Shell's Pernis outage hits chemical markets with several force majeures

04 August 2017 13:02 Source:ICIS News

Pernis Shell

LONDON (ICIS)--A fire and power outage at Europe’s largest refinery, Pernis in the Netherlands, on 29 July may have disrupted summer holiday plans for some traders and executives at Anglo-Dutch energy major Shell as the extent of the damage became clear by the beginning of the week.

A string of force majeure declarations started trickling down on Monday, reaching a total of five by Friday morning.

Soon after the accident, the company declared force majeure on isopropanol (IPA) and on propylene oxide (PO) glycol ethers. Shell then declared force majeures on propylene, other chemical solvents and hydrocarbon solvents.

Moreover, other facilities near Pernis also fell victim to the outage. On Thursday, Japan’s Shin-Etsu declared force majeure on its K67 grade polyvinyl chloride (PVC) production as a consequence of the fire. The facility has a PVC production capacity of 450,000 tonnes/year.

Shell’s Dutch petrochemical complex Moerdijk also declared force majeure on ethylene on Tuesday as a knock-on effect from the fire at Pernis, after stating that the cracker at the facility would have to run at reduced capacities. Capacities at this cracker stand at 910,000 tonnes/year for ethylene and 510,000 tonnes/year for propylene.

An outage at Pernis can easily have early and deep repercussions in the markets, as the facility, near Rotterdam, sits in the crude oil and petrochemical hub of Amsterdam-Rotterdam-Antwerp (ARA), which is key for the production and distribution of product across the northwest Europe area.

Pernis processes 404,000 bbl/day of crude oil, according to the company, and the capacities for more downstream products also show shutdowns can have a big impact in the markets – and the company’s financials.

Some of Pernis’ more upstream products include diesel, jet kerosene, liquefied petroleum gas (LPG) or fuel oil.

Downstream, some of the disclosed production capacities include 250,000 tonnes/year for propylene and 150,000 tonnes/year for IPA, as well as 90,000 tonnes/year for methyl ethyl ketone (MEK) and 45,000 tonnes/year for methyl isobutyl ketone (MIBK).

By Monday (31 July) morning, sentiment among crude oil traders was firming, although at the time it all depended on how long the shutdowns at “most of the units” would last.

The answer would come on Tuesday afternoon, when the company said it would restart operations at the shutdown units in the second half of August “at the earliest”.

August is the predominant travelling month in Europe, when holiday goers take to the roads, and the lack of product was already being felt at Shell’s coffers by Monday.

As an example of what may be to come in coming weeks, Shell increased purchases of mid-distillates in and out of the open market window, potentially to meet contractual requirements during peak travel season. For instance, the company sharply raised its bid in the open market window for a Rotterdam-bound 27,000-tonne jet fuel cargo, pushing jet prices higher.

"They [Shell] have been active yesterday," a diesel trader said on Tuesday.

Other European petrochemical markets have also felt the repercussions of Shell’s Pernis incident, mostly styrene after the company informed its customers that availability had been impacted by the fire.

The impact of the fire – in terms of both production volumes and financials – may only become clear in a few weeks’ time.

Shell published its chemicals second-quarter financial results just two days before Pernis’ outage, showing earnings had more than doubled compared to the second quarter of 2016.

Was the Pernis outage to be prolonged, the picture on 3 November, when the company presents its third-quarter results, may not be as positive.

Unfazed by the news, the few investors who are around in August decided to give the company’s shares a vote of confidence. While Monday’s closing price stood at £21.51 on their London Stock Exchange trading, the shares were trading on Friday morning at £22.12.

(Clarification: recasts fourth paragraph clarifying Moerdijk's definition)

Focus article by Jonathan Lopez

Pictured above: Panoramic view of Shell's Pernis complex in the Netherlands
Source: Shell

Additional reporting by Chris Barker, Nick Cleeve, Cuckoo James, Linda Naylor, Vasiliki Parapouli and Nel Weddle

By Jonathan Lopez