Business Times - 21 Mar 2008
Shell eyes more upgrading projects here
It says more capacity has to be built in the East because of the huge demand
By RONNIE LIM
(SINGAPORE) Oil giant Shell is looking at more upgrading investments for its world-leading Pulau Bukom refinery to make it even more efficient and competitive, a top company executive said yesterday.
'More capacity has to be built in the East because of the huge demand,' Rob Routs, Shell's executive director Downstream, told BT after a strategy update for the media and analysts in London.
'A couple of more' plant additions could take place at Bukom, he said - even as Shell has begun building a new US$3 billion petrochemical plant here that will raise its total investment in Singapore to more than US$10 billion.
Singapore is trying to attract at least one or two more refineries to reinforce its position as one of the world's top refining hubs. It is No. 3 worldwide, but there is a rapid build-up of rival capacity in India and China.
On this, Dr Routs, who is also on the Economic Development Board's international advisory council, said: 'It makes sense for Singapore to have more . . . where it can create the space.'
Without saying what Shell has in mind locally, he said: 'We are investing a lot of money as it is in Singapore, and EDB is supportive of what we are doing. But we are taking it one by one.'
On the upcoming US$3 billion Shell Eastern Petrochemicals Complex (SEPC) - described by company chairman Jeroen van der Veer in London as one of its long-life 'legacy assets' that will underpin the group's future growth - Dr Routs said Shell builds only one petrochemical complex at a time because chemicals are not its core business.
'We've just come off the Nanhai project in China which we've completed, and now we are building this huge thing in Singapore and then we are looking forward to see what next.' he said. 'We have another potential in Singapore. Not necessarily building another refinery, but there are a couple of projects we are looking at to make the existing Bukom refinery even more efficient.'
This is in line with Shell's strategy to build more complex refineries to enable it to weather industry down-cycles.
Its expansion here will go beyond its current new cracker investment and Bukom refinery modifications - to enable SEPC, when it kicks off in 2009-2010, to handle a higher percentage of heavier - read cheaper - feedstocks and produce higher-value by-products.
Dr Routs declined to specify the upgrading projects Shell is eyeing for Bukom, but said: 'As always with refineries, this includes things like upgrading low-value streams, focusing on higher value products, or improving energy efficiency by reducing carbon emissions.'
Going by earlier industry indications, the modifications could include a coker that breaks down heavier oils into lighter petroleum products and 'green' plants to produce low-sulphur petrol and diesel.
But rising costs in Singapore are a worry.
Shell plans to build new refineries in Ontario and China, Dr Routs announced at the London strategy update. He told BT that of the two, China is the cheaper location for engineering, procurement and construction costs, 'which creates greater investment opportunity there'. By comparison, 'Singapore is getting very expensive at this point'.
'We have seen cost run-ups in Singapore because of the construction activity going on. A lot of labour has to be imported,' Dr Routs said of SEPC's construction, now one-third completed, which at its peak later this year will require about 8,000-9,000 workers.
'So in this Singapore environment, we try to modularise cost as much as possible, including sub-contracting, to take advantage of lower construction costs including in China and Vietnam,' he said.
Another consideration when it comes to expanding in Singapore is China's high import duties for refined products. 'So although it's easier to build (a refinery) in Singapore, which is an open market compared to China, you might have to pay a bigger price because of import duties into China, which may not make it economic,' Dr Routs said. 'All these factors have to be weighed against one another