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TMCNet.com: Shell defers refinery expansion plan

January 21, 2007
(Manila Standard Via Thomson Dialog NewsEdge)

Royal Dutch Shell Group, the parent company of Pilipinas Shell Petroleum Corp., has deferred the expansion of its refinery in Tabangao, Batangas province, due to high project cost.

Shell owns and operates a 130,000 barrel-per-day refinery in Batangas. It earlier estimated the planned refinery expansion to cost around $1 billion to $3 billion.

Philippine Shell executives are working hard to sustain Shell’s refining operations in the country despite small margins.

Energy Secretary Raphael Lotilla said an increase in expansion cost and forecasts of overcapacity in refineries and oil and gas production were the two factors that were restraining oil companies to expand their refinery operations.

“These are the things, the countries and companies will have to consider whether to forge ahead with expansion plans or not,” Lotilla told reporters.

“The matter of timing [on Shell’s planned expansion] is something that is not as definite as we want it to be,” he added.

The energy official said he hoped the setback was temporary and that the expansion project “will definitely come at the right time.”

Lotilla said the government was looking at ways on how to help Shell convince its mother company to expand its operations in the Philippines. He earlier said the government was interested in granting tariff differential to Shell.

The government wants to ensure that profits posted by refineries in the country are reinvested in terms of expansion.

Shell Philippines country chairman Edgar Chua said “the environment is currently far too overheated to do an economic project.”

“[Pilipinas Shell] has decided to cease further work on the current study and will therefore defer any major investment decision for the Tabangao refinery in the foreseeable future,” Chua said.

Shell for two years has been conducting studies on the most feasible move for the company amid dwindling margins and a limited local market.

It also remains unclear if Shell would push through with an initial public offering.

Shell was scheduled to list its shares at the stock market a few years ago but it asked government for an extension pending a final decision on its refinery expansion plans.

Copyright 2007 Manila Standard. Source: Financial Times Information Limited.

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