which saw a steep decline earlier in the year, have gone down further and may remain depressed in the medium term, according to the operator.

Further details regarding the scope and timeline for the Tabangao refinery conversion project have yet to be disclosed.