Oil industry may fill global storage in months as record glut builds

MOSCOW (MRC) -- The oil market could see a record supply surplus in April as coronavirus wipes out demand and big producers pump more, creating a global glut that threatens to overwhelm storage capacity within months and force widespread industry shutdowns, according to Hydrocarbonprocessing with reference to analysts.

Crude is already gushing into storage at land and sea worldwide as countries curb travel and economic activity falls due to coronavirus. Storage levels are rising even before a wave of supply hits the market from Saudi Arabia, Russia and other producers who are gearing up to fight a price war for market share.

US benchmark crude fell to its lowest since April 2002 at USD22.60 a barrel on Wednesday, and is down more than 60 percent since the start of the year. Brent crude prices have fallen almost 45% in March alone, following the most pronounced demand destruction since the financial and economic crisis of 2008.

As storage reaches capacity, a slide toward USD10 per barrel is possible, according to some investors and analysts. That last happened during the 1998 glut before both oil companies and oil producing nations curbed supply.

Some Canadian crude is already trading not far off USD10 per barrel because of steep price discounts to U.S. benchmark WTI crude.

"We believe we have not seen the worst of the price rout yet, as the market will soon come to realise that it may be facing one of the largest supply surpluses in modern oil market history in April," said Rystad Energy's Head of Oil Markets Bjornar Tonhaguen.

IHS Markit analysts estimated the global oil supply surplus on a monthly basis to range between 4 million barrels per day (bpd) and 10 million bpd from February to May 2020 - equal to 4-10% of global demand.

Standard Chartered Bank expected an "extreme" global surplus of 12.9 million bpd in the second quarter - 13 percent of global demand - and a cumulative surplus exceeding 2.1 billion barrels by the end of the year - well above the annual output of OPEC's second largest producer Iraq.

"Does the world have enough storage capacity to handle it? ... For crude oil, we estimate total spare inventory capacity at 900 million barrels," BofA Global Research said.

Goldman Sachs sees over 1 billion barrels of unused storage still available and said while it does not expect the glut to lead to a breach in storage capacity, "it will likely lead to a breach in logistical capacity, meaning ships, pipelines, terminals and processing units."

The Organization of the Petroleum Exporting Countries (OPEC) and Russia failed to seal a deal to cut oil production earlier this month, as they disagreed on how to respond to the impact on demand of coronavirus. Since then, OPEC's de facto leader Saudi Arabia has pledged to flood the world with cheap oil.

Saudi Arabia now plans to boost its crude oil production to a record high of 12.3 million bpd in April, and its crude oil exports to more than 10 million bpd from May.

Some major oil consuming nations like the United States and India have tried to take advantage of low oil prices and bulk their its strategic stockpiles.

US President Donald Trump vowed to fill the country’s Strategic Petroleum Reserve to the top. The US strategic reserve has the capacity to take an additional 77 million barrels of crude, and will fill it over several weeks.

That is a fraction of the expected global glut.

Around 3.3 billion barrels of oil is stored globally onshore, close to the peak of 3.4 billion barrels reached in early 2017, according to Kpler data.

Another 91 million barrels is in floating storage - in vessels at sea. That is not far off peaks reached in 2009.

The surplus will only get worse if producers continue their price war. It will be "intensified by the fact that other OPEC countries will likely do their utmost to boost exports as their fiscal budget is under pressure due to lower prices," said Homayoun Falakshahi, senior analyst at Kpler.

The International Energy Agency said on March 9 it expected oil demand to be 99.9 million barrels per day (bpd) in 2020, lowering its annual forecast by almost 1 million bpd and signalling a contraction of 90,000 bpd, the first time demand will have fallen since 2009.

The IEA said that in the first quarter alone, the virus wiped out 2.5 million bpd of demand or 2.5%.

"We estimate OPEC+ spare capacity at 2 million bpd, and at 3 million bpd if Libya’s nearly 1 million bpd production comes back online. What we are seeing here is essentially the atomic bomb equivalent in the oil markets," said Rystad Energy’s analyst Louise Dickson.
MRC

Petrobras extends deadline for refinery bids

MOSCOW (MRC) -- Brazil’s state-run oil company Petrobras will push back the deadline on binding offers for eight of its refineries, according to a securities filing on Friday, after plunging oil prices scrambled efforts to raise more than USD10 billion, reported Hydrocarbonprocessing.

Petroleo Brasileiro SA, as the firm is formally known, is likely to postpone the deadline by 30 to 60 days, said a person with direct knowledge of the matter, requesting anonymity because the timeline had not been announced yet.

The source said Petrobras decided to extend the deadline as extreme volatility in global oil prices demands the attention of senior executives from several bidders. Travel disruptions have also gotten in the way of their visits to Brazil.

Bidders for the refineries include U.S., Chinese and Middle Eastern investors, Reuters reported in January.

The company also announced on Friday it is asking its banks to draw USD8 billion from its revolving credit lines, as a way to strengthen liquidity amid the oil prices shock and coronavirus pandemic.

As MRC wrote earlier, the chief executive of Brazilian state-run oil firm Petroleo Brasileiro said in December 2019 he wants to sell the company's stake in petrochemical company Braskem within 12 months.

We also remind that Braskem is no longer pursuing a petrochemical project, which would have included an ethane cracker, in West Virginia. And the company is seeking to sell the land that would have housed the cracker. The project, announced in 2013, had been on Braskem's back burner for several years.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

Headquartered in Rio de Janeiro, Petrobras is an integrated energy firm. Petrobras' activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks as well as refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
MRC

Lyondell Houston refinery maintenance staffed for safety, reliability: company

MOSCOW (MRC) -- Lyondell Basell Industries said maintenance operations were staffed at its Houston refinery to assure safety and reliability. Gulf Coast market sources told Reuters hundreds of contractors had been sent home this week to reduce the risk of coronavirus spreading in the 263,776 barrel-per-day refinery, reported Reuters.

Those contractors work for companies hired by Lyondell to perform maintenance on units in the refinery.

Lyondell employee operations and maintenance staff continue to work in the refinery, the sources said.

“At this time, maintenance activities are staffed to ensure safe and reliable operations,” said Lyondell spokeswoman Chevalier Gray.

Lyondell’s statement said nothing about staffing levels or if the maintenance is of the same scope as it was prior to this week.

The sources said the contractors remaining in the refinery were focused on inspecting and then repairing the refinery’s shut gasoline-producing FCC, which has been offline since a Feb. 16 fire.

Gray said Lyondell has instituted policies, like those at most refineries, to increase social distancing along with cleaning and sanitization of work spaces.

Lyondell has also released office staff, and others whose work allows, to work from home, Gray said.

As MRC wrote before, LyondellBasell (LBI), one of the largest plastics, chemicals and refining companies in the world, has just announced it has signed definitive agreements to expand in China through a 50:50 joint venture with the Liaoning Bora Enterprise Group (Bora). On September 5, 2019, LyondellBasell and Bora first signed a Memorandum of Understanding and announced their intention to form this joint venture during a ceremony in Panjin, China. Under the agreements, the partners will form a Sino-foreign joint venture, the Bora LyondellBasell Petrochemical Co. Ltd, that will operate a 1.1 million metric tons per annum ethylene cracker and associated polyolefin derivatives complex in Panjin, China, with a total expected cost of approximately USD2.6 billion.

LyondellBasell will market the polypropylene (PP) and high-density polyethylene (HDPE) which will be produced utilizing LyondellBasell licensed Spheripol, Spherizone PP technologies and Hostalen ACP polyethylene technology. Start-up is expected in the second half of 2020.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

LyondellBasell is one of the largest plastics, chemicals and refining companies in the world. Driven by its 13,000 employees around the globe, LyondellBasell produces materials and products that are key to advancing solutions to modern challenges like enhancing food safety through lightweight and flexible packaging, protecting the purity of water supplies through stronger and more versatile pipes, and improving the safety, comfort and fuel efficiency of many of the cars and trucks on the road. LyondellBasell sells products into approximately 100 countries and is the world's largest licensor of polyolefin technologies.
MRC

Total to delay refinery restart due to coronavirus

MOSCOW (MRC) -- French oil major Total has decided to delay the restart of its Grandpuits refinery near Paris by eight days to April 1 due to the coronavirus outbreak, reported Reuters with reference to CGT union delegate Thierry Dufresne's statement.

Other sources said the maintenance work at the company’s Feyzin refinery was suspended following the lockdown put in place by the government to contain the spread of coronavirus.

As MRC wrote before, Total said Tuesday it had a suspected case of coronavirus on a rig at its Culzean gas field in the UK North Sea, but production was unaffected.

We also remind that Total has recently disclosed that it is evaluating construction of a new gas cracker at its Deasan, South Korea, joint venture (JV) with Hanwha Chemical.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

Total S.A. is a French multinational oil and gas company and one of the six "Supermajor" oil companies in the world with business in Europe, the United States, the Middle East and Asia. The company's petrochemical products cover two main groups: base chemicals and the consumer polymers (polyethylene, polypropylene and polystyrene) that are derived from them.
MRC

Hengli Petrochemical reaches full rates at new PTA line No. 4 in Dalian City

MOSCOW (MRC) -- Hengli Petrochemical (Dalian) Co. has reached full rate at its fourth purified terephthalic acid (PTA) line located on Changxing Island, Dalian City, Liaoning Province, China, reported Apic-online.

The 2.5-million-t/y PTA line, which came online in January 2020, utilizes Invista's P8 PTA technology. The line also produces benzoic acid, using Invista's RP2PR technology.

A fifth PTA line, identical to the fourth, is currently under construction and scheduled to start up around the middle of this year.

As MRC wrote previously, in the second week of February 2020, China’s private chemical giant and refiner Hengli Petrochemical cut to 90% its crude oil processing rate at a northeastern plant, down from 109%, as a spreading coronavirus hits demand. The cuts at the 400,000-barrel-per-day refinery and petrochemical complex in Dalian were equivalent to 17%, or 76,000 bpd, Reuters’ calculations show.

In face of weakening demand for petrochemical products, Hengli also cut back operations at a newly started plant making PTA, to half its capacity, from 80% earlier, the spokesman said then.

PTA is used to produce polyethylene terephthalate (PET), which is used in the manufacturing of plastic bottles, films, packaging containers, in the textile and food industries.

As per MRC's ScanPlast report, the estimated PET consumption in Russia increased in January 2020 by 9% year on year. Totally, Russia recycled 55,390 tonnes of PET chips in January (excluding shipments of Russian material to the countries of the Customs Union). Russia's PET chips production totalled 43,200 tonnes in January 2020.

Hengli Petrochemical Co., Ltd. manufactures chemical fibers. The Company researches, produces, and sells polyester filament and chips for consumer and industry products. Hengli Petrochemical markets it products worldwide.
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