UpdateTaiwan’s Formosa shuts 540,000 bbl/day refinery after fire

01 August 2011 09:49  [Source: ICIS news]

(Adds details on No 2 and No 3 naphtha crackers, resignation of company executives)

The Formosa group has shut a base oil unit and a refinery at the Mailiao petrochemical complex because of another fire, which broke out on 27 July.By Helen Lee and Judith Wang

SINGAPORE (ICIS)--Taiwan’s Formosa group has shut its 540,000 bbl/day refinery and 520,000 tonne/year Group II base oil plant in Mailiao following a fire at a propylene pipeline over the weekend, although its No 2 and No 3 crackers continue to operate at high rates, company sources said on Monday.

The shutdown of the base oil unit has forced the company to cancel all its term and spot base oil shipments scheduled to load after the first week of August.

The company originally planned to export around 45,000 tonnes of base oils in August.

Meanwhile, the group is running its No 2 and No 3 naphtha crackers “normally”, a company source added.

“There is no impact on the crackers,” said a company source, referring to the 1.03m tonne/year No 2 and 1.2m tonne/year No 3 crackers at the complex.

The crackers are operating at a rate of 90-100%, he added.

The refinery and naphtha crackers belong to the group’s Formosa Petrochemical Corp (FPCC).

A fire broke out at a hydrogen pipeline at the group’s Mailiao petrochemical complex on 27 July and as a result, FPCC was unable to restart its No 1 cracker.

FPCC shut the 700,000 tonne/year No 1 cracker for inspections following a previous pipeline fire at the firm’s Mailiao petrochemical complex on 12 May.

“At this juncture, the cracker (No 1) remains shut,” the company source said.

By midday on Monday, Asian naphtha benchmark prices rose by $7.50-8.50/tonne (€5-6/tonne) from Friday’s close to $1,006-1,009/tonne CFR (cost & freight) Japan in line with global crude futures, according to ICIS data.

FPCC is maintaining operations at its other petrochemical units, company sources said.

FPCC’s chairman Wilfred Wang and its president Su Chi-yi have stepped down following the incident. The executives “wanted to take responsibility” for not being able to resolve the problems at the Mailiao complex, which has been hit by six fires this year, a company spokesperson said.

The latest fire has caused uncertainty in the market as Formosa is one of the region’s major oil product exporters, namely of gasoil and jet fuel, which is the middle distillate cut of the barrel.

“With the refinery off line, the market will certainly be tightened. Refinery margins in the region will gain,” said Victor Shum from independent energy consulting firm Purvin & Gertz in Singapore.

Given a series of fires that has plagued the Mailiao complex since last year, the Formosa group is under immense pressure on its safety reviews, industry sources said.

“Local residents must [use] this accident to pressure the government so if the petrochemical plants are ordered to shut down, it will definitely affect the [region’s] petrochemical supply,” said Lu Zhen, an analyst from Shanghai-based fund managing firm Galaxy Asset Management.

If the Formosa group shuts or reduces the operating rates at its different plants in the wake of the fire, petrochemical imports to China will also be hit, sources said.

“Discussions with government officials are ongoing and will require some time to navigate,” a source from the group’s Formosa Plastics Corp (FPC) said.

“Even if a decision [to shut down] is reached, there will be more discussions on the course of action because the plants will have to be shut in order,” the FPC source added.

“Given a close distance between Taiwan and China, I believe the imports to China will be reduced if [the] plants are shut. This may drive up a new round of price [hikes], so we need to keep a close eye on the situation,” Lu said.

“Imported raw materials may already have been loaded and also outgoing orders have to be dealt with,” according to the FPC source, who added that offers for olefins and derivatives products in China have been suspended pending a clearer outcome of the situation.

Additional reporting by Felicia Loo, Yeow Pei Lin, Lester Teo, Mahua Charkravarty and James Dennis

($1 = €0.69)

For more on naphtha, visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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