Asian oil refiners shipping fuel profits grow on IMO 2020 demand

MOSCOW (MRC) -- Asia’s oil refiners are starting to see a surge in demand for cleaner fuels that is pushing up processing profits for very low sulfur fuel oil (VLSFO) and gasoil just weeks before new rules take effect for fuel products burned in ships, reported Reuters.

Most ships have to switch from high-sulfur fuel oil (HSFO) to cleaner fuels such as VLSFO and marine gasoil (MGO) when new sulfur emissions rules set by the International Maritime Organization (IMO), known as IMO 2020, start on Jan. 1.

Ships will have to use fuels containing not more than 0.5% sulfur, compared with 3.5% now, unless they are equipped with exhaust-cleaning "scrubbers".

The oil industry stocked up on IMO-compliant fuel, expecting high demand and a big boost in profits ahead of the rules taking effect, but ship owners kept their purchases to a minimum until this month, delaying a run-up in demand that refiners had expected earlier in the fourth quarter.

"Although the improvement (in margins) would not offset (overall) concerns in the fourth quarter, it could be a silver lining. It gives a stronger positive sign for next year," said a spokesman from SK Innovation, owner of South Korea’s top refiner SK Energy.

Refining margins or cracks for VLSFO rose above USD20 a barrel this month, while cracks for gasoil with a sulfur content of 10 parts per million (ppm) for January delivery were about USD1 higher than those for December, encouraging refiners such as South Korea’s Hyundai Oilbank to increase output in January.

A Singapore-based marine fuels trader estimated that VLSFO supplies may be enough to meet only half to 70% of the near-term demand, based on sales of about 8 million to 9 million tonnes of marine fuels in Asia and the Middle East per month.

The shortfall would have to be filled in with marine gasoil, boosting refiner profits for both fuels, the trader said.

Besides slower-than-expected demand for IMO-compliant fuels, weak domestic demand for gasoil in India and China pushed up export volumes, battering the fuel’s margins, which have shed 18% over the past couple of months.

But gasoil profits could rebound to about USD20 a barrel in the next few months as more ships switch to MGO and as simple refineries cut output on low HSFO margins, according to Goldman Sachs and energy consultancy FGE.

"Despite the ample availability of VLSFO, we still expect MGO demand to receive support in the coming weeks, when more vessels start switching to use compliant fuels," said Sri Paravaikkarasu, FGE’s director for Asia oil.

The new demand from ships could boost gasoil consumption by 1 million to 1.35 million barrels per day next year, according to Wood Mackenzie and Energy Aspects.

As MRC wrote previously, South Korea’s leading LPG supplier SK Gas Ltd. (part of SK Corporation) will spend KRW 2.02 trillion (~ USD 1.8 billion) to build a combined-cycle power plant and polypropylene (PP) plant in the southeastern industrial city of Ulsan, South Korea. The project will help provide stable electricity to Ulsan, one of Korea’s largest industrial clusters for automotive, shipbuilding and petrochemical industries. The port city is also home to SK Gas' LPG storage terminals, which are the world’s largest rock cavern storage facilities with a combined capacity of 270,000 tons. The company said it expects the new plants to play a central role in bolstering its gas chemical business. The PP manufacturing unit, with a projected capacity of 400,000 t/y, is to be set up in the nearby Yongyeon-dong area on a site of 150,000 square meters.

According to MRC's ScanPlast report, the estimated PP consumption in the Russian market in January-October 2019 totalled 1,066,520 tonnes, up by 7% year on year. Supply of block copolymers of propylene (PP block copolymer) and homopolymer of propylene (homopolymer PP) increased, demand for statistical copolymers (PP random copolymer) decreased.
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MOSCOW (MRC) -- China on Thursday unveiled a new list of import tariff exemptions for six chemical and oil products from the United States, days after the world’s two largest economies announced a phase one trade deal, reported CNBC.

The exemptions will be for one year from Dec. 26, the Finance Ministry said, without providing a value for the imports excluded from duties.

Duties already imposed on US products would not be refunded, the ministry added.

The tariff waivers will apply to four chemical products, such as metallocene high-density polyethylene (HDPE) and a special grade of linear low-density polyethylene (LLDPE), and refined oil products that include white oil and food-grade petroleum wax.

Kelly Cui, principal analyst with consultancy Wood Mackenzie, said the exemptions on the chemical products would benefit companies such as Dow Chemical, Exxon Mobil, and Chevron Phillips Chemical, which have since 2017 been adding shale-based ethylene production facilities and targeting China as the prime export market.

Cui also pointed out that the listed products, metallocene HDPE and LLDPE, were high-end special grade plastic raw materials used for packaging and pipes. China is the world’s largest importer of polyethylene.

"The exemptions could see China resume buying more HDPE and LLDPE from the US, reversing the trade flow, as the US supplies have been diverted to Latin America and Europe while China has been importing mostly from the Middle East," said Cui.

In 2018, China imported some 6.86 million tonnes of HDPE and 4.46 million tonnes of LLDPE, according to Cui, who cited Chinese customs data. The data does not provide a breakdown for different grades of each polymer.

These imports had a combined total value of about USD14 billion, according to Reuters calculations based on the delivered cost for these two products.

For petroleum wax, China imported from the US 1,108 tonnes or worth only USD3.2 million in the first 10 months of 2019, one-tenth of China’s total imports of the product, according to Chinese customs data and consultancy JLC Network Technology.

White oil imports from the US were 3,490 metric tons or worth only USD8.7 million during the same period, roughly 6% of China’s total imports.

China waived import tariffs for some soybeans and pork shipments from the United States on Dec. 6, before the two sides reached a Phase 1 trade deal to cancel tariffs that were planned to take effect on Dec. 15.

China said it will continue to work on the product exemptions and release the second batch of waivers at an appropriate time.

The Sino-US trade war has been a major headache for global policymakers as it slowed economic growth worldwide and chilled business investment and confidence.

US Trade Representative Robert Lighthizer last week acknowledged there remained hard work ahead in the next phase of negotiations.

He gave no specific timetable, but said U.S. President Donald Trump did not want to wait until after the 2020 presidential election to wrap up a more comprehensive agreement.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,724,670 tonnes in the first ten months of 2019, up by 7% year on year. Shipments of all PE grades increased.
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MOSCOW (MRC) -- Clariant (Muttenz, Switzerland) agreed to sell its entire Masterbatches business to PolyOne Corp. (Avon Lake, Ohio), said the company.

The transaction values the Masterbatches business at USD1,560 million, representing about 12.2 times the last twelve months reported EBITDA (ending September 2019) on a cash and debt free basis. This amount is payable at closing, which is expected by Q3 2020.

"This announcement is a significant milestone on our path to focusing on businesses with above-market growth, higher profitability and stronger cash generation. After the successful divestment of Healthcare Packaging in October 2019 the agreement to sell Masterbatches is an important step in delivering on our strategy defined in 2015 to concentrate on our three core Business Areas Care Chemicals, Catalysis and Natural Resources”, says Hariolf Kottmann, executive chairman of Clariant. “As announced, we are confident that we will execute the remaining divestment of our Pigments business in 2020 in order to build the new, more focused and stronger Clariant by 2021," he adds.

As previously communicated, the proceeds from the intended divestments of Clariant’s non-core businesses will be used to invest in innovations and technological applications within the core Business Areas, to strengthen Clariant’s balance sheet and to return capital to shareholders.

As a consequence of the divestment of the Masterbatches business, as well as the anticipated divestment of the Pigments business by the end of 2020, Clariant’s Board of Directors is proposing an extraordinary cash distribution of CHF 3.00 per share to the Clariant Annual General Meeting to be held on March 30, 2020. Subject to a positive vote of Clariant’s shareholders, the extraordinary distribution of approx. CHF 1 billion will be paid out post the closing of the divestment of the Masterbatches business.

The deal with PolyOne comprises two separate transactions. The global Masterbatches business is sold in a deal valued at USD1,500 million, representing c. 12.1 times the last twelve months reported EBITDA (ending September 2019).

As MRC informed earlier, Clariant announced that it has been awarded a contract by Dongguan Grand Resource Science & Technology Co. Ltd. to develop a new propane dehydrogenation unit in cooperation with CB&I. The Dongguan plant will be one of the largest single-train dehydrogenation units in the world. Clariant's technology partner CB&I will base the plant's design on its Catofin® catalytic dehydrogenation technology, which uses Clariant's tailor-made Catofin catalyst and Heat Generating Material (HGM).

Propylene is the main feedstock for producing polyprolypele (PP).

According to MRC's ScanPlast report, the estimated consumption of PP in the Russian market totalled 694,210 tonnes in January-June 2019, up by 14% year on year. The supply of propylene block copolymers (PP-block) and propylene homopolymers (PP-homo) increased.

Clariant AG is a Swiss chemical company and a world leader in the production of specialty chemicals for the textile, printing, mining and metallurgical industries. It is engaged in processing crude oil products in pigments, plastics and paints. Clariant India has local masterbatch production activities at Rania, Kalol and Nandesari (Gujarat) and Vashere (Maharashtra) sites in India.
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MOSCOW (MRC) -- KBR (Houston) has been awarded a contract to utilize its proprietary Plinke Magnac technology to produce high-concentration nitric acid at Grupa Azoty’s Tarnow site in Poland, said Chemengonline.

KBR will provide basic and detailed engineering design, equipment, and related advisory services for the plant, which will be built adjacent to an existing plant that was also supplied by KBR and has been in operation since 1998.

Magnac technology is used to produce 98.5 wt% high-concentration nitric acid from fresh, weak nitric acid.

“This contract reinforces KBR’s existing relationship with Grupa Azoty,” said Doug Kelly, KBR President, Technology Solutions. “We are proud to deliver well-proven solutions that will enable Grupa Azoty to achieve its business expansion goals safely, reliably and efficiently."

The Grupa Azoty Group is a leader in the fertilizer and chemical market in Poland and one of its key players in Europe. It is the second largest EU-based manufacturer of nitrogen and compound fertilizers, and its other products, including melamine, caprolactam, polyamide, oxo alcohols, plasticisers and titanium white, enjoy an equally strong standing in the chemical sector, with a wide range of applications in various industries.

As MRC informed earlier, Lotos is going ahead with a zloty (Zl) 500m (EUR117.3m or $130.7m) share capital investment in fellow Polish company Grupa Azoty’s EUR1.5bn propane dehydrogenation (PDH) and polypropylene (PP) project.

According to MRC's ScanPlast report, the estimated PP consumption in the Russian market in January-October 2019 totalled 1,066,520 tonnes, up by 7% year on year. Supply of block copolymers of propylene (PP block copolymer) and homopolymer of propylene (homopolymer PP) increased, demand for statistical copolymers (PP random copolymer) decreased.

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MOSCOW (MRC) -- Enterprise Products Partners and Enbridge have agreed to jointly develop a deepwater crude oil export terminal offshore Houston, the latest sign of consolidation in the crowded field of US Gulf Coast export projects, reported S&P Global.

Enbridge plans to buy interest in Enterprise's already proposed Sea Port Oil Terminal, subject to the project receiving a federal deepwater port license. Both companies would focus on fully subscribing the SPOT export capacity before Enbridge possibly pursues its own Texas COLT project later, Enbridge said in a statement.

Enbridge and Enterprise are 50/50 partners in the 850,000 b/d Seaway Pipeline system that moves US and Canadian crude to the Gulf Coast.

"It makes a lot of sense to leverage this strong business relationship in moving forward with an offshore deepwater export facility," Enbridge spokesman Michael Barnes said Monday. "We can help each other. More importantly, this agreement combines the talents and expertise of both companies in order to help customers in the US Gulf Coast."

Seaway last month announced an open season to gauge interest in expanding capacity by 200,000 b/d.

Separately Monday, Enbridge announced plans to build a new 15 million-barrel storage terminal at Jones Creek, where Seaway ends. Barnes said it would provide access to Houston-area refineries and existing and future export facilities.

"These two significant steps will benefit customers in the US Gulf Coast region, giving them more options to get their product to market," Barnes said.

The SPOT single-point mooring buoy system off Brazoria County would be able to fully load two VLCCs at a time at an overall rate of 2 million b/d, according to Enterprise's application to the US Department of Transportation's Maritime Administration. Enterprise made a final investment decision on the project in July after securing long-term agreements with Chevron, including unspecified transport and storage at Enterprise's 8.3 million-barrel ECHO terminal in Houston.

Enterprise has said the port will have access to over 6 million b/d of crude supply and more than 300 million barrels of storage, of which nearly 50 million is owned by Enterprise.

If additional US crude export demand exists, Enbridge would then pursue its Texas COLT project offshore Freeport.

Only one Gulf of Mexico port, the Louisiana Offshore Oil Port, can currently fully load VLCCs without lightering from smaller vessels. Eight VLCC-capable projects are competing to move the next wave of US crude exports with deepwater ports off Houston, Corpus Christi and southeast Louisiana, although not all of the proposed capacity will be needed.

Enterprise has said it expects to receive a federal permit for SPOT in the second quarter of 2020. Construction will take up to two years, with some work getting starting before the final approval, executives said.

As MRC wrote before, Enterprise Products Partners' Mont Belvieu propane dehydrogenation unit in Texas restarted from planned maintenance in the first week of December. The PDH unit went offline for maintenance on November 13. That day, the company said in a filing with the Texas Commission on Environmental Quality that the RAC "B" turbine shut down, which resulted in flaring. The flaring was estimated to last 72 hours. The unit has a capacity of 750,000 mt/year, according to Platts data.

Propylene is the main feedstock for producing polypropylene (PP).

According to MRC's ScanPlast report, the estimated PP consumption in the Russian market in January-October 2019 totalled 1,066,520 tonnes, up by 7% year on year. Supply of block copolymers of propylene (PP block copolymer) and homopolymer of propylene (homopolymer PP) increased, demand for statistical copolymers (PP random copolymer) decreased.

Enterprise Products Partners L.P. is an American midstream natural gas and crude oil pipeline company with headquarters in Houston, Texas. It acquired GulfTerra in September 2004. The company ranked No. 105 in the 2018 Fortune 500 list of the largest United States corporations by total revenue
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