MOSCOW (MRC) -- Major oil companies including BP and Shell are preparing to take the rare step of storing jet fuel at sea as the coronavirus outbreak disrupts airline activity globally, while refiners are shifting to diesel because of the poor margins associated with jet fuel production, said Hydrocarbonprocessing.
Jet fuel demand has cratered as airlines suspend flights due to the coronavirus pandemic, which globally has infected more than 204,000 people and killed 8,700, prompting travel restrictions from governments around the world, including the United States. Market participants and refiners have had to scramble to adjust to incredibly low prices.
Storing jet fuel at sea, however, is something of a last resort. The product is sensitive to contamination and degrades more quickly than other refined fuels and especially crude oil, so after a few months, it no longer can be used for aviation, according to analysts.
"The industry generally expects products will be used within three months of being produced,” said George Hoekstra, an independent consultant specializing in hydroprocessing technology. Gulf Coast jet cash prices were at 26.50 cents per gallon below futures, the lowest seasonally since at least 2011, the earliest data available, Refinitiv Eikon data showed.
Jet fuel demand averages about 8 million barrels per day, but that has already dropped by about 20%, according to Robert Campbell, head of oil products at consultancy Energy Aspects. Overall, the oil market could see a record build in supply in April that could overwhelm storage capacity within months, analysts said.
BP has provisionally booked the 60,000-tonne Stena Polaris tanker to store jet fuel for 40 to 60 days starting March 20 to March 22 at a rate of $25,500 a day, according to shipping and trading sources. A BP spokesman declined to comment.
Royal Dutch Shell has provisionally booked Torm Sara to store jet fuel for 90 to 120 days, sources said. “With European kerosene (jet fuel) stocks near record levels, floating storage is one possibility for surplus jet fuel, though due to strict quality specifications, traders will be reluctant to attempt long-term storage of surplus fuel given the risk of contamination,” Campbell said.
Demand for jet fuel storage has also increased in the United States, said Ernie Barsamian, founder and chief executive of The Tank Tiger, a terminal storage clearing house based in Princeton, New Jersey.
As MRC informed earlier, operations at Italian petrochemical producer Versalis (part of Eni) have not affected by emergency quarantine measures in the country. Italian Prime Minister Giuseppe Conte extended its emergency coronavirus measures Wednesday evening and announced the closure of "non-essential" commercial businesses. This follows the announcement of a nationwide lockdown on Monday, limiting movement for around 60 million people. Under these measures people will only be allowed to leave their homes for work or health reasons. Versalis has three steam crackers in Italy, capable of producing 1.675 million mt of ethylene, 750,000 of propylene and 285,000 mt of butadiene a year.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (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.
MRC