Thailand’s Bangchak Petroleum Pcl declared force majeure on crude imports after a fire on Wednesday forced its refinery in central Bangkok to shut down, adding more oil into an already well-supplied Asian market.
The refinery processes mainly domestic crude, and buys some light sweet Malaysian and Vietnamese grades. Asia is struggling with excess sweet crude as weak demand in Europe and surplus shale oil in the United States is constantly pushing supply from the Atlantic Basin to the east.
A force majeure is a clause provided in contracts where buyers or sellers are allowed to renege on their commitment because of a situation that is beyond their control. It is typically declared in the event of a fire or natural calamities such as flooding and earthquake among others.
“We will also have to sell crude oil, which is coming ashore as we don’t have ample storage and capacity to refine after the fire,” Wattana Opanonamata, senior executive vice-president, told Reuters.
Bangchak has shut its 120,000 barrels per day (bpd) plant for one week as the fire damaged a crude distillation unit.
The damaged unit, with a capacity of 80,000 bpd, will remain shut for at least 30 days for investigation, while the smaller 40,000 bpd unit and a hydrocracker unit will be restarted after a week, President Anusorn Sangnimnuan told reporters. The shutdown of the bigger CDU may extend to two months, he added.
The company would now target to produce an average of 90,000 bpd after the fire from the refinery, compared with an earlier plan for 94,000-95,000 bpd, Wattana said.
Yet, Bangchak expects to continue with oil products sales in the country without any disruption from the fire to the 50-year old refinery, Anusorn said.
“In terms of business, we continue to sell our oil products at petrol stations as normal,” he told reporters at a news conference. “The fire should have limited impact on our performance.”
To ensure uninterrupted supply across its retail network the company may have to seek products from Thailand’s top energy firm PTT or turn to imports, traders said.
IRPC Pcl has already postponed a maintenance shutdown at its refinery, parent PTT group said, to help a possible shortage after the Bangchak fire.
Bangchak said it may import 15,000 bpd of light fuels following the fire. Gasoline is a light fuel.
Gasoline may be the only fuel Thailand may need to import because supply and demand of the product in the country is finely balanced and hence vulnerable to sudden disruptions, a Thai industry source told Reuters.
The unexpected demand from Thailand may help support the gasoline market, which fell to a six-session low of $4.33 a barrel on Tuesday on slow demand.
The diesel market will be less affected as demand is typically low during the monsoon. Diesel is used by farmers to run tractors and water pumps to irrigate fields.
The company cancelled a spot tender to sell low sulphur waxy residue for July-loading, traders said. The tender to sell 30,000 tonnes for July 20-22 loading was to close on Wednesday.
The cancellation may help lift the fuel oil regional market that was at a one-month low on Wednesday.
Shares in Bangchak dropped after the news of the fire, and broker Krungsri Securities said the fire may hurt the company’s third-quarter earnings.
“We initially expect the fire to have an impact on its third quarter earnings… Given that the company has insurance coverage for all risks and business interruption, we think the impact should be limited,” it said in a research note.
Bangchak shares fell as much as 3.8 percent to 22.5 baht, while the broader Bangkok market shed 0.6 percent.
The company had last shut a hydrocracker unit at its Bangkok refinery in January 2011 for a month for maintenance after a fire in a unit that upgrades fuel oil to diesel. -By Pracha Hariraksapitak and Pisit Changplayngam