Shell begins partial restart of Singapore refinery

Royal Dutch Shell Plc is restarting the largest crude distillation unit at its Singapore refinery less than two weeks after the plant was shut because of a fire, three industry sources

with direct knowledge said on Monday.
The drive to partially restart the 210,000-barrels per day (bpd) CDU, one of three at Shell's largest plant capable of processing 500,000 bpd of crude, is due to strong margins for base oils and lubricants. It will also yield light distillates, sufficient to keep its chemical complex running at reduced rates, they said.
"We can confirm that some operations have continued and some operations will resume at the site, but we are unable to comment on operational specifics," said a Shell spokesman, in response to queries on the restart.
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The CDU, which will take 2-3 days to reach stable operating levels, is expected to operate at a reduced rate of around 50 percent, while investigations into the cause of the fire and repair works continue, the sources said.
"The CDU can be restarted because the delivery of its yield of clean oil products has been diverted away from the affected area," one of the sources said. "The CDU, the base oil production unit and the lubes plant are all away from where the fire occurred."
Other units, including the other two CDUs, of 110,000-bpd each and its 35,000-bpd hydrocracker, remain shut.
"The damage to the refinery as a result of the fire remains extensive, and it will take a while for the plant to return to normal operating levels," the source said.
The oil major has also agreed with counterparties to buy back most of the 1.5 million barrels of distillate cargoes that it had declared force majeure upon, trade sources said.
The spokesman declined to comment on the buy-back agreement saying the information is "commercially-sensitive".
The fire, which had started near a pump house that transferred most of the plant's clean products such as naphtha, gasoline and middle distillates into storage tanks and tankers via pipelines, had crippled the refiner's capability to deliver these products, forcing the shutdown.
However, most of the major units at the refinery - the three CDUs, the hydrocracker and its fluid catalytic cracker (FCC) - were not damaged and could be restarted as long as a way was found to deliver and store the clean products.
BOOK-OUT FOR MOST CARGOES
The closure, in turn, led the oil major to declare force majeure on about 1.5 million barrels of distillates, 400,000 million barrels of Saudi crude and its October naphtha supply to the Petrochemical Corporation of Singapore (PCS).
It has since agreed with two of its four counterparties -- Hin Leong, Glencore, BP and JP Morgan -- to buy back more than 70 percent of the 1.5 million barrels of gas oil and jet fuel cargoes that it had declared force majeure upon in the aftermath of the fire, also known in the oil industry as a book-out.
"At the end of the day, it should all be done. The counterparties don't really have a choice, it's either to accept the book-out or take the force majeure, which is worse," said one of the counterparties.
"The terms of the book-out are not exactly satisfactory. It was more of a 'take-it-or-leave-it' situation and they didn't offer much room for negotiations."
The deals were all transacted during the end-of-day pricing process, in which Shell is a major player. It is also one of the largest suppliers of the products in Asia, with its refinery producing 6.5-7.0 million barrels per month, of which gas oil is about 4.5 million barrels.
It also produces another 4.0-4.5 million barrels of gasoline, based on estimates culled from its capacity, with about 90 percent of the refinery's output exported.
STRONG BASE OIL, LUBES MARGINS
However, the restart was primarily driven by the strong processing margins for lubricants. Shell uses base oil as the main feedstock for its manufacturing plant, and not products from its main oil complex, the sources said.
The major's trading margins for base oil are also good, making it reluctant to use the trading barrels, which it buys and sells from outside its Singapore production system, for production purposes.
All of the Singapore refinery's base oil production, of about 360,000 tonnes per year, are used mostly to feed its lubricants plant which uses residues from the CDUs as the primary feedstock, the sources said.
"Basically, the lubes plant have to be restarted as soon as possible, but that cannot come at the expense of the strong trading margins for base oil. So Shell has to find a way of restarting its production process to make enough base oil for the lubes plant," another source said.
Its base oil supply comes from a 30,0000-bpd secondary unit that uses residue from the CDU as feedstock, implying that the crude unit also has to be restarted, they added.
However, the damage caused by the fire has crippled the plant's capability to deliver its clean products, mainly naphtha, gasoline and distillates, from the processing units.
To restart the CDU, a temporary delivery system was built to divert the clean product yield away from the area damaged by the fire and into storage tanks elsewhere in the plant.
"The key here is balance. The temporary line can only move a limited amount of the clean fuel, so the run rate of the CDU cannot be too high. But, at the same time, there must be sufficient feedstock to feed the base oil plant to produce meaningful volumes," the first source said.
"The balance is to keep the CDU at about 50 percent run rate. The next 2-3 days will tell the story. This is an achievement but it will still take awhile for the whole plant to come back fully."
As a result of the CDU restart, its chemical complex, comprising of an 800,000 tonnes-per-year (tpy) ethylene cracker and a 750,000-tpy monoethylene glycol (MEG) plant, are able to continue running, but at reduced rates.
Despite the earlier-than-expected restart, the sources said it would still take 3-6 months for the entire plant to resume normal operations.
Source: Reuters