Strategic Planning, Refinery and Aviation - SPC

28
Year in Review
Strategic Planning,
Refinery and Aviation
The Group is well placed
to take advantage of the
recovery as it has a low cost
and efficiently run refinery
The Strategic Planning, Refinery and Aviation (SPRA)
business unit (BU) is in the process of developing a
long-term strategic plan for the Group. With volatility
in the oil markets expected to continue for the
foreseeable future, the BU would need to put in place
a process to screen strategic options available to grow
the Group’s businesses. An option that is being explored
is to have an alliance or tie up with a strategic investor
or partner. Such a strategic alliance must be able to
bring value to the Group over the long term.
Refined product prices continued to be on a steep
downtrend in 2001 following the decline in the last
quarter of 2000. Early signs of a recession in the
United States following the collapse of the high tech
stock market began to impact the Asian economies.
To try to head off the looming recession and spur
economic activities, the US vigorously cut interest
rates. The global economy sustained a further setback
with the September 11 events in the States. The
perception that these events and the fallout would
result in even lower oil demand growth led to a
drastic decline in both crude and oil prices in the
months following the September 11 events. Product
demand for the Asia Pacific region contracted by
approximately 350,000 barrels per day. The sharpest
drop in demand was in jet fuel following the steep
reduction in air travel. Other products such as
gasoline, naphtha and fuel oil were also affected
though to a lesser extent. Coupled with the
continued surplus refining capacity in the region, the
contraction in demand for oil products acted to
squeeze refining margins even more.
While refining margins were poor and volatile for the
greater part of the year, margins were at its worst
level in the fourth quarter. Refiners in Singapore were
forced to reduce crude throughput in an attempt to
minimize losses. Total feedstocks run at the Company’s
jointly owned refining facility on Jurong Island averaged
80% in 2001, slightly lower than the previous year’s.
Going forward, with the economies of the region
expected to stage a recovery in the second half of

Year in Review
29
With the economies of the region
expected to stage a recovery in the
second half of 2002, there are signs
that demand for oil may improve
2002, there are signs that demand for oil may
improve. The Group is well placed to take advantage
of the recovery as it has a low cost and efficiently run
refinery.
In aviation sales, SPC managed to maintain its market
share of around 19% of jet fuel sales at Singapore
Changi Airport. Changi recorded an average
throughput of approximately 73,200 barrels per day
for 2001, about 3.1% higher than the previous year.
This was despite passenger and air traffic volume in
the Asia Pacific region suffering a double-digit decline
in the aftermath of the September 11 events. Jet fuel
volumes registered a marginal decline of 2.5% after
the September 11 events due to a cutback in air
flights through Changi. Interestingly, the decline was
not steeper given the airlines’ decision to maximize
their fuel off takes from Changi for reasons
of economy, security and quality.
Notwithstanding the changes and recent
development in the aviation industry, SPC continues
to be a quality and competitive supplier of jet fuel at
Changi. Reflecting its strengths in the market, SPC
secured five new jet fuel supply contracts at Changi,
bringing the total number of airlines served to 23 in
2001.
At Taipei’s Chiang Kai Shek International Airport, SPC
supplied more than 30% of the jet fuel to
foreign airlines at
this air hub.
At the Hong Kong
International
Airport,SPC
volumes for 2001 of
2,900 barrels per
day were slightly
higher than the
volumes for 2000
due mainly to higher
off takes by its
existing customers.
For 2002, the
outlook for jet fuel
sales is mixed. A drop in volume at Changi in the
first quarter is expected as some major airlines have
announced their intention to reduce flights. Airlines
are however taking concerted action through tighter
security measures and attractive ticket discounting
to restore passenger traffic back to the pre-
September level. Despite such efforts, it is
envisaged that jet fuel volume at Changi is unlikely
to be maintained at the 2001 levels. It would take
some time to restore confidence in air travel
hence industry opinion is that jet fuel volumes
in Singapore is expected to show a slight decline
of 3% to 5% for 2002.
SPC continues to be
a quality and competitive
supplier of aviation fuel