Singapore energy scene in no danger of shake-up even as oil giants rejig portfolios: observers

Singapore’s energy and chemical sector has in recent years seen an overhaul amid a global push towards greener energy and renewables away from conventional energy sources.

Yet, market watchers say the city-state is at little risk of losing its status as a key trading hub for oil, chemicals, and petrochemicals.

Most recently, oil giant Shell on Wednesday (8 May) said it will sell its crown jewel refinery and petrochemical assets on the Republic’s Pulau Bukom and Jurong Island for an undisclosed sum, to a joint venture comprising commodity trader Glencore’s unit Glencore Asian Holdings and Chandra Asri Capital, a unit of Indonesia’s largest integrated petrochemical company.

Jean Woo, managing partner of law firm Ashurst’s Singapore office, said that although a lot of focus from markets is on Shell’s sale, it is crucial to remember that the company did not shutter the business.

“The asset was divested for strategic reasons,” she said. “Both (buyer) companies regard this purchase as a very successful outcome, as they do regard it as being a prime asset in Southeast Asia which is very complementary to their businesses.”

Woo added that the sale does not undermine Singapore’s position as an oil hub, and merely reflects Shell’s intention to take active steps to reduce its carbon footprint and pivot towards carbon capture projects that are a critical aspect of the company’s business.

San Naing, senior oil and gas analyst at BMI, said that while Shell’s sale will cut Singapore’s total refining capacity, it is unlikely to affect the country’s refining industry as a whole.

“As long as Singapore retains its status as a price discovery centre, it is unlikely to lose its status as an oil trading hub though oil majors exit Singapore’s downstream business,” he said.

San added that while some countries – such as Indonesia, Malaysia, Thailand, and Vietnam – may catch up with Singapore in terms of refining and petrochemical capacities, they are unlikely to overtake Singapore as an oil trading hub in the near and medium term.

Shell, which is listed in London, began a strategic review of its Energy and Chemicals Park assets on Pulau Bukom and Jurong Island in Singapore back in 2023. This came after the group sounded its intention to rejig its portfolio in a bid to cut its carbon footprint and shift to greener energy.

The company’s Pulau Bukom assets include a 237,000 barrels-per-day refinery and a 1.1 million tonne-a-year ethylene cracker.

Shell has been in Singapore since 1891, and is one of the country’s largest foreign investors.

A Shell spokesperson told The Business Times (BT) that the company today has significant businesses in Singapore – including the likes of trading and marketing of liquefied natural gas, operating a network of service stations through retailers, electric vehicle charging as well as the trading, marketing and shipping of oil products, lubricants, and chemicals.

It also has a lubricants blending and grease manufacturing plant at Tuas, and continues to operate a distribution terminal at Pandan.

“Singapore’s position as a trading and marketing hub to serve Shell’s customers in the region remains important,” the spokesperson said. The company still has stakes in two petrochemical plants – the Petrochemical Corp of Singapore (PCS) and The Polyolefin Company (TPC) Singapore.

Shell has an effective stake of 25.5 per cent and 15.3 per cent in PCS and TPC, respectively. BT understands that these stakes remain unaffected by Shell’s sale announced on Wednesday, which comprises the refinery and ethylene cracker on Pulau Bukom and the petrochemical complex on Jurong Island.

The spokesperson declined to comment on how the company will reinvest proceeds from the sale, and whether it will acquire renewable assets.

Oil majors with a presence in Singapore have announced plans to rejig their portfolios in favour of greener alternatives.

Shell, ExxonMobil, and Chevron – which has a stake in the Singapore Refining Co – each announced layoffs in 2020 amid a prolonged oil slump and the COVID-19 pandemic. Certain companies were also pivoting their portfolios to greener energy options.

BMI’s San said one key reason why oil companies are divesting their downstream assets and interests is because refining margins and profitability are no longer attractive enough for them to remain in the business.

The carbon-intensive downstream refining and petrochemical business also does not align with companies’ long-term business strategies that favour low-carbon business as part of their net zero commitments, he said.

Ashurst’s Woo said she expects to see similar opportunities to Shell’s sale announcement emerge as companies realign their portfolios based on their respective decarbonisation pathways.

Lim Wey-Len, executive vice president at the Economic Development Board (EDB), said Shell’s sale announcement denotes a “positive outcome” for offtakers, customers and employees.

Singapore’s energy and chemicals sector accounted for one-third of EDB’s fixed-asset investment commitments in 2023. Lim said this indicates “a healthy pipeline of capability development and manufacturing projects” coming into Singapore.

He noted that Singapore has over the years established itself as a leading hub in Asia for energy and chemicals due to the country’s strategic location. This, Lim said, allows companies to “efficiently produce and export their products to growing markets”.

“As the energy and chemicals sector undergoes transformation, we are confident that it will unlock new opportunities for the sector, as we work alongside companies and industry partners to innovate for a sustainable future,” he added.

Despite the recent slew of asset sales and workforce downsizing by oil companies here, Lim said the city-state’s energy and chemicals sector remains robust. He added that EDB welcomes companies which are looking to invest in Singapore, alongside its transformation into a sustainable hub.

“As Southeast Asian companies grow and mature along with its economy, they will look to globalise. It is also a positive outcome for Singapore that many of these companies look to the Republic as a platform for growth,” Lim said.

BMI’s San said Singapore’s refining industry faces growing competition from China, India, Malaysia, South Korea, and Middle East refiners who are “flooding refined fuel markets”.

This, he said, is putting pressure on Singapore’s refiners. “Opportunities for Singapore to export to its backyard markets have declined. In addition, Singapore remains a high-cost centre to operate a refining business, compared to China, India, and other Southeast Asian countries,” he added.

Source: The Business Times ©️ SPH Media Limited. Permission required for reproduction.