UpdateShell's force majeure in Singapore covers MEG supply

03 October 2011 06:21  [Source: ICIS news]

(adds details on other products, analyst comments)

By Nurluqman Suratman

ShellSINGAPORE (ICIS)--Shell’s force majeure in Singapore following a fire at its Bukom refinery extends to the company’s monoethylene glycol (MEG) products, market sources said on Monday.

The operating status of Shell’s 800,000 tonne/year ethylene cracker at Bukom Island, along with the company’s two MEG plants on neighbouring Jurong Island, remains unclear.

Shell’s 750,000 tonne/year MEG plant and a separate 110,000 tonne/year unit on Jurong Island rely on ethylene feedstock from the cracker on Bukom.

Shell confirmed late on Sunday that it had declared force majeure on some of its customers after a 30-hour blaze at its 500,000 bbl/day Bukom refinery. The fire erupted in the early afternoon of 28 September and was completely extinguished on the night of 29 September.

No details were provided on the products covered in the force majeure.

When asked to comment on the issue, a Shell spokesperson said: “We are not able to comment further, as this is commercially sensitive information.”

“We understand the concerns of our customers. We are in discussions with them to address their supply needs and to minimize any potential impact,” the spokesperson said in an email statement to ICIS.

The company, which has said it deeply regrets the incident, said on 30 September that it was in the process of shutting down the refinery and possibly some downstream units as well.

The Bukom site houses a mixed-feed cracker with an 800,000 tonne/year ethylene capacity. The cracker has a 155,000 tonne/year butadiene (BD) extraction unit.

Shell could also declare force majeure on its olefins as well as its styrene monomer (SM) products, according to market players.

“We heard that Shell would declare force majeure on its petrochemical products including SM last Friday, but so far we have no concrete announcement yet,” said a SM end-user in southeast Asia.

Another trader in Singapore said: “One or both of the SM units in Singapore could be affected by a force majeure, but so far nothing definitive has emerged.”

Shell produces 900,000 tonnes/year of SM from two production units on Jurong Island.

The impact of Shell’s refinery shutdown – which is widely expected by market players in the wake of the fire – will be severely felt on the gas oil market, traders said.

Shell has to buy physical gas oil to meet its obligations and has to buy back paper trades to close positions, traders said. At this juncture, Shell is in a short position, they added.

The shutdown at the refinery will also have an impact on the gasoline market as Shell has been buying from the spot market even before the fire started, traders said.

“I won’t be surprised if Shell comes out to buy more spot gasoline cargoes,” said a Western trader.

The refinery on Bukom is Shell's largest in the world in terms of crude distillation capacity.

Victor Shum, a managing consultant at energy consultancy Purvin & Gertz, said that while the force majeure on oil products would result in a temporary tightening of supply in the region, the disruption will not huge because of the ramp-up in production at Formosa Petrochemical Corp’s (FPCC) refinery in Mailiao after it was restarted following a fire at the end of July.

“The FPCC refinery is expected to run at full speed some time this month therefore the regional market won’t be as tight as one would expect from the Shell shutdown,” Shum said.

“Other export refineries in the region will also likely increase rates to produce more products as this is the normal response to higher prices,” he said.

“I think that the market will get tighter but its not going to be the situation of customers not being able to get hold of products,” he said.

Shell is likely to restart the refinery on Bukom Island within a few weeks to a month, Shum said, adding that the start-up will be “sooner rather than later” because the production facilities on Bukom were not damaged by the fire.

Additional reporting by Judith Wang, Felicia Loo, Peh Soo Hwee and Clive Ong

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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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