Shell Singapore Refinery May Shut for a Month; Distillates Force Majeure

By Francis Kan and Yaw Yan Chong | September 30, 2011

Royal Dutch Shell’s Singapore refinery may remain shut for at least a month, industry sources said, and the company declared it would not meet supply commitments after a blaze at the major 500,000 barrels-per-day plant.

Singapore is Asia’s hub for crude and oil products trading.

Shell exports about 90 percent of the output from the refinery, the company’s biggest, which accounts for a quarter of the island nation’s capacity.

So the impact on regional prices may be exaggerated by comparison with the capacity taken offline, traders said.

Shell declared a force majeure on sales of distillates, using a clause in contracts that exempts buyers or sellers from commitments due to events that are beyond control, counterparties said.

Shell’s Singapore spokesman said the company would not comment on operational matters.

A refining source said: “By all accounts, the fire is a massive disaster. And it would take some time to investigate the cause, isolate it and also repair the damage. And then restart the parts that are unaffected.”

“One month would be a very conservative estimate in terms of the duration it would take for the plant to return to normal operating levels. It could be longer depending on where the problem is,” the source added.

Another industry source also estimated the outage could last at least a month.

The refinery produces 6.5-7.0 million barrels of distillates per month, of which gas oil is about 4.5 million barrels. It also produces another 4.0-4.5 million barrels of gasoline, based on estimates culled from its capacity.

At least two buyers said they had received notice from the oil major that it was declaring force majeure on all its nominated sales for cargoes to be lifted from the Singapore Bukom refinery.

The note, titled “Notice of Force Majeure” said: “In the circumstances, we have no alternative but to formally declare that our ability to supply the product under the contract has been adversely affected by an event beyond our control.”

MARKET REACTION
Oil product markets, which had rallied strongly a day earlier, fell as concerns over supply disruptions eased. The prompt October/November time spreads for gas oil, naphtha and fuel oil swaps fell by midday from Thursday’s milestone-highs.

Short-term supplies remain disrupted as berthing operations were still down. At least five medium-ranged tankers, of 30,000 tons each, were waiting to load distillates, while another two were waiting to discharge fuel oil.

As a result, cash differentials for gas oil were bid at higher levels at premiums of 50-70 cents to Singapore spot quotes, versus 25-cents value a day ago.

Gasoline’s physical crack to Brent crude held firm at month-high levels of around $13.00 a barrel for a second session.

Martjin van Koten, Shell’s vice-president for manufacturing operations, said on Thursday that the fire occurred white maintenance work was being carried out at a Pump House near a 35,000 bpd distillate-making unit.

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