Bloomberg News

Shell Probe May Keep Oil Refinery Shut Through Mid-October

October 05, 2011

(Updates with Shell comments in third paragraph.)

Oct. 5 (Bloomberg) -- Singapore’s investigation of a Sept. 28 fire may force Royal Dutch Shell Plc to keep its largest oil refinery shut at least through the middle of October.

The offshore Pulau Bukom refinery, which exports 90 percent of its products to the Asia-Pacific region, may be closed for a minimum of several weeks, according to Purvin & Gertz Inc., an energy consultant. Standard Chartered Plc estimated yesterday a complete shutdown may last for as long as a month.

Europe’s largest oil company, which suspended fuel exports to some clients after taking more than 30 hours to extinguish the blaze, has started an investigation with Singapore’s Manpower Ministry, the company said today in e-mailed comments.

“Now that the whole plant has been shut down, even if somebody decides to resume operations, it will take days, if not longer, to get back to normal operating rates,” said Victor Shum, a senior principal at Purvin in Singapore. “The investigation by both Shell and Singapore may delay the resumption of operations.”

Shell started closing the 500,000 barrel-a-day refinery last week and declared force majeure on Oct. 2, allowing it to cancel supply obligations because of circumstances beyond its control. The fire started at a pump house as Shell prepared for maintenance work, according to the Manpower Ministry.

“We have commenced investigations and are working with the Ministry of Manpower as we establish the cause of the fire,” Peing Tajang, a Shell spokeswoman in Singapore, said in today’s e-mail. “Damage was contained to the vicinity of the pump house. Efforts are proceeding to bring the situation back to normal at the refinery.”

‘Major Fire’

Part of Shell’s preparation work involved the draining of residual oil in a pipeline and removing it by means of a suction truck, the Ministry of Manpower said in a statement Oct. 3. “The fire had subsequently spread and escalated into a major fire within the pump house area,” it said.

The profit from turning crude into gasoil, or diesel, rose as much as 13 percent in the days immediately following the fire. It declined yesterday as Formosa Petrochemical Corp. in Taiwan lifted a force majeure of its own, boosting regional supply.

Gasoil’s premium to Asian benchmark Dubai crude slid 12 cents from yesterday to $17.30 a barrel at 2:35 p.m. in Singapore, according to data from PVM Oil Associates Ltd., a London-based broker. This crack spread, a measure of refining profit, was the narrowest since the Shell fire broke out. The spread was $16.22 before the blaze.

Price Support

“We expect extended support for refined oil products prices for up to a month,” Priya Narain Balchandani, a Singapore-based analyst at Standard Chartered, said in a report yesterday. “However, we keep our forecasts unchanged for now. South Korea should make up some of the shortfall, given spare capacity.”

Saudi Arabian Oil Co., the world’s largest crude exporter, agreed to cancel an October shipment to Shell’s refinery, according to five people with knowledge of the matter. The company, known as Saudi Aramco, agreed to not ship one cargo of 2 million barrels of Arab Light crude, said one of the people. The parties are discussing whether to cancel a second cargo, the people said.

Pulau Bukom is about 5.5 kilometers (3.4 miles) from the financial hub of Singapore, Asia’s biggest oil-trading, refining and storage center. The blaze affected an area 150 meters (492 feet) by 50 meters, about the size of a soccer field, according to Shell, which has operated in Singapore for 120 years.

50 Years Old

The 50-year-old refinery includes a sulfur-recovery unit, a hydro-desulfurizer and a high-vacuum unit that supplies a hydrocracker, based on a Shell document from December 2009. Pulau Bukom also houses a fluid catalytic cracker with a capacity of 34,000 barrels a day, a 155,000 metric-ton-a-year butadiene-extraction unit and an 800,000 ton-a-year ethylene cracker complex.

Shell’s ethylene cracker will also be shut as refinery units feeding the unit were taken offline after the fire, according to a person with direct knowledge of the matter, who asked not to be identified as the information is confidential.

The company also owns a 750,000 ton-a-year mono-ethylene glycol unit on neighboring Jurong Island, where refineries belonging to Exxon Mobil Corp. and Singapore Refining Co., a joint venture between Chevron Corp. and Singapore Petroleum Co., are located.

--Editors: Mike Anderson, Paul Gordon.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net;

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net


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