Singapore Refining Co. says it will be forced to run at 70% capacity this year, as excess supply of oil products continues to undermine profitability in the sector.
The company has been selling feedstock to firms such as Petrochemical Corp. of Singapore, one of Asia's largest ethylene manufacturers, and Eastman Chemical Co. It will start supplying feedstock to Singapore Syngas Ltd., an industrial gas maker, in the first half of this year.
Singapore Refining operates a 285,000 b/d refinery on Jurong Island. The company mothballed an 18,000 b/d secondary refining unit last September and slashed its work force by more than a third to 400 over the last 3 years. Singapore Refining says it plans no more job cuts or unit shutdowns.
Singapore's refiners saw profits eroded by a near tripling of crude oil prices last year. This was followed by a flood of gasoline and diesel from new refineries in India and Taiwan into a market still facing weak demand.
Tony Anderson, chief executive and general manager of Singapore Refining, a joint venture of BP Amoco PLC, Singapore Petroleum Co., and Caltex Corp., said that 1999 was the worst year since 1970 and that 2000 would be just as tough. He added that his company had operated at a loss in 1999.
To turn business around, Singapore Refining will reduce dependence on Asia's fuel market by selling more to Singapore's petrochemicals industry, he says. The company gets 10% of its income from petrochemical sales but hopes to raise that to 40% in the next few years, according to Anderson.
History has shown that refineries closely integrated with petrochemical plants are more profitable than those that just sell fuels, he says. Anderson helped build Singapore Refining in 1973 before leaving for a job with BP. He returned to head Singapore Refining in 1996.
A notice board near the entrance of the company's main office had said that it had lost about $1 (Sing.) for every barrel of crude oil it refined in the first 11 months of 1999.
No relief in sight
Credit Suisse First Boston (CSFB) has said it believes the refining sector is at the bottom of its business cycle, but the problem is that the industry is not expected to move off of the bottom very quickly.
Asia consumes about 20 million b/d of oil, accounting for a quarter of world demand. The region's economic recovery will likely increase demand for gasoline, diesel, and other oil products, with demand likely to rise by an average 600,000 b/d this year, according to Singapore Refining.
Refining margins, though, will return to the black only late in 2000, after Asia absorbs the extra 1 million b/d of oil products from new refineries started up by India's Reliance Industries Ltd. and Taiwan's Formosa Plastics Corp.
Anderson dismissed speculation that one of the three shareholders in Singapore Refining is set to bolt from the joint venture in the next few years. BP Amoco said last year that it planned to cut refining capacity worldwide, raising concerns that it might sell its stake in the Singapore firm.
CSFB said it could not imagine the shareholders pulling out now. They would only do so if they thought things weren't going to get any better, and this, it believes, is not the case.
