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Shell in Customer Talks After Fire Shuts Its Biggest Refinery

October 01, 2011, 8:43 AM EDT

By Ann Koh and Yee Kai Pin

Oct. 1 (Bloomberg) — Royal Dutch Shell Plc is in talks with customers about the supply of products as it halts all units at its largest oil refinery after the worst fire at the Singapore plant in 23 years.

Shell is in discussions with customers “to minimize any potential impact to them,” it said today on its website. While the fire was fully extinguished on the evening of Sept. 29, the company is continuing a “progressive shutdown” of refinery units as an added precaution as it investigates the accident, Peing Tajang, a company spokeswoman, said in a separate e-mail.

The fire at Pulau Bukom, an island 5.5 kilometers (3.4 miles) from Singapore’s financial center, broke out at 1:15 p.m. local time Sept. 28, Shell said. Local newspaper and television pictures showed flames rising from the plant amid reports of explosions and fire balls. Singapore is Asia’s largest oil- trading, refining and storage center, with local product supply dominated by Shell’s plant, which can process 500,000 barrels a day of crude, and facilities operated by Exxon Mobil Corp.

“These accidents don’t happen very often in Singapore,” said Crystal Yu, 29, the co-owner of a claypot rice restaurant about 100 meters from Pasir Panjang jetty, the embarkation point for ferries to the Shell refinery. “As residents in this area, we worry about the safety concerns of such an incident. We’re worried that a big explosion or oil leaks onto the surface of the water and catches fire.”

Force Majeure

Shell said yesterday the incident hasn’t prompted it to declare force majeure, a legal clause that exempts companies from fulfilling contracts, on fuel exports. Reuters news agency earlier reported that it had declared force majeure on shipments of distillate fuels, which include gasoil, diesel and jet fuel, from the Pulau Bukom refinery.

“We have not declared force majeure in Singapore on products,” Kim Blomley, a London-based Shell spokesman, said by telephone.

Eighty firefighters battled the blaze that broke out in a pump house and forced the evacuation of about 400 workers, Shell said. Two fire engines were badly damaged and 250 workers remained on the site. There were no fatalities.

Damage was contained to the vicinity of the pump house with other facilities and units unaffected, according to Shell’s statement today. Neighboring units in the vicinity of the fire were shut down as a safety precaution, Tajang said in an e- mailed reponse to questions.

Progressive Shutdown

“We then started a progressive shutdown on the rest of the refinery units with the exception of utilities as an added safety precaution,” she said. “This continues. Efforts are proceeding to further secure the site of the fire to allow investigations to commence safely and bring the situation back to normal.”

A diesel-producing hydrocracker at the 50-year-old refinery was closed, boosting regional fuel prices, almost 23 years to the day after a fire killed a worker at the site. Shell has operated in Singapore for about 120 years.

Gasoil, or diesel, rose to the highest in four weeks against Dubai crude, signaling increased processing profit. Gasoil swaps for October traded at $18.30 a barrel over the Asian benchmark crude today, the biggest premium since Sept. 1, according to data from PVM Oil Associates Ltd., a London-based broker. This crack spread was $16.22 before the unit was shut.

“The impact is significant but not dramatic,” David Wech, head of research at JBC Energy GmbH, a consultant in Vienna, said in an e-mail. “It will be a question of how long the plants are off. We expect a week at least.’

Buys Diesel, Gasoline

Shell is buying diesel and gasoline cargoes in Singapore’s spot market, according to a Bloomberg News survey of traders monitoring cargo transactions. It has so far purchased 100,000 barrels of 95-RON gasoline from BP Plc and 150,000 barrels of ultra-low-sulfur diesel from Hin Leong Trading Pte.

Gasoline and diesel fuel were burning at the facility, company spokeswoman Mavis Kuek said Sept. 28. One of Shell’s firefighters was injured and five others experienced heat exhaustion and ‘‘pulled muscle,” the company said.

“The incident occurs in an area between the processing facility, including the hydrocracker, and the product tank farm,” said van Koten. “One or more pipes opened up and the product inside fell and fed the fire.”

Shell’s Pulau Bukom facility also houses an 800,000 metric ton-a-year ethylene plant and a 155,000 ton-a-year butadiene- extraction unit, according to its website. The refinery, which includes a fluid catalytic cracker that makes gasoline, exports 90 percent of its products to Asia-Pacific.

A Malaysian contractor was killed in a fire at the plant on Sept. 29, 1988, National Library archives showed.

Shell also has production facilities on neighboring Jurong Island, where refineries belonging to Exxon Mobil and Singapore Refining Co., a joint venture between Chevron Corp. and Singapore Petroleum Co., are located. Exxon was ordered to stop work for a day at another Singapore refinery in March after a 34-year-old worker was killed during plant maintenance.

–With assistance from Nidaa Bakhsh and Mike Anderson in London. Editors: Raj Rajendran, John Buckley

To contact the reporters on this story: Ann Koh in Singapore at [email protected]; Yee Kai Pin in Singapore at [email protected]

To contact the editor responsible for this story: Paul Gordon at pg[email protected]

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