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Shell shelves Philippine refinery expansion

MANILA, Jan 22 (Reuters) - Pilipinas Shell Petroleum Corp., a unit of the Royal/Dutch Shell group SHEL.LRD.AS, has shelved plans to expand its 110,000-barrel per day refinery in the Philippines due to increased costs, its spokesman said on Monday.

Shell has decided to stop studying an expansion to its refinery in Tabangao, Batangas near Manila, said Bobby Kanapi, general manager for external affairs.

“We will defer any major investment for the Tabangao refinery,” Kanapi told Reuters.

“We will continue to explore all other options and alternatives for running and mantaining the Tabangao refinery,” he added.

Last year, Shell executives had initially estimated the cost of the expansion at between $1 billion and $1.5 billion.

Shell put its refinery business in the Philippines under review after rival Caltex (Philippines) Inc. closed its 72,000- bpd refinery in the country in late 2003 and converted the facility into a storage depot for petroleum products.

Caltex, which is owned by Chevron Corp. CVX.N, said its 49-year old refinery was too small to compete in the Asian market and too outdated to produce cleaner fuels required under the Philippines' environmental laws.

Shell reviewed oil demand projections in the Philippines up to 2010 and also the competitiveness of its refinery compared to other refiners in Asia when it looked at expanding its Philippine operations.

Philippine requirements for cleaner fuel were also considered. Manila will require refiners to blend biofuels with diesel this year and with gasoline by 2009 as part of an effort to reduce its reliance on expensive imported crude oil and rely more on biofuels produced from local crops such as sugar and coconuts.

Shell had said it would need three years to expand its refinery to meet the higher fuel standards set by the Philippines’ Clean Air law.

Petron Corp. PCOR.PS, the Philippines' largest refinery with a capacity of 180,000 barrels of oil per day, has spent $100 million on upgrading its facilities to produce cleaner fuels.

The company, owned 40 percent each by the government and Middle East oil giant Saudi Aramco, is also spending another $300 million for new refinery units to expand capacity of its petrochemical products.

The Philippines imports most of its oil requirements of about 330,000 barrels of oil per day.

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