Shell sold its exploration and refining business to PTT Plc in 2003.

Now, all petrol retailers are suffering from the state policy to restrain pump prices despite surging crude prices on the world market.

Shell, however, still sees opportunity here.

"We've been here for 114 years. We're oriented to the long term and if anything turns sour in the short run, we have to adjust and prepare software and manpower so that we can embark on new investment when the opportunity comes," Tiraphot said.

He said Shell Thailand was looking to expand by investing in oil and gas exploration through joint ventures or acquisitions.

The parent company's "move East" policy could benefit Thailand due to its huge demand for oil, growing economy and greater business transparency than many other Asian countries. Due to robust demand, Thailand has room to accommodate expansion in the downstream business.

Tiraphot said Shell pulled out of the exploration business because its reserves here were insignificant compared to the reserves of its parent, Royal Dutch Shell Plc.

However, things could change with advances in exploration technology as well as the parent company's strategy to pursue more upstream businesses while focusing more on profitable downstream businesses.

Thailand offers potential because it is the largest market in the region and, despite some problems, the business environment here is less opaque than other countries, Tiraphot said.

Last year, Shell Thailand has a net loss of Bt820 million, after net profits of Bt743 million in 2004 and Bt792 million in 2003. The red ink came despite sales growing from Bt94 billion in 2003 to Bt119 billion in 2005.

The loss followed a year of depressed margins at its retail business, which contributes 60 per cent of total revenue.

Due to shrinking margins, Shell Thailand has been downsizing its retail business. From about 800 stations nationwide five years ago, it now operates 580. The number could fall to 500.

"It's not worthwhile to operate stations that sell less than 200,000 litres a day," Tiraphot said.

Now, all players are cutting operating costs and he fears that could lead to deteriorating oil quality and declining environmental conditions, which would hurt all Thais in the end.

While the retail side has taken a beating, Shell's other lines - particularly lubricants, commercial fuel for industry and jet fuel - have performed well. Its bitumen was used for Suvarnabhumi Airport's tarmac, which might bring more supply contracts from other airports.

Mass transit development could cause demand to drop in Bangkok, where Shell operates about 200 stations, but consumption could rise in the provinces.

Shell Thailand could become a smaller but more profitable company, Tiraphot said.

"We have the leadership in technology and products. We can cash in on that. We have so many good products but it depends on market demand and the mood of consumers," he said.

Achara Deboonme

The Nation