On April 22, Shell announced its intention to stop base oil production at its refinery in Pernis, near Rotterdam. The decision is subject to regulatory approvals from the staff council. The intended decision includes the closure of the entire base oil complex that consists of two main production units where Shell produces a variety of lube base oils, waxes and process oils.
Shell spokesperson Mary Walsh told OEM/Lube News "The intended decision is part of the normal process of change within Shell, adapting our processes and organization to changing markets. Shell is a worldwide leader in the lubricant business and will continue to serve its global customers from other lube oil manufacturing complexes and sources. The employment situation at Shell Pernis will not change because of the intended closure. Base oil production and related maintenance staff can be incorporated at other operational units at Shell Pernis".
The factory is 60 years old and no longer efficient enough to meet todays standards according to Shell. The company said it would also be too expensive to rebuild the plant and demand for this sort of lubricating oil (API Group I) is decreasing.
The Pernis lube oil plant has the capacity to produce 7,100 barrels per day API Group I lube base oil.
The group also took a huge impairment charge of USD2.58 billion on its downstream earnings, including impairments of USD2.284 billion related to refineries in Asia and Europe.
Walsh told OEM/Lube News "The impairments are for accounting purposes and have no operational or staff implications. This will therefore not affect the operation of the base oil manufacturing plant at Bukom".
"Simon Henry CFO Royal Dutch Shell explained in the Q1 Results media briefing that the impairments reflect Shells updated views on future refining margins, comparing future value against current book value. In the case of Singapore in particular, the future value just did not support the book. Singapore is basically a pure export refinery, competing head-to-head with newer refineries, with lower costs and more energy efficiency. Singapore is a high energy cost location and it is just a difficult market, when so much capacity is chasing so little demand. Bukom is part of a complex integrated value chain. The overall value from continuing to operate the refinery is positive, in the context of the integrated Shell value chain, which includes Shells Chemicals, trading and marketing businesses. There are plans in place to improve the profitability of the Bukom complex", said Walsh.
