Oil majors Royal Dutch Shell and ExxonMobil could see a 10 to 15 percent hit to profit margins at their Singapore refineries when the city state imposes a carbon tax in 2019, one analyst told CNBC.
On Monday, Singapore announced its intention to introduce a carbon tax of between S$10 ($7.10) and S$20 ($14.10) per tonne of greenhouse gas emissions. That will impact 30 to 40 large direct emitters in the country, including power stations and refineries, the government said.
"Increase in cost from this carbon tax regulation could be between $0.40 and $0.70 per barrel coming from the refining sector. By 2019, we expect gross refinery margins to be $4 to $5 per barrel, so the profit margins could be impacted by 10 to 15 per cent," said Sushant Gupta, refining and chemicals research director at Wood Mackenzie.
The Southeast Asian city state is home to three oil refineries run by ExxonMobil, Shell and Singapore Refining Company. ExxonMobil and Shell both base their largest refineries globally in Singapore.
Gupta said the additional financial burden from the carbon tax will reduce the refineries' ability to compete, especially against other exporters in the region such as those in China, India and South Korea.
"Passing on these costs to products will be tough as those prices are set by international market… Reducing energy intensity of operations will be key to remain competitive," he added.
When asked by CNBC, both ExxonMobil and Shell said they agree on the need to address environmental concerns and have, in the past years, taken steps to reduce their carbon footprint.
However, they stressed the importance of maintaining competitiveness while doing so.
"We would emphasize the critical importance of a policy design which addresses strong economic growth and the competitiveness of Singapore companies in the international market place. It must ensure companies can compete effectively with others in the region who are not subject to the same levels of carbon dioxide costs," a Shell Singapore spokesperson said.