Shell’s recent announcement that it will halt supply to customers is likely to cause even more anxiety.

While there is no indication yet of what the costs will be to Shell’s customers, market observers said the move does not bode well for the petrochemicals sector.

Following the blaze at its refinery last Wednesday, Shell has declared force majeure – a legal clause which exempts Shell from fulfilling its obligations to some of its customers.

The cause of the fire has not been determined yet.

Generally, force majeure is declared over natural disasters or political upheavals.

Marcus Gordon, head of dispute resolution (Oil & Gas) at Watson, Farley & William LLP, said: “Companies do frequently insure themselves against force majeure claims, for example, war, adverse weather, lightning… not contracted negligence.”

Also, while the clause may protect Shell against damage claims from the refinery’s direct customers, it is less clear for other players downstream.

Mr Gordon said: “One problem you see is that there are frequently inconsistent force majeure clauses in chains of contracts. For example, at the top of the chain you have got a very well drafted force majeure provision, but further down the chain there isn’t such a well drafted provision… The company at the top of the chain will be well protected but company at the bottom will not. ”

The refinery shutdown adds more downward pressure on the already troubled petrochemical industry, which shrank by more than 26 per cent in the month of August in Singapore.

Alvin Liew, economist at UOB said: “It provides a lot of the downstream products. That would have implications on supply issues to these companies. Given that it is still unclear on the situation, we could see a short-term disruption.”

Experts said the Pulau Bukom refinery could stay shut for at least a month.

However, no damage has been reported to have occurred within the processing unit.

Source: CNA