Pilipinas Shell Petroleum Corp. is weighing two factors that could lead to the resumption of operations of its Batangas oil refinery after opting to shut it down for one month starting mid-May.
“Two factors that will determine when the refinery process can be re-started are product demand and refinery economics,” Pilipinas Shell general manager Jan-Peter Groot Wassink said in an advisory to employees Wednesday.
The company on Tuesday informed the Philippine Stock Exchange of its plan to temporarily shut down refinery operations amid the coronavirus pandemic that forced the government to impose the enhanced community quarantine. Lockdown measures led to reduced economic activities and less mobility.
Groot Wassink said the demand for domestic products “must have bounced back to a level such that the refinery can run sustainably and the margins must recover sufficiently to make sense, economically for PSPC to restart the refinery.”
He said the refinery will be shut down in a controlled manner while critical systems will be kept running. The facility is capable of refining 110,000 barrels per day.
“During this economic shutdown, the site will operate in terminal/import mode to continue supporting the fuel requirements of the country,” Groot Wassink said.
Pilipinas Shell is the country’s second biggest oil firm, with the Batangas refinery supplying about 30 percent of local demand.
He said the refinery was running on “bare minimum throughput: and product volumes produced still exceed local demand.”
“Our supply chain is filled to the rim with products from the refinery going all the way up to the retail stations. As a result PSPC is exporting at high penalty because the market prices are very low due to the lack of demand in Asia,” Groot Wassink said.
He added refinery margins had declined further to “negative territory.”
“Whereas in previous months we were still able to find opportunities to lock in positive margins that allowed us to continue running, there is no such opportunity for succeeding months,” he said.
The official said running the refinery could no longer be economically justified amid negative margins and limited product outlets.
He said making the choice to run the refinery with negative margins versus an economic shutdown “was extremely painful.”
Groot Wassink said while the shutdown removed the burden of negative margins, it would still incur fixed costs without the income to cover it.
“As such even with the economic shutdown we still need to continue reducing costs wherever and whenever possible,” he said.
The official acknowledged the impact of the shutdown on Pilipinas Shell employees even as the company is committed to continue their renumeration. The company also encouraged employees to go on leave during the shutdown.
“Let us continue to focus our energies on things we can control-running our operations safely and reliably, bring costs down whenever possible, and more importantly, caring for each other’s safety and well-being. Together we can make it through this unprecedented crisis,” he said.