Caltex to shift focus in Asia to downstream

Caltex to shift focus in Asia to downstream

BANGKOK (Reuter): Tough competition and poor refinery margins have forced Caltex to shift its focus in Asia to downstream petroleum marketing from the refining business, a senior company official said yesterday.

Jock McKenzie, regional vice-president for Caltex Petroleum Corp, told Reuters that it plans investment of around US$5 billion or less in Asia until the year 2000, with the majority of that going into the retail oil business.

However, the company would seek opportunities to invest in refineries in countries that offered good potential in the oil industry such as China, India, Indonesia and Vietnam if they offered it access to the retail market business, he said.

"What we have changed in our investment budget...is a relatively lower expenditure on refineries due to (lower) international refineries margins and relatively higher expenditure on retail projects," McKenzie said.

"We want to have in our overall portfolio a low exposure to refinery margins because we are very bearish on refinery margins in the future," he said.

In a move to reduce its exposure to poor refinery margins, Caltex earlier this year sold its 40-percent refining stake in Bahrain. McKenzie said the company has no equity participation in any refinery in the Middle East now.

"But we still have marketing presence in the Middle East... It is deliberate that our total refinery capacity is less than our market demand," he said.

It also sold a stake in Nippon Petroleum Refining Co to their partner Nippon Oil Company more than a year ago.

In Thailand, Caltex plans to invest $200 million during the next five years, mostly on downstream marketing, said Richard Abrams, managing director of Caltex Oil (Thailand).

Caltex currently has 560 retail stations in Thailand and it will seek to expand the stations. However, it will focus on high- growth and high-potential locations rather than the amount of new units.

Most of the investment will go to re-imaging and setting up convenience stores in service stations.

Caltex, which is a joint venture operation between Chevron Corporation and Texaco Inc, set up a refinery in Thailand in association with state-run Petroleum Authority of Thailand.

Richard Abrams, managing director of Caltex Oil (Thailand), told Reuters that despite the severe downturn in the Thai economy, which is in its worst slump in over a decade, he was confident that oil demand would pick up as things improved in the next two years.

"We view the current situation as temporary... Thailand will emerge stronger," he said.

Caltex sees the oil demand reaching 697,000 barrels per day in 1999 and 754,000 in 2000 from around 592,000 bpd in 1997.

However, he sees a tough time near-term caused by fierce competition, low profit margins and the baht devaluation.

Abrams said even before the de facto devaluation announced on July 2, many in the oil industry had already suffered and had started cutting back their investments.

With the devaluation, the industry would be temporarily hit further by higher costs for crude oil and interest rates.

However, Abrams said he welcomed the move by the government to allow the industry to pass on higher costs to the public, even though it would be in stages.

The weakening baht is seen inducing extra costs of around 25- 30 satang (US8-10 cents) per liter to retail oil prices. Most firms were likely to raise prices by 15-20 satangs by end-week.