Sinopec expects lower 2020 refining runs as coronavirus hits demand

MOSCOW (MRC) -- Asia’s top refiner China Petroleum Chemical Corp, or Sinopec, expects its full-year 2020 refining runs will be lower than in 2019 because of a contraction in Chinese fuel demand caused by the coronavirus outbreak, according to Hydrocarbonprocessing.

The fall in demand will last for the first half of this year and lead to lower full-year demand but refined oil consumption is expected to return to normal in the third and fourth quarters, said Ling Yiqing, vice president of Sinopec, during an earnings call in late March.

"Due to the impact of the first and second quarters, our expectation of full year consumption of oil products will be negative growth," said Ling.

"In terms of refining utilization rates in the full year 2020, due to the impact of coronavirus outbreak and exports, our whole year number will be affected," he said.

State-backed Sinopec lowered the utilization rates at its crude oil refineries to 66% in February amid the outbreak, which was first detected in the central Chinese city of Wuhan and prompted the government to impose stringent travel bans.

The average utilization rate at Sinopec’s oil refineries was 91.3% in 2019.

Ling also said the spread of coronavirus overseas will impact oil product exports, negatively affecting Sinopec’s oil refining in the second quarter.

Inventory of refined oil products was seen at a high level in February at Sinopec, Ling said, but it is expected to fall back to a normal level by end-March.

The company, which will trim 2020 capital expenditure by 2.5%, was making a detailed plan to reduce capex and would report this in April during first-quarter earnings, said Zhang Yuqing, chairman of Sinopec.

Zhang expects that oil prices will fluctuate around USD42 per barrel, and the low price scenario might remain for a longer-than-expected period.

He added that coal-to-liquids (CTL) and coal chemical projects will not have any competitiveness when oil prices fall below USD35 per barrel.

Sinopec, which has three coal-chemical projects, will strive to lower costs this year and work on future planning, Zhang said.

Asia’s largest oil refiner also warned about lower petrochemical output in the coming months as it expects a notable decline in global consumption in the next one to two months.

Sinopec, which had lowered operation rates by 10% at its petrochemical plants in February, has resumed operations to nearly 100%, but it still sees a high level of inventory of petrochemical products, Yu Baocai, also said a vice president at Sinopec.

We remind that, as MRC wrote before, Sinopec Qilu Petrochemical, a subsidiary of Sinopec Corporation, plans to shut the cracker unit in Tianjin in northeast China for scheduled repairs on 15 June, 2020. This cracking unit with a capacity of 900,000 tonnes of ethylene per year and 480,000 tonnes of propylene tons per year will be closed for scheduled repairs until 24 June, 2020.

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

According to MRC's ScanPlast report, estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.

Sinopec corp. is one of the world's largest integrated energy and chemical companies. Business Sinopec Corp. includes oil and gas exploration, production and transportation of oil and gas, oil refining, petrochemical production, production of mineral fertilizers and other chemical products. In terms of refining capacity, Sinopec Corp. ranks second in the world, in terms of ethylene capacity - fourth.
MRC

MOSCOW (MRC) -- Lanxess has announced that it expects its core income to decline in 2020 as the global coronavirus epidemic is expected to damage its supply chains, according to Kemicalinfo.

The company forecasts that profit before exceptional items will slash EUR 50-100 million (USD56.4-112.8 million) as a result of coronavirus, with EUR20 million (USD22.6 million) impact projected for the first quarter. However, the company anticipates its operating business will remain stable for the year.

The fourth-quarter core profit before exceptional items stood at EUR197 million (USD223.5 million), slightly above the EUR185.8 million (USD209.5 million) forecast by analysts on average in a consensus provided by the company.

The specialty chemicals producer managed to increase earnings before interest, taxes, depreciation and amortization (EBTDA) before exceptional items in 2019 to EUR1.02 billion (USD1.15 billion), up from EUR986 million (USD1.11 billion) in 2018, despite the weak environment through 2019.

For the full-year 2020, Lanxess said it forecasts its EBTDA to come in at EUR0.90 billion to EUR1.0 billion (USD1-1.13 billion), including an impact of the coronavirus epidemic outbreak of EUR50-100 million (USD56.4-112.8 million).

As MRC informed earlier, Vinmar Polymers America will distribute Lanxess Corp.'s high-performance plastics to customers in North America.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.

LANXESS is a leading specialty chemicals company with sales of EUR 7.2 billion in 2018. The company currently has about 15,500 employees in 33 countries and is represented at 60 production sites worldwide. The core business of LANXESS is the development, manufacturing and marketing of chemical intermediates, additives, specialty chemicals and plastics.
MRC

MOSCOW (MRC) -- Saudi Aramco, the world’s largest oil producer, is in early talks with banks for a loan of about USD10 billion to help finance its acquisition of a 70% stake in Saudi Basic Industries Corp (SABIC), reported Reuters with reference to three banking sources.

Aramco agreed last year to buy the controlling stake in SABIC from the kingdom’s wealth fund for $69.1 billion, sealing one of the biggest-ever deals in the global chemical industry.

"The financing would be for the SABIC deal, but the borrower is Aramco," said one of the sources, adding that the discussions were at an initial stage, with the company sounding out banks.

"Ten billion dollars is where they want to get to, (it’s) not clear if, in this market, they’ll manage to reach that."

A second source said banks involved in the talks included HSBC and JPMorgan, as well as lenders in the Gulf.

In response to a Reuters request for comment about whether it was seeking such a loan, Saudi Aramco said: "The company continues to review its financial options as part of its normal course of business, while prudently preserving its pristine balance sheet and its resilience."

JPMorgan declined to comment, while HSBC did not immediately respond to a request for comment.

A third banker said Aramco was looking to borrow in US dollars because it was cheaper than in Saudi riyals, in terms of interest, and to avoid pressuring Saudi banks’ liquidity.

The SABIC stake acquisition from Saudi Arabia’s Public Investment Fund (PIF) will help Aramco’s downstream expansion plans. The deal came after months of talks between the company and PIF and was one of the reasons for the delay of Aramco’s blockbuster initial public offering late last year.

The loan discussions come at a time when oil-producing nations have been hit by a plunge in demand for crude as a result of the coronavirus outbreak and a slide in oil prices.

OPEC and its allies led by Russia, a group known as OPEC+, have agreed to the largest oil output cut in history that could curb supply by up to 20%. But the agreement has done little to boost oil prices as many economies remain under lockdown due to the novel coronavirus pandemic, curbing demand.

Saudi Arabia, which owns more than 98% of the oil giant, is likely to sell new international bonds soon, according to sources, as the output cut deal further squeezes revenues hit by the plunge in oil prices.

We remind that as MRC informed before, in October 2019, McDermott International announced that it had been awarded a contract by Saudi Aramco and Total Raffinage Chimie (Total) for their joint venture (JV) Amiral steam cracker project at Jubail, Saudi Arabia. Amiral is a JV in which Aramco holds 62.5% and Total the rest. The plant, designed to produce 1.5 million metric tons/year (MMt/y) of ethylene, will be one of the world's largest mixed-feed crackers.

Aramco and Total launched their USD5-billion Amiral JV project in October 2018. The steam cracker will be fed with a mixture of 50% ethane and refinery off-gases. It will supply ethylene to a downstream 1 MMt/y polyethylene manufacturing complex and other petrochemical products. The project aims to fully exploit operational synergies with the adjacent refinery, owned by Satorp, another JV between Aramco and Total. Third-party investors, including Daelim and Ineos, will locate plants at the value park adjacent to Amiral with a combined investment of USD4 billion. A final investment decision is expected in 2021.

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

According to MRC's ScanPlast report, estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.

Saudi Basic Industries Corporation (SABIC) ranks among the world's top petrochemical companies. The company is among the worldпїЅs market leaders in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol and fertilizers.
MRC

MOSCOW (MRC) -- A fuel demand meltdown caused by the coronavirus outbreak in the U.S. has started up a new fight between the oil and agriculture industries over the nation’s biofuel policy, this time over whether the policy should be suspended or expanded as a result of the crisis, said Hydrocarbonprocessing.

The issue once again places Republican President Donald Trump in a tough spot between two important constituencies, both of which have been pushed to the brink of collapse by the pandemic because of flagging consumption, disrupted supply chains and reduced workforces.

The oil refining industry and its backers have asked the Trump administration to help the industry weather the pandemic by suspending a regulatory requirement that they blend billions of gallons of corn-based ethanol into their gasoline each year, arguing it is a cost many facilities can not currently afford.

The corn lobby, meanwhile, has been pushing for the blending requirements, mandated under the U.S. Renewable Fuel Standard, to be expanded to help farmers who have seen demand for their crop drop swiftly as biofuel plants across the country go idle.

While the refining and corn industries have clashed for years over the biofuel blending requirements, the issue is now being framed as a matter of survival.

"We’re talking about a multi-billion dollar compliance cost that is going to impact whether some can continue operating the same way,” said Geoff Moody, senior director of government relations for the American Fuel and Petrochemical Manufacturers trade group, which represents refiners.

On Wednesday, the governors of Texas, Oklahoma, Utah and Wyoming asked the Trump administration for a nationwide waiver exempting the oil-refining industry from the blending laws to help it survive, adding heft to a similar request made by Louisiana the week before.

“We remind the Administration that oil refiners are not the only ones suffering from the economic fallout of the current situation,” said Brian Jennings, the head of the American Coalition for Ethanol, which had asked the administration earlier this month to expand ethanol blending requirements.

“Ethanol producers, and the farmers supplying them corn, are suffering a proportional economic disaster,” he said.

A spokesperson for the Environmental Protection Agency (EPA), in charge of overseeing the RFS, said the agency is watching the situation closely and “will make the appropriate determination at the appropriate time."

As MRC informed earlier, Russia’s oil export duty CL-EXPDTY-RU, a key source of tax revenue for the government, is likely to plummet in May to its lowest level in nearly two decades if oil prices stay low. The expected sharp decline in duty paid by Russian oil exporters will encourage oil producers to sell crude oil and make refining it less attractive, hitting the profit margins of Russian refineries.

As MRC informed earlier, based on the results of operations in the 1st quarter 2020, Gazprom neftekhim Salavat ramped up its stable gas condensate throughput and production output. The throughput performance of stable gas condensate during the 1st quarter 2020 (1 502 thousand tons) has grown by 15.7% at the Company’s Oil Refinery, as compared to the same period last year (1 298.5 thousand tons) due to increases in supplies.

It was previously reported that Gazprom Neftekhim Salavat (STS), one of the largest Russian petrochemical producers, plans to start scheduled repairs of acrylate production on April 20. This production will be closed until May 30.
MRC

MOSCOW (MRC) -- What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021, reported Reuters.

The OPEC+ deal, finalised on Sunday, envisages production cuts of 9.7 million bpd in May and June, with the cuts tapering through the rest of 2020, 2021 and the first quarter of 2022.

It assumes further reductions will come about as a result of price-driven cuts to the output of the United States and other major oil producers not formally associated with the deal.

Even so, inventories of crude and refined products will start at a very high level, which will take months to whittle away, assuming consumption returns to near-normal quickly.

The bigger question is how much economic output and petroleum consumption will be lost permanently in the second half of the year and into 2021 as a result of the recession.

Some businesses will re-open and return to near-normal rapidly once the lockdown ends, but others will operate at severely reduced capacity, and some will not re-open at all.

Millions of employees have been furloughed and could return to their old jobs quickly, but millions more have become unemployed and may not find new work for some time.

In the face of the largest economic shock since before World War Two, businesses and households are moving to reduce non-essential spending and conserve cash.

But the second and third-round effects of that cash conservation imply a very large hit to aggregate demand and oil consumption which will persist through the rest of the year and into 2021.

Following the standard prescription of economist John Maynard Keynes, governments and central banks can use a combination of fiscal and monetary policies to make up the deficit in demand and jumpstart the economy.

But even Keynesian stimulus will take time to fill the demand gap and return petroleum consumption to something like near normal.

US petroleum consumption has fallen by around one-third over the last four weeks as the coronavirus epidemic and lockdowns have brought much of the economy to a halt

The volume of petroleum products supplied to the domestic market was just 13.8 million barrels per day (bpd) in the week ending April 10, down from 21.5 million bpd in the week ending March 13.

The sudden slump in petroleum consumption, as factories, retailers and offices are shuttered and transportation systems close, has no parallel in the history of the oil industry.

Consumption has fallen most severely for jet fuel (-73%) and gasoline (-48%) but middle distillates such as diesel have also been hit (-31%) and even propane and propylene are off (-29%).

US refineries have so far reduced crude processing by around 3.2 million bpd or 20%, causing crude stocks to surge, but even that has not been enough to prevent a build up of unused fuels.

Total stocks of crude oil and petroleum products, excluding the strategic petroleum reserve, have surged by almost 84 million barrels over the last four weeks, according to the U.S. Energy Information Administration (EIA).

The last three weeks have seen consecutive increases of 21 million barrels, 33 million barrels and 27 million barrels, three of the five largest weekly rises since the data began in 1990.

The 1.34 billion barrels of crude and petroleum products in storage, excluding stocks held in the strategic petroleum reserve, are a record for the time of year.

Similar reductions in oil consumption are likely to be occurring across the other advanced economies, though data for other economies in North America, Europe and Asia will only become available much later.

Britain’s Office for Budget Responsibility, the government’s independent fiscal monitor, has estimated the country’s output could fall by 35% in the second quarter of 2020.

The estimated reduction in Britain’s output is broadly similar to the reported reduction in US petroleum consumption and suggests oil use across the entire OECD could be down by a third this quarter.

OECD consumption is around 48 million bpd so a one-third reduction translates into the loss of 16 million bpd from the advanced economies alone.

Non-OECD economies consume a further 52 million bpd. Consumption losses there are harder to measure, though probably smaller in percentage terms, since many simply cannot afford to lockdown completely.

But if non-OECD economies see consumption decline by 20% or 10 million bpd, a conservative estimate, then total OECD and non-OECD losses could be as high as 26 million bpd.

The implication is that global oil storage has been filling at around 100 million barrels every four days, which is clearly unsustainable for any extended period.

Emerging storage and logistics constraints have sent prices for physical crude and products such as gasoline and diesel tumbling to massive discounts compared with prices for future deliveries.

In this context, production limits announced on Sunday by the enlarged OPEC+ group of oil exporters, led by Saudi Arabia and Russia, should slow the accumulation of inventories and push back the storage wall.

The production accord ended the volume war between the world’s two largest oil exporters and came after strong political pressure from the White House.

But production cuts had become inevitable, with exporters struggling to find buyers willing and able to purchase extra barrels, forcing them to sell to middlemen able to put the crude into immediate storage.

The OPEC+ deal provides a face-saving end to an output battle which produced only losers and no winners, except middlemen with access to tank farms and floating storage.

As MRC informed previously, earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

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 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
MRC