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BusinessWorld (Philippines): High cost putting off plan of Shell to expand refinery

Iris Cecilia C. Gonzales, BusinessWorld (Philippines)
Published: Jan 22, 2007

Pilipinas Shell Petroleum Corp. of the Royal Dutch Shell Group may defer its multibillion-dollar expansion plan for its refinery in Batangas due to the high cost of the project.

Energy Secretary Raphael P.M. Lotilla said the timing of Shell’s planned expansion is “something that is not as definite as we will want it to be.”

He added that oil firms in the region are revisiting plans to build new refineries or expand existing ones.

“The individual companies and countries are actually conducting their feasibility studies and what is being initially shown, however, is that at this time, the cost of an expansion of refinery facilities has also gone up tremendously. So this will be a limiting factor, considering that within two to three years a number of analysts have forecasted an overcapacity in both refinery and oil and gas production,” the energy chief said.

Mr. Lotilla is hoping though that the setback would just be temporary.

“Shell’s expansion project will definitely come at the right time,” he added.

Shell’s planned refinery expansion is estimated to cost roughly $1 billion to $3 billion.

Shell Philippines country chairman Edgar O. Chua said the prevailing environment is not that ripe for such a project.

He said the cost of raw materials and services, including those for contractors, have increased significantly, thus, it also substantially jacked up project cost estimates.

However, he said the company is now working on an alternative plan in running and maintaining its Batangas refinery but declined to elaborate on this project.

“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,” he said.

At present, Shell’s refinery has a capacity of at least 110,000 barrels per day.

Its planned initial public offering (IPO) this year is linked to the refinery expansion so Shell may also postpone the listing to a later time.

Shell is mandated to offer at least 10% of its shares to the public as required by the Oil Deregulation Law of 1998. Shell is only one of two oil refiners in the country.

Petron Corp., the country’s largest oil refiner which is partly owned by the government and Saudi Aramco, had already listed 20% of its stake at the stock exchange in 1994.

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