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Chemical and oil companies to slash capital spending, slowing investment wave

March 24/2020

MOSCOW (MRC) -- In the wake of the coronavirus and collapse in crude oil prices, chemical, oil and gas, and midstream companies will all slash capital spending (capex) for growth projects to preserve cash. As a result, the U.S. and global chemical investment wave looks to slow considerably in the years ahead, said Canplastics.

While major U.S. chemical projects under construction should continue, the fall in Brent crude oil prices and the shrinking of the Brent/US Henry Hub natural gas ratio from the 30s to the mid-teens puts into question the economics long term, said Kevin Swift, chief economist of the American Chemistry Council (ACC) speaking on an ICIS webinar on the economic outlook on March 19. This creates an awful lot of uncertainty, and decision-makers dont like uncertainty, he added.

This year, US-based Dow had already taken down its capex plan to USD1.5bn for 2020 from USD2bn in 2019. However, on a March 16 appearance on CNBCs Mad Money program with Jim Cramer, CEO Jim Fitterling said the company would struggle to meet even the lowered USD1.5bn capex target because of limitations on the movement of contractors and engineers given the coronavirus outbreak.

On March 18, Shell announced the temporary suspension of work on its 1.5m tonne/year cracker under construction in Monaca, Pennsylvania to prevent the spread of the coronavirus. No timeframe was given for when work would resume. For Dow, after having paid down around USD2bn in debt in 2019, it would like to pay off another USD500m-USD1bn in debt in 2020, said Fitterling. At the end of 2019, Dow had net debt of USD14.6bn.

Dow is in the process of starting up its Texas-9 cracker expansion adding 500,000 tonnes/year of ethylene capacity in Freeport by mid-Q2. Among other project plans are a 130,000 tonne/year ethylene expansion in Western Canada by H1 2021 and a 600,000 tonne/year polyethylene (PE) plant on the U.S. Gulf Coast for an H2 2022 start-up.

Canada-based Methanex on March 16 said it is evaluating all capital and operating spending, including its planned Geismar 3 project in Louisiana which would add 1.8m tonnes/year of methanol capacity. Construction on the plant started in late 2019 with planned start-up for mid-2022.

In late January, Methanex announced it was broadening its search for a strategic partner for Geismar 3.

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.
Author:Anna Larionova
Tags:petroleum products, crude oil, PVC, PP, PS, PE, vazelin neftyanoy.
Category:General News
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