Malaysia’s Petronas refinery fire turns up heat on Asian petroleum markets

Malaysia’s Petronas refinery fire turns up heat on Asian petroleum markets

Singapore — A fire and explosion early Friday at Malaysia’s Pengerang Integrated Complex, operated by national oil company Petronas, rippled through regional petroleum markets including crude oil, refined products, petrochemicals and liquefied natural gas, due to the sheer scale of the project.

The downstream project includes the 300,000 b/d refinery and petrochemical facility, operated by Pengerang Refining and Petrochemical or PRefChem, a joint venture between state-run Petronas and Saudi Aramco. It is one of the largest greenfield refineries to be built in Southeast Asia in recent years.

The incident comes a few months after Petronas started up the Pengerang refinery’s crude distillation unit in January, having predicted commercial operations by the fourth quarter of the year. It was supposed to ramp up production of refined products including gasoline and diesel, and petrochemicals feedstock in the coming months.

“There may not be much immediate impact, but the bigger issue would be if the ramp-up of operations were significantly delayed — especially as the refinery was planned to be at full capacity for IMO 2020,” Alex Yap, senior analyst at S&P Global Platts Analytics, said.

Yap said the most recent Malaysian data suggests the refinery is not yet supplying significant volumes, or running anywhere near full capacity, limiting any immediate impact of the fire on the petroleum markets. With the Kertih refinery under turnaround, Malaysia was probably already seeing reduced domestic supply, he said.

“The fire occurred at our Atmospheric Residue Desulphurisation (ARDS) Unit which is currently under commissioning stage. No fatality was recorded,” Petronas said in its latest statement, adding that teams were investigating the cause. It did not comment on any potential delays to the project.

An ARDS unit is used to remove sulfur from fuel oil and produce light to middle distillates, which are needed to comply with the IMO 2020 regulations. If this unit is affected the refinery could sell more dirty products.

Under the new International Maritime Organization regulations, it will be mandatory globally to cut sulfur emissions from marine fuels to 0.5% from next year from 3.5% now.

The fire and explosion occurred at around 1:25 am Friday morning, was contained within 30 minutes and the situation was under control, Petronas said.

CRUDE AND PRODUCT FLOWS

In 2017, Saudi Aramco invested $7 billion in the Pengerang complex for an equity interest in the Refinery and Petrochemical Integrated Development (RAPID) project, along with rights to supply up to 70% of the refinery’s crude feedstock.

So a large chunk of the refinery’s crude diet is Saudi crude, along with Petronas’ equity and term arrangements for medium sour grades such as Iraqi Basrah Light, market sources said. These could be deferred if the refinery ramp-up schedule is affected.

“We cannot assess the impact until we know which units are affected, but on the crude side most of their intake is via term contracts, so likely very little impact on spot [crude trading] either way,” a Singapore-based crude trader said.

The refinery, configured to produce Euro 5 gasoline and diesel, was in the process of releasing its first on-spec products later this month, but could be affected by the explosion, trading sources said.

Product traders said there was no impact on the current spot market as RAPID wasn’t exporting distillates yet. “We don’t see any [market] impact because they haven’t produced any on-spec jet fuel yet,” a Singapore-based distillates trader said.

PETROCHEMICALS, LNG AND STORAGE

The fire is expected to delay the start of production of olefins, polymers and MEG at the plant, market sources said.

The refinery targeted to produce ethylene by April 15, and has been running its cracker since mid-March. However, market sources said they now anticipate a delay in production of ethylene and other downstream products.

The steam cracker at PRefChem is able to produce 1.2 million mt/year of ethylene, 600,000 mt/year of propylene and 180,000 mt/year of butadiene.

Meanwhile, PRefChem is targeting to export butadiene in the second half of May, a butadiene trader said, citing Petronas executives. “I think it will be delayed now,” he said.

For its downstream operations, its linear low density polyethylene and polypropylene units have been in operation since last week, with the first cargo due to be shipped, a company source said.

PRefChem’s polymer facilities consist of a 400,000 mt/year high density polyethylene unit, 900,000 mt/year polypropylene plant and 350,000 mt/year LLDPE unit, which may be converted to mLLDPE production in the future, other company officials had said previously.

Two Southeast Asian market sources said they expect the startup of the ethylene cracker to be delayed, and in turn, the MEG unit to be delayed.

Petronas LNG’s Pengerang regasification terminal was not affected in the incident, market sources said.

Separately, petroleum storage company Royal Vopak said its Pengerang Independent Terminals in Malaysia confirmed there was no impact on operations and ongoing construction activities.

Source: https://www.spglobal.com/platts/en/market-insights/latest-news/oil/041219-malaysias-petronas-refinery-fire-turns-up-heat-on-asian-petroleum-markets

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