MOSCOW (MRC) -- Independent refineries in China’s eastern Shandong province, who collectively import about a fifth of the country’s crude, have slashed output by 30% to 50% in just over a week as the coronavirus outbreak hit fuel demand and distribution, reported Reuters with reference to executives and analysts.
Utilisation rates dropped below 50% by the end of January at key plants, from around 66% a week earlier, the lowest since at least 2015, according to surveys of around 40 plants conducted by local consultancies JLC Network Technology and Longzhong Information Group.
The sudden production cut left crude oil storage tanks full at China’s top crude import terminal of Qingdao, causing delays in discharging cargoes and leaving refiners, already under pressure from weak margins, facing hefty demurrage charges to compensate shipowners for delays
is grim - we have gasoline and diesel demand shrinking on one hand, and fuel logistics stalling on the other as local governments put in traffic curbs to contain the spread of the virus,” said a plant executive based in Dongying, a refining and chemicals hub in Shandong.
He and other executives declined to be identified because they’re not authorized to speak to the media.
While the central province of Hubei, where the virus first emerged, is in virtual quarantine, authorities elsewhere in China have placed restrictions on travel and business to try to contain the spread of the virus.
Spot premiums for Russian ESPO crude, among the most popular grades for the Shandong plants, sometimes known as ‘teapot’ refineries - have hit their lowest in five months.
The city of Dongying, home to some 40 teapot refineries, introduced a ban on Friday on vehicles entering the city from outside and asked local manufacturers to apply for special passes to facilitate the logistics required for production, two refinery executives briefed on the matter said.
"This means refineries can’t move their products out, or at least it slows down the flows drastically" said the Dongying executive.
He said a typical 60,000 barrels per day refinery uses 200-300 trucks a day to deliver refined fuel.
A second executive estimated that even with such steep production cuts in place, most of the plants might have to reduce output again in about 10 days because of logistics constraints.
Shi Linlin, senior analyst with JLC said overall run rates in Shandong could drop to 40% in February.
As MRC wrote before, in April 2019, BP agreed a three-year framework crude oil deal with independent Chinese refinery Shandong Tianhong Chemicals, for annual supplies of 8 million barrels from last year. Li Dongbo, president of Shandong Tianhong Chemicals, told Reuters the deal covers 2019 to 2021.
We also remind that in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
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