Pilipinas Shell permanently shuts down Batangas refinery due to COVID-19 impact

Pilipinas Shell Petroleum Corp. is shutting down its refinery in Tabangao, Batangas City as it shifts its strategy from manufacturing to importation to sustain its business amid the economic impact of the COVID-19 pandemic.

In a disclosure to the Philippine Stock Exchange, Pilipinas Shell said it is “making strategic choices to secure the long-term sustainability of its business and thrive in both the ongoing energy transition and the new normal created by the COVID-19 pandemic.”

The company noted that with the price of fuel products lower than or almost equal to the cost of refining crude oil, the company decided to permanently shut down its refinery operations in Tabangao.

The 110,000-barrel-a-day Tabangao refinery will be transformed into a “world-class” full import terminal to optimize its asset portfolio and enhance its cost and supply chain competitiveness, the company said.

“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. Due to the impact of the COVID-19 pandemic on the global, regional and local economies, and the oil supply-demand imbalance in the region, it is no longer economically viable for us to run the refinery,” Pilipinas Shell president and CEO Cesar Romero said.

Romero said the shift in supply chain strategy from manufacturing to full import, is a move that will further strengthen Pilipinas Shell’s financial resilience “amidst the significant changes and challenges in the global refining industry and the change to the new normal brought about by the COVID-19 pandemic.”

It also prepares the corporation for a future that will rely on more and cleaner energy solutions, he said.

To recall, Pilipinas Shell announced the temporary shut down of the Tabango refinery in mid-May as demand for fuel products saw a drastic decline due to lockdown measures implemented to arrest the spread of COVID-19.

Demand for petroleum products declined by 20% to 30% in March, and by as much as 60% to 70% in April during the imposition of the enhanced community quarantine, according to the Department of Energy.

The transformation of the Tabangao refinery into a full import and storage terminal for finished products and components will translate to an estimated asset impairment of P6 billion to be recognized by Pilipinas Shell in the third quarter.

“Said impairment will not have a cash impact on the corporation,” Pilipinas Shell said.

Nevertheless, the company said Tabangao facility will continue to cater to the fuel needs of Luzon and Northern Visayas, while the North Mindanao Import Facility in Cagayan de Oro will serve the growing energy needs in the balance of the Visayas islands and the whole Mindanao region.

In the first half of the year, Pilipinas Shell booked a net loss of P6.7 billion, a reversal from P3.7-billion net income in the same period last year.

This, as inventory holding losses were substantial at P5.8 billion as the price of crude oil plummeted from $67 per barrel at the end of December 2019 to $20 per barrel in April. —KBK, GMA News