Petron reduces refinery output by 30% due to weak demand

Publicly-listed Petron Corp. has cut back on its refinery production by 30 percent due to a weak demand in the domestic market.

In an interview during a public forum sponsored by the Philippine Institute of Petroleum Inc. (PIP) on "Turmoil in Middle East-Impact on Oil Supplies and Oil Deregulation – The Asian Experience", Petron president and chief executive officer Motassim Al-Ma’ashouq said that at present, they are running at a rate of 126,000 barrels of oil per day (BOPD) or about 70 percent of its total refining capacity of 180,000 BOPD.

"The market remains weak and we don’t anticipate a strong recovery anytime soon. And with the implending full commercial operations of the Malampaya natural gas, demand for fuel oil is seen to go down further," Al-Ma’ashouq said.

Despite its production cutback, Petron’s refinery run is high compared to other oil majors.

Pilipinas Shell Petroleum Corp. country chairman Eliseo Santiago said their refinery is now running at only 80,000 BOPD, or 48 percent lower than its refining capacity of 165,000 BOPD.

Santiago, however, said they decided to slow down on their local refining production as they opted to import some of their products which are cheaper when sourced outside the country.

The Shell official said most of the products they import now are refined gasoline and liquefied petroleum gas (LPG). He added that the decline in production, has not, in any way affected their supply and demand operations.

"Even with the slowdown in our refining production, we have not been remiss in our obligation to serve our clents. We import mostly our gasoline and LPG requirements to complement our production," Santiago said.

Both Petron and Shell officials are still uncertain when they would return to full production capacity.

But they said "an improvement in the market would warrant such an act." Based on a study conducted by Facts Inc., local consumption of petroleum products stood at a negative 0.6 percent. This year, the study predicts a 1.5-percent growth due to expected slight improvement in the economy.

Seeing a positive growth this year, Al-Ma’ashouq said they will continue to strive to maintain market leadership.

Al-Ma’shouq said they have been fulfilling some "export" obligations in some parts of the region.

Early this year, the Petron chief said they finalized various export arrangements with some countries in the region but refused to identify them.

These key energy supply contracts with foreign customers, he said, would help the company maintain its leadership position in terms of sales.

In his presentation at the PIP forum, Fereidun Fesheraki, an oil expert from the University of Hawaii, said there was really a slowdown in oil production in Asia. "Refining margins are very weak. While Singapore refineries run at a very low level, further cuts are needed if margins are to improve. Indeed, this year’s margins will be as bad as or worse than they were in 2001," he said.

He said that in the Philippines the oil industry still faces difficult challenges, including weak demand; half-hearted deregulations, political grandstanding and prospects of serious government intervention; and adjusting to environmental regulation.

But Fesheraki said the oil players and the government should give the deregulated system a time to stabilize.

The oil expert also pointed out that the Philippines is a very small player in the world oil market (only 1.4 percent of the Asia-Pacific consumption) and the country’s total consumption is smaller than the smallest refinery in Korea.

"The demand is so small. There is no real reason for the local industry to panic about supply. There are some frequent supply spikes but this will result to high prices but not necessarily supply shortage," he said.