Shell shut down a hydrocracker at the refinery, which would hit gas oil and jet fuel production, while all crude units were operating at reduced rates. Gasoline-making fluid catalytic cracker (FCC) units and the refinery’s ethylene cracker were operating normally.
The fire comes at a time when refiners across Asia are running close to capacity to benefit from attractive margins.
The refinery processes 500,000 barrels of crude oil per day and is Shell’s largest.
Singapore’s key position in global oil markets means any disruption could exaggerate the impact on regional prices in relation to the capacity taken offline.
The following are what traders and industry experts foresee as the immediate implications of a shutdown:
* The Singapore fuel oil market is already strained by a shortage of on-specification cargoes, which means any prolonged shutdown would tighten supplies further.
* “There will most certainly be a bullish kneejerk reaction from the market,” a Singapore-based trader said. “From a purely fundamental supply-demand perspective, (Shell) should be able to make up for the lost production from their trading barrels, as long as the shutdown is not extended beyond a few days.”
* Fuel oil produced at Shell’s refinery is primarily sold into the Singapore bunkers market. The limited size of the volumes supplied by the plant would render it easier for the company to make up for output losses, using stockpiles held at the city-state’s Universal Terminal.
* Traders also said Shell would be able to draw on supplies from its other refineries in the region, including from Malaysia, the Philippines and Japan.
* “They also have a very large supply system that covers their trading barrels,” another trader said. “The bottomline is that unless the shutdown is prolonged, they’re going to be fine. We can start panicking if they declare force majeure.”
* The short-term impact on middle distillates is likely to be limited because the region is saddled with ample supplies, traders said.
* “There has been a bit of tightness for October cargoes, but fundamentally there should be enough supplies in the region to withstand any short-term disruption from the Shell,” said a trader.
* Singapore onshore stockpiles of middle distillates stood at a five-week high above 13 million barrels in the week ended Sept. 21, while kerosene inventories in Japan hit a near two-year high, industry data showed.
* Asia is expected to have a net surplus of 400,000 barrels per day for the remainder of the year, as capacity-driven increases in supply outpace demand, according to a forecast from US-based consultancy Energy Security Analysis Inc. (ESAI).
* Supplies will be further boosted when Taiwan’s Formosa Petrochemicals ramps up exports from its 540,000-bpd refinery in Mailiao from October. The refinery was shut in late July after a fire, with operations resuming production gradually from late August.
* The impact on naphtha will be smaller when compared to gasoline and distillates because most of it is used within Shell’s system.
* Shell supplies some of the naphtha to Petrochemical Corp. Singapore (PCS), which may have to look for alternative supplies elsewhere.
* Even if Shell has to source for naphtha to make up for any output losses, it should not be an issue. Although European refiners have cut runs, European crackers have replaced more naphtha with propane.
* Shell’s refinery processes mostly Middle East heavy sour crude because it has upgrading units that convert those cheaper grades into higher-value-added light fuels including gas oil, jet fuel and gasoline.
* Among the crude grades processed at the refinery are Saudi Arab Light, Oman crude and Abu Dhabi Murban and other grades from the UAE, a Singapore-based senior trading source said. Oman crude is trading at the highest values since at least 2009.
“If they are down for a longer time, the impact would be more on product prices,” said a Singapore-based trader.
“In crude you just free up more supplies into a market that is tight anyway.”
