29th May 2008

Business Times - 29 May 2008

Another major Shell plant on the cards

Decision soon on whether US$500m SMPO plant will be sited in Singapore

By RONNIE LIM

(SINGAPORE) Shell Chemicals is considering Singapore as a possible site for a significant new styrene monomer/propylene oxide (SMPO) plant investment - expected to cost at least US$500 million. This comes even as it is building a US$3 billion-plus petrochemical complex here from which the plant can get its feedstock.

This was disclosed by Iain Lo, its vice-president, ventures & developments for the Asia Pacific/Middle East, in an interview with BT yesterday.

Mr Lo, speaking on the sidelines of the Asia Petrochemical Industry Conference (APIC) here, said that a 'decision is expected soon' on the SMPO project, with the Republic - one of Shell's main manufacturing hubs - competing with other sites in the Middle East and Asia for the investment.

A plus for Singapore will be the availability of feedstock like ethylene, propylene and benzene from Shell's new US$3 billion petrochemical cracker which will start up in late 2009/early 2010, he said. Another advantage is that Singapore is already the site of a Shell SMPO facility through its Ellba joint venture.

Mr Lo declined to give project details at this stage but he indicated that, to be economic, the new SMPO investment should ideally be as large as the world-scale US$500 million Ellba Eastern joint venture of Shell and Germany's BASF.

Ellba on Jurong Island is currently the largest SMPO plant in Asia producing the chemical intermediates used to make final products like polystyrene containers and rubber soles. It produces 250,000 tonnes of PO and 550,000 tonnes of SM annually.

Mr Lo was elaborating on Shell Chemicals' executive vice-president Ben van Beurden's remarks yesterday that it was considering significant new manufacturing investments - including another SMPO plant - to meet the needs of customers in Asia Pacific. Shell has already added four such SMPO plants in the last decade.

The new projects will build on new multi-billion- dollar petrochemical crackers it is currently establishing in Singapore and Nanhai, China.

By 2010, around 30 per cent of Shell's chemical manufacturing assets will be located in Asia Pacific and the Middle East, and focused primarily on supplying the burgeoning Asia Pacific market, Mr van Beurden said.

In Singapore, Shell is currently building its new Shell Eastern Petrochemicals Complex (SEPC), comprising an 800,000 tonnes per annum (tpa) ethylene cracker, a 750,000 tpa monoethylene glycol downstream plant and a new 155,000 tpa butadiene plant.

And if not the mega new SMPO investment, SEPC is set to secure more downstream investors at least.

'We are talking to a number of companies, both international and Asian players, some big and others smaller, on using the remaining cracker feedstock available,' Mr Lo said. There will be further announcements, although the final number of additional downstream plants at SEPC will depend on their size, he added.

What makes Singapore attractive to downstream investors is security of feedstock supply because of the number of petrochemical players here, Mr Lo stressed, saying that this comes from the 'critical mass' of having four crackers here come 2010, with the Republic looking to add another two in the future.

Apart from SEPC, ExxonMobil is building its second petrochemical complex here - this time a US$5 billion-plus, 1 million tpa project, adding to its earlier 900,000 tpa cracker. Petrochemical Corporation of Singapore (PCS) - in which Shell has a half share with a Japanese consortium - operates a 1.4 million tpa cracker.

While the new SEPC, which is integrated with Shell's Bukom refinery, will undoubtedly be 'far more efficient' than that of PCS, Mr Lo said that Shell is 'quite happy' with its PCS investment.

'Our view of PCS is that it is an extremely well-run asset which has been very profitable over the last four years. As far as stand-alone liquid crackers are concerned, it is one of the best around.' But he conceded that PCS will face challenges, especially in the current industry down-cycle.

Despite upcoming new, more cost-efficient gas- fuelled crackers in the Middle East, Mr Lo said that one advantage of PCS is that it is well integrated with a dedicated customer base and does not need to compete in the spot market.

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Business Times - 29 May 2008

Jakarta pulls out of Opec to ease tensions

Gas deals with S'pore not likely to be affected though Indonesia now consumes more

By RONNIE LIM

(SINGAPORE) Indonesia plans to withdraw at the end of this year from the Organisation of Petroleum Exporting Countries (Opec) after years of declining oil exports, Energy and Mineral Resources Minister Purnomo Yusgiantoro said yesterday .

The country, the only South-east Asian member of the oil cartel, has become a net oil importer and will not bother to renew its Opec membership when it comes up for renewal at year-end, Mr Yusgiantoro told a group of foreign journalists at a lunch in Jakarta. 'When I get back to the office.. I will sign that we withdraw from Opec,' AFP quoted him as saying.

The move - long considered by Jakarta - had some players mulling over the possible impact on gas sales to Singapore, given Indonesia's energy situation. Most, however, read it as a political gesture aimed at the domestic Indonesian market.

'It's come up now for domestic political purposes,' Tony Regan, an energy consultant with oil and gas consultancy Nexant, reckoned.

In the face of skyrocketing global crude prices - which shot past US$135 recently - Indonesia last Saturday bit the bullet and finally cut its fuel subsidies, resulting in a 30 per cent average increase in prices of subsidised fuels there.

This sparked widespread protests in the country and has put pressure on the government ahead of elections next year.

'So the message to Indonesians was: we've tried to hold back domestic price increases as long as we could to help. And this contrasted with Opec's stance to essentially keep oil prices up,' Mr Regan told BT.

So that's why Indonesia is making this gesture to leave Opec, he explained. 'At the same time, it's doing so without criticising Opec as well.' The move, however, will not have any impact on international oil prices, he said.

In cutting its domestic fuel subsidies, Indonesia has fared better than Malaysia, which has been unable to raise the pump prices of petrol and diesel, despite mounting fuel subsidies, added Mr Regan.

While domestic Indonesian consumption of natural gas is rising, the country's move to quit Opec should not impact sales of Indonesian gas to Singapore, Mr Regan said.

'The question, however, is whether there will be gas available when the contracts with Singapore come up for renewal,' he noted.

Tang Kin Fei, group president and CEO of Sembcorp Industries - the biggest Indonesian gas importer - told BT yesterday that Indonesia's move to leave Opec 'will not impact on Singapore gas supplies, as firstly, Opec involves only oil and not gas.

'Besides, when we signed our gas deals, we ensured that any government action there will not become a force majeure issue,' he added.

This is because Sembcorp's two commercial Gas Sales Agreements with Indonesia - the latest just clinched last month - were with commercial parties.

'Our first GSA was with Pertamina and involved the PSC (production sharing contract) parties, ConocoPhillips, Premier and Gulf, while the second was directly with the PSC parties, Premier, Petronas and Kuwait Oil,' he said.

The latest deal - for supply of an additional 86 million standard cubic feet of gas daily (mscfd) for 7-10 years starting 2010/2011 - will add about 26 per cent to the 325-340 mscfd of gas under its first 1998 GSA.

Mr Tang also agreed with the view that Indonesia was quitting Opec so as to delink its move to cut domestic subsidies with Opec's present stance to not increase production (and therefore keep oil prices up).

'It's about time,' Richard Lorentz, vice-president of Business Development at oil and gas exploration and production company Pearl Energy, said. 'Indonesia has been a net importer of crude for quite some time, and a net importer of energy for even longer, so it's no surprise.'

The move won't affect oil and gas E&P contracts with Indonesia, Mr Lorentz felt, adding that 'they've just awarded a batch of new contracts recently.'

Pulling out of Opec - its current paid membership expires this year-end - will save the country about two million euros (S$4.3 million) annually.

Indonesia has for years been weighing the option of pulling out of the oil cartel. While other Opec members have been reaping profits, especially with the recent run-up in prices, Indonesia has not been able to get enough of its 4.37 billion barrels in proven reserves to the market.

With its production declining since 1995, the Indonesian government earlier this year lowered its 2008 oil sales estimate to 927,000 barrels per day from 1.034 million barrels previously.