Shell to close Tabangao refinery for good – a shift in supply chain strategy

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Courtesy: Shell

The economic impact of the pandemic pushes Pilipinas Shell to permanently close its 110,000 barrel per day Tabangao refinery. The company will shift to importing oil and transform the facility into an import terminal to retain supply chain competitiveness.

The transition will provide financial resilience to Shell despite the significant constraints in the global refining industry brought by the coronavirus.

Romero said the conclusion of refining operations will not affect the company’s capability to supply high-quality fuels despite the shift in supply chain strategy from manufacturing to full import-based.

The Department of Energy also assured the public that Shell refinery closure will not disturb the oil supply in the country as the company shifts to oil importation.

“Shell remains committed to the Philippines and will pursue opportunities where we can leverage our global expertise in line with our growth strategy,” president and CEO Cesar Romero said.

The company cited the coronavirus worsened the already oil supply and demand imbalance in the region. As a result, running the refinery “is no longer economically viable.”

“It is with a heavy heart that we announce the cessation of oil refining activities in Tabangao,” Romero said.

The Tabangao Refinery has been on shutdown since May 24 to help insulate the Company from further deterioration of refining margins, and aid in its cash preservation efforts. “During this time, Pilipinas Shell has been consistently supplying quality products to its customers and the motoring public”, Romero pointed out.

According to the Department of Energy, demand for petroleum products declined by 20 to 30 percent in March and by as much as 60 to 70 percent in April during the imposition of the enhanced community quarantine, compared to February levels.

The demand for fuel products is not yet back to its normal levels, with many of the businesses still suspended or operating below capacity, while travel remains limited due to the varying levels of quarantine restrictions nationwide. Decline in demand may be expected once again now that Metro Manila and key cities and provinces revert to MECQ.

In addition, refining margins, which saw a steep decline earlier in the year, have gone down further and may remain depressed in the medium term.

The Tabangao facility will become a world-class import terminal and will continue to cater to the fuel needs of Luzon and Northern Visayas. Meanwhile, the North Mindanao Import Facility (NMIF) in Cagayan de Oro will serve the growing energy needs in the balance of Visayas and Mindanao region.

The Company will ensure that employees directly impacted by the transition are well taken care of.

“As we embark on this new exciting chapter for Pilipinas Shell, we wish to reiterate that we are here to stay, and we remain to be a partner in nation-building. We have been serving Filipinos for 106 years and we intend to continue to do so for the next 100 years or more.”

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