Shell’s fire-hit Pulau Bukom oil refinery may remain shut for at least a month. Shell is tight-lipped about how much money is going up in smoke due to the incident at its biggest refinery. But some analysts said disrupted production would affect regional supplies of Shell’s products in the short term. Shell’s declaration on Sun 2 Oct 2011 of force majeure on the supply of oil products to some customers following a fire at its 500,000-barrel-a-day Singapore refinery has done little to provide answers on how long refining operations will remain disrupted.
While petroleum markets have already priced in a short-term supply disruption, with gasoline, middle distillates and fuel oil all up $2-3 per barrel against crude oil prices since the fire, the declaration has exacerbated supply worries. Shell has not provided a forecast on when repairs to the refinery – the company’s largest – will be complete, although it has said refining units at the Pulau Bukom complex were not damaged by the blaze which started in a pumping station near storage tanks and burned from Wednesday to Friday. The fire may have already dented demand for Middle East crude oil. A Singapore trader said Shell may have cancelled 4 million barrels of Oct 2011 crude from Saudi Arabia. It remains difficult to assess the full impact of Shell’s supply disruption. Shell said it has started an investigation over the cause of the fire, and won’t restart the refinery until safety is ensured, despite damage being limited to a small area.
– Though this has been one of the biggest stories out of Singapore for the past week or so, there are still many questions that are as yet unanswered, the exact cause of the fire only being one of them. The other issues include the possibility of tightness downstream through the supply chain, in particular gasoline (or petrol as we call it here in Singapore), as well as diesel. Another quite valid question is of course something that people might ask me, such as “should I go and top off my fuel tank right away, reduce my driving and in general prepare for an all-out calamity?”
Let’s try to estimate this using best guesses. The Shell Bukom refinery operates at 500,000 barrels per day, which is 500kbpd, or 0.5mbpd as the industry as well as we peakoilers usually refer to it. Reportedly, 90% of that is exported, which means that 10% or 50kbpd is for local consumption. Assuming that half of it is utilized for gasoline and diesel production, that works out to 25 kbpd worth, or close to 4 million liters per day. Assuming that each vehicle has a fuel tank of 50 liters, we come to an impact estimate on 79,500 vehicles per day. The total vehicle population in Singapore is 952,221 vehicles (as at Jul 2011 according to the Singapore Department of Statistics), hence the impact will be felt on about 8.3% of the Singapore vehicle population, which roughly speaking, would be 1 out of every 12 vehicles.
As you can see, this is not an insignificant impact though it shouldn’t be calamitous. Given the storage buffers throughout the supply chain, we might not expect to see an immediate impact right away. From past observations of petrol price movements, we might expect changes if any to hit within 1 to 2 weeks’ time. This isn’t much of a forecast, but we might expect petrol and diesel prices to move upward in this timeframe. As they say, pricing happens at the margins, and this is quite a margin.
Of course, many things might happen in a dynamic market. For all we know, it might all come down to who’s bidding and who’s winning. Singapore may export less distillates as a whole, with price increases passed on to local motorists, and the rest of the impact spread out among the wider Asian region. The extreme opposite could also be true, if the locals balk at increased prices, and so on. At the point of writing, nobody knows for sure. We should have a much clearer picture soon, within 2 weeks at most.