08 February 2010

Oil refineries in Singapore are 'bleeding'

Our wild reefs in the South lie close to massive petrochemical complexes built on reclaimed islands and reefs in the area.
Petrochemical plants on Pulau Bukom seen from the mangroves on Pulau Semakau.

Major facilities are located at Jurong Island, created by reclaiming seven islands, and still growing. As well as on Pulau Bukom, which lies across a narrow channel from Pulau Hantu, the location of some of the best reefs in Singapore that divers and ordinary people can visit. A reef (Terumbu Bayan) near Pulau Bukom was reclaimed in 2006 to extend the petrochemical facilities there.
A recent article reports that oil refineries in Singapore continue to make losses, with "huge fourth quarter refining losses reported by 'Big Oil' including ExxonMobil, Chevron, Shell and BP recently. And they may not be able to stem the hemorrhaging in 2010."

Meanwhile, discussion continues about building massive port facilities on the 'hockey-shaped' reclamation area at Tuas. The Economic Strategies Committee (ESC) recently recommended consolidating current port facilities at Tuas into a mega container port. This area lies just off Ramsar wetlands in Johor.

Oil refining industry chalks up losses
January margins turn positive but hemorrhaging likely to continue
Ronnie Lim, Business Times 8 Feb 10;
(SINGAPORE) Oil refineries, including those in Singapore, are bleeding. This is evidenced by the huge fourth quarter refining losses reported by 'Big Oil' including ExxonMobil, Chevron, Shell and BP recently. And they may not be able to stem the hemorrhaging this year.

An industry source here said that the picture is unlikely to change much in 2010, adding that 'there has been no pick up in margins yet, and we expect it to stay flat this year.'

This is despite some tentative glimmers of hope, with another refinery official saying that things may be starting to look up with Singapore margins beginning to turn positive again. 'I would say that average margins are beginning to head north of US$2 a barrel recently,' he offered.

This is reflected in BP's refining Global Indicator Margin (GIM) measure which showed Singapore margins turning positive again, albeit just for January this year, after three successive quarters, since Q2, 2009, of negative margins.

BP's GIM showed refining margins in Singapore, the world's third biggest refining centre, at 51 US cents a barrel in January - up from minus 11 US cents in Q2, 2009; minus 2 US cents in Q3 and minus US$1.47 in Q4, 2009. It was a positive US$2.51 in Q1 last year before the global downturn hit.

The refinery official here added that crude throughput, or refining activity, at the three Singapore refineries of ExxonMobil (605,000 barrels per day), Shell (500,000 bpd) and Singapore Refining Company (290,000 bpd) is also starting to recover to around 75-80 per cent levels since Q4, from below 70 per cent earlier last year.

But refining margins, or lack of, are the main concern.

Chevron - which has a half stake in SRC together with Chinese oil giant PetroChina - said that due to the global recession, its downstream profits tumbled 83.5 per cent to US$565 million in 2009. In Q4 alone, it lost US$613 million on refining and marketing, and has signalled that it would cut downstream jobs, and possibly exit some markets by selling or closing some facilities.

ExxonMobil also fared equally badly, as its refining and marketing business swung to a Q4 loss of US$189 million from a profit of US$2.6 billion in Q4, 2008 - as the price of refined products failed to keep up with the rising cost of crude oil, with this exacerbated by a supply glut due to new refineries, including in China and India.

BP last week also reported that its downstream business fell to a replacement cost loss of US$1.9 billion in Q4, with refining margins at their lowest in about 15 years.

Its global indicator margin for refining worldwide stood at US$1.49 a barrel in Q4 last year, the lowest since Q1, 1995, with BP chief executive Tony Hayward saying that refining margins would be subdued by the surplus refining capacity for some years to come. He estimated that the surplus amounted to 3-4 million bpd currently.

Peter Voser, chief executive of Shell - which reported a 75 per cent plunge in Q4 profits to US$1.2 billion on Friday - said 'our downstream business is in the toughest refining environment we've seen in decades,' and indicated that the group is now seeking to sell 15 per cent of its refineries.

Shell Singapore chairman Lee Tzu Yang also said in its just-released Shell World Singapore magazine: 'The expectation for 2010 is for a very difficult environment for manufacturing, and margins will be under constant pressure.'

But one silver lining for the Singapore industry - which is building petrochemical complexes which are highly integrated with the refineries - is that chemicals demand is picking up again.

For instance, ExxonMobil's chemicals earnings in Q4, 2009 of US$716 million were US$561 million higher than in Q4, 2008.

'The better performance in chemicals will help shore up the refining end,' one source said.

This is especially the case with Shell and Exxonmobil whose integrated refining/petrochemicals facilities here are their largest worldwide.

Shell's new US$3 billion petrochemical complex starting up this quarter will for example, be able to use cost-advantaged feedstock - from the heaviest and cheapest hydrowax to liquefied petroleum gas - from the Bukom refinery, with which it is highly integrated.

Ditto for ExxonMobil whose new one million tonnes per annum petrochemical cracker complex will be ready next year, adding to its existing 900,000 tpa cracker complex. Because these are highly integrated with the refinery, ExxonMobil is able to maximise the value of the refinery's various product streams and be cost-effective.

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