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Reuters: Shell eyes $321 mln Philippine refinery upgrade -source

Sun Jun 17, 2007 10:20 AM BST

MANILA (Reuters) – Pilipinas Shell Petroleum Corp., a unit of Royal Dutch Shell Plc  is studying a 15 billion pesos ($321 million) upgrade of its refinery, dropping an earlier plan to expand the facility, a top industry source said.

Pilipinas Shell has commissioned a study for the refinery upgrade plan, which is expected to be completed by September, the source, who asked for anonymity, told reporters over the weekend.

“It will be a multibillion-peso investment, or around 15 billion pesos, because they need to meet the sulphur and aromatic content requirements as prescribed in the Clean Air Act,” the source said.

“It is not in the same scale with that of an expanded refinery that they were looking at before. But they will have to upgrade the refinery,” the source said.

After passing the Clean Air Act, the Philippines introduced another law in January requiring refiners to blend biofuels produced from local crops such as sugar and coconuts with gasoline and diesel to reduce the country’s reliance on costly imported crude.

Pilipinas Shell, the second-largest oil firm in the Philippines, had begun looking into a major expansion and modernisation of its 110,000-barrel per day refinery in Tabangao, Batangas province south of Manila.

The study for the expansion was stopped in January due to the expected huge project cost, which was estimated between $1 billion to $1.5 billion.

Shell has a downbeat view of its refining margins at the end of this decade, largely due to soaring costs of materials and human resources. It is considering the sale of a number of downstream assets, including French and U.S. refineries, ahead of 2010 when new plants built by state-run firms in China, India and in the Middle East come on line.

Petron Corp. (PCOR.PS: Quote, Profile , Research), the Philippines’ largest refinery, with a capacity of 180,000 barrels of oil per day, has spent $100 million on upgrading its facilities to produce cleaner fuels.

Shell put its refinery business in the Philippines under review after rival Caltex (Philippines) Inc. closed its 72,000 bpd refinery in the country in late 2003 and converted the facility into a storage depot for petroleum products.

Caltex, owned by Chevron Corp. (CVX.N: Quote, Profile , Research), had said its 49-year-old refinery was too small to compete in the Asian market and too outdated to produce the cleaner fuels required by the Philippines’ environmental laws.

The Philippines imports most of its oil requirements of about 330,000 barrels of oil per day.

($1 = 46.67 pesos)

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