Philippines' Petron Corporation to Invest $1.5 Billion on Limay Refinery Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Philippines' largest oil refining and marketing company, Petron Corporation (PSE:PCOR) (Makati, Philippines), has announced plans to invest $1 billion to $1.5 billion to enhance operations of the Limay refinery. The 180,000-barrel-per-day (BBL/d) refinery is located in the southeastern region of the Bataan province.

The company will utilize $208 million from the recently raised fixed-rate corporate notes for the expansion. The remainder is expected to be supplemented by the issue of preferential shares. The investment is likely to be made over a two-year period.

Currently, the $300 million Limay refinery consists of a Petro-fluidized catalytic cracker (Petro-FCC), a propylene facility, and an aromatics production unit. The aromatics plant produces 220,000 tons per year of xylene, 150,000 tons per year of benzene, and 228,000 tons per year of toluene. The recovery unit produces 140,000 tons per year of propylene, while the Petro-FCC has a conversion capability of about 19,000 BBL/d.

The planned expansion program will allow full conversion of residual products into liquefied petroleum gas (LPG), diesel, gasoline and propylene. A feasibility study is presently under way to finalize the construction plan. With the expansion, Petron plans to address domestic demand and export to China and other southeast Asian countries. The company has been exporting propylene and toluene from this facility since April and July 2008, respectively.

Petron, a 75-year old organization, caters to more than one-third of the Philippines' energy needs. Until last May, Aramco Overseas Company BV (Leiden, Netherlands) and Philippines National Oil Company (PNOC) (Manila, Philippines) owned stakes of 40% each in Petron, while the remainder was held by private shareholders. In May 2008, Aramco Overseas sold its entire stake to Ashmore Group plc (LSE:ASHM) (London, England). Ashmore Group also bought an additional stake of 11%, increasing its total stake in Petron to 51%. In December last year, Ashmore Group also acquired PNOC's 40% stake in Petron and subsequently sold a 51% stake in the company to food and beverage conglomerate San Miguel Corporation (PSE:SMC) (Manila, Philippines). Presently, San Miguel Corporation is the majority stakeholder, with a holding of 51%, while Ashmore Group holds a stake of 40%. Private shareholders hold the balance of 9%. During the first quarter of this fiscal year, Petron witnessed a 20% slump in sales due to the global economic slowdown and posted a profit of $18.07 million.

Petron's proposed investment in the Limay refinery will include incorporation of processes and technology for introduction of Euro-IV fuel quality standards. The Euro-IV specifications will help in reducing sulfur content in diesel fuel by 50 parts per million. The Philippines Clean Air Act proposes the use of fuel adhering to Euro-IV standards in domestic transportation by 2012. Industry experts state that the implementation of this Act will force oil refiners to make minimum additional investments of $400 million to $500 million. Investments will be required to install and commission units that will aid production of low-emission transportation fuels as specified in the Euro-IV specifications. For instance, a refinery that produces between 100,000 and 200,000 BBL/d may be required to invest about $200 million to set up a hydro-treating unit alone.

The Department of Energy is concerned about the viability and usage of Euro-IV compliant fuel in the country. The department is uncertain about the extent of availability of this fuel in the local market. There also are issues regarding the compatibility of the present auto technology with Euro-IV fuels. The Department of Energy also has stated that before the new fuel is introduced in the domestic market, the feasibility of importing Euro-IV fuel from neighboring Asian countries will have to be ascertained. This is imperative to avert a sudden fuel shortage crisis.

According to the Q4 Oil and Gas Report, published by Business Monitor International (BMI) (London), Philippines' real gross domestic profit (GDP) growth in 2009 is forecast to be about 0.9%, a slump from the GDP growth of 3.8% recorded last fiscal year. The report also predicts that by 2013, the country will account for 1.12% of oil demand in Asia Pacific, while contributing about 0.8% to the region's oil supply. During 2010-13, oil consumption in the country is forecast to increase at the rate of 3% per year.

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