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Philippine private-sector firm Petron has raised the prospect of shutting its 180,000 b/d Bataan refinery as it pushes for more government support, in a move that would leave the country entirely dependent on oil product imports.
Petron is prepared to close down the refinery if talks with the government on creating a "level playing field" for the industry do not succeed, chief executive Ramon Ang said.
Ang did not give details of the talks, but a move by the government to increase import taxes on crude earlier this year has raised costs for refiners. Philippine President Rodrigo Duterte imposed the additional 10pc import tax on crude and products in May to help fund its Covid-19 costs.
Philippine refiners have also been hit by progressive increases in taxes on transport fuel sales since 2018 to finance infrastructure spending and income tax cuts. Petron slumped to a loss of 14.2bn pesos ($290mn) during January-June from a profit of P2.6bn a year earlier, hit by a fall in oil demand, prices and refining margins.
It is unclear if Petron is seriously considering shutting down the refinery, or using the threat as a negotiating chip in its talks with the government. But "it's difficult to strong-arm Duterte", one market participant said, referring to the Philippine president's reputation as a tough leader.
Bataan is the only remaining refinery in the Philippines, after Shell permanently shut its 110,000 b/d Batangas refinery in August because of regional oversupply and the impact of the Covid-19 pandemic. Fuel prices are lower than or about equal to the cost of refining crude, making it economically unviable to run the refinery, Shell said at the time.
The Philippines' product imports were already rising before the Batangas closure, hitting almost 310,000 b/d of diesel, gasoline, jet-kerosine, fuel oil and LPG in 2019, up by 15pc from a year earlier, according to government data. Diesel and gasoline made up the bulk of imports, rising by 27pc to 135,000 b/d and by 17pc to 61,000 b/d respectively.
Most imports came from northeast Asia, with China dominating diesel supplies in particular with 64pc of total imports last year. South Korean refiners have also been expanding their share of the Philippine import market, as the two countries work towards a free trade deal.
Petron and Shell have mainly run Mideast Gulf crudes at their refineries, including light sour grades from Abu Dhabi. Both refineries have occasionally also taken Russian ESPO Blend. Petron buys most of its crude on a term basis. The Philippines produces only marginal amounts of domestic crude, leaving refiners reliant on imports.
Supply security
The closure of Bataan would leave the Philippines as one of only three countries in the 10-member Association of Southeast Asian Nations region without any domestic refineries, together with underdeveloped Cambodia and Laos, raising questions over fuel supply security.
Bataan is the latest Asia-Pacific refinery to face an uncertain future. Refining NZ this week said it plans to operate its 135,000 b/d Marsden Point plant at reduced capacity next year, postponing any immediate plan to convert New Zealand's sole refinery to an import terminal. But Australia's Viva Energy is considering closing its 128,000 b/d Geelong refinery near Melbourne because of a challenging long-term outlook, while fellow Australian firm Ampol is reviewing the future of its 109,000 b/d Lytton refinery in Brisbane.
