Shell slows refining, takes up to USD800 M hit after oil crash

MOSCOW (MRC) -- Royal Dutch Shell slowed refining output and will write down up to USD800 million in the first quarter of 2020 after a dramatic drop in oil demand due to the coronavirus, according to Hydrocarbonprocessing.

In an update ahead of first-quarter results, Shell said it expects “significant uncertainty” over oil and gas prices and demand as a result of falling consumption.

With the global lockdown of 3 billion people - roughly 40% of the world’s population - demand for fuel has been in free fall, forcing Shell to lower its refining output by around 13%.

The sharp drop in demand, which could reduce consumption by 25% compared to 2019, poses a significant threat to Shell, which is the world’s largest petrol retailer with more than 40,000 service stations.

The Anglo-Dutch company lowered its oil and gas price outlook for 2020, resulting in a post-tax impairment charge in the range of USD400 million-USD800 million, it said.

Benchmark Brent crude prices fell by around 65% in the first quarter and were trading at below $23 a barrel on Tuesday as a result of a sharp drop in global demand due to the coronavirus and pledges by Saudi Arabia and Russia to raise output.

Shell shares were up 5% in early trading in London.

Shell said this month it would lower spending by USD5 billion to USD20 billion or less and suspend its vast USD25 billion share buyback plan in an effort to weather the downturn.

Shell’s first quarter oil production was expected to fall by 4.5% versus the fourth quarter of 2019, while liquefied natural gas (LNG) volumes were set to decline by 2.3%.

Shell, which sells products produced by its refineries and other suppliers, gave a wide range for oil products sales volumes of 6 million to 7 million barrels per day (bpd) for the first quarter of 2020.

At the middle point, the figure is slightly higher than in the fourth quarter of 2019.

Shell slowed down its refining output in the first three months of the year due to weaker demand for fuels.

Refinery utilisation is expected to be between 80% to 84%, while 93% to 96% of its refining capacity is available. Refining profit margins were also expected to be lower, Shell said.

The company said its cash liquidity remained strong after getting a new USD12 billion revolving credit facility commitment, lifting its available liquidity from USD30 billion to USD40 billion.

As MRC informed earlier, Shell Singapore restarted its naphtha cracker in Bukom Island in early December 2019, following a two months maintenance shutdown since the beginning of October 2019. Thus, this cracker was taken off-stream for the turnaround on 1 October 2019. The cracker is able to produce 960,000 tons/year of ethylene and 550,000 tons/year of propylene.

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.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.
MRC

MOSCOW (MRC) -- Trinseo (Berwyn, Pennsylvania) has joined the growing ranks of chemical companies providing financial and operational updates in response to the coronavirus disease 2019 (COVID-19) pandemic, reported Chemweek.

Like many of its peers, the company announced that it is drawing USD100 million on a revolving credit facility “out of an abundance of caution.” Trinseo says all of its manufacturing facilities remain online except the API Plastics site in Mussolente, Italy, which has been closed by the government as a nonessential business.

Trinseo says it ended 2019 with USD1,195 million of debt and USD456 million of cash, and it expects to end the first quarter with approximately USD425 million of cash, which excludes the USD100-million revolver drawdown. No amounts were previously outstanding on the revolving credit facility, says the company. Declining feedstock prices and inventory management are also expected to free over USD100 million in working capital during the second quarter.

"In this environment, we are taking aggressive actions to improve cash flow by reducing working capital, capital expenditures, and discretionary spending," says Frank Bozich, president and CEO. "We’re reducing our anticipated capital expenditures for 2020 from USD100 million to between USD80 and USD85 million."

The company also provided an update on the status of its styrene monomer assets in Boehlen, Germany, and its polybutadiene rubber (nickel and neodymium-PBR) assets in Schkopau, Germany. Consultations with the Economic Council and Works Councils of Trinseo Deutschland regarding their disposition began in March. The combined adjusted EBITDA of the two operations last year was approximately negative USD18 million, according to Trinseo, which says it “continues to be committed to its other operations at the Schkopau site,” including polystyrene and styrene-butadiene rubber.

As MRC reported earlier, Trinseo and its affiliate companies in Europe have announced a price reduction for all polystyrene (PS) grades in Europe. Effective March 1, 2020, or as existing contract terms allow, the contract and spot prices for the products listed below went down as follows:

-- STYRON general purpose polystyrene grades (GPPS) -- by EUR65 per metric ton;
-- STYRON and STYRON A-Tech and STYRON X- Tech high impact polystyrene grades (HIPS) - by EUR65 per metric ton.

According to ICIS-MRC Price report, prices of Russian PS remained unchanged until the end of the first quarter. Nizhnekamskneftekhim rolled over February prices of its material for shipments in March. Penoplex and Gazprom neftekhim Salavat also maintained their GPPS prices the same.

Trinseo is a global materials company and manufacturer of plastics, latex and rubber. Trinseo's technology is used by customers in industries such as home appliances, automotive, building & construction, carpet, consumer electronics, consumer goods, electrical & lighting, medical, packaging, paper & paperboard, rubber goods and tires. Formerly known as Styron, Trinseo completed its renaming process in 1Q 2015. Trinseo had approximately USD4.6 billion in net sales in 2018, with 16 manufacturing sites around the world, and approximately 2,500 employees.
MRC

MOSCOW (MRC) -- Taiwan’s Formosa Petrochemical Corp plans to operate its refinery at a reduced rate after completing maintenance at some units later this month amid weak margins, reported Reuters with reference to its company spokesman's statement.

Refineries globally are reducing utilisation rates to cope with a sudden plunge in domestic demand and negative gasoline margins as governments impose more stringent lockdown measures.

The company is expected to restart one of its three crude distillation units (CDUs), its residue fluid catalytic cracker (RFCC) and one of its two residue desulphurizers (RDS) around April 20 after more than a month’s shutdown for scheduled maintenance.

After the unit’s restart, Formosa plans to be processing 480,000 barrels per day (bpd) of crude, spokesman KY Lin told Reuters, about 10% below the refinery’s nameplate capacity of 540,000 bpd.

The company is also looking at adjusting output at its 84,000-bpd RFCC to maximize production of propylene, a petrochemical raw material, as prices are still supportive, while reducing gasoline output, he said.

He added that the refinery has previously reduced jet fuel output partly by blending the fuel into its diesel and naphtha pool.

"We won’t rule out further run cuts," he said, adding that oil supply remained excessive globally.

Formosa operates three CDUs with a capacity of 180,000 bpd each, while the capacity of each of its RDS units is 80,000 bpd.

As MRC wrote before, Formosa Plastics' new 1.5 million mt/year cracker in Point Comfort, Texas, came online in H1 2020 and was seen ramping up through January.

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).

Formosa Petrochemical is involved primarily in the business of refining crude oil, selling refined petroleum products and producing and selling olefins (including ethylene, propylene, butadiene and BTX) from its naphtha cracking operations. Formosa Petrochemical is also the largest olefins producer in Taiwan and its olefins products are mostly sold to companies within the Formosa Group. Among the company's chemical products are paraxylene (PX), phenyl ethylene, acetone and pure terephthalic acid (PTA). The company"s plastic products include acrylonitrile butadiene styrene (ABS) resins, polystyrene (PS), polypropylene (PP) and panlite (PC).
MRC

MOSCOW (MRC) -- Chinese producer Zhejiang Zhengkai's subsidiary Chongqing Wankai has started up its new 600,000 t/yr polyethylene terephthalate (PET) bottle chip plant on 25 March, 2020, reported Argus.

Feedstock purified terephthalic acid and ethylene glycol was fed into the Chongqing plant in southwest China today, with Wankai targeting on-specification production by the end of this month.

The project has a design capacity of 1.2mn t/yr of PET bottle chip, including two 600,000 t/yr production lines. Total investment is 3.6bn yuan (USD507mn).

The phase one 600,000 t/yr PET bottle chip plant started construction in January 2019 and finished this year. But the coronavirus outbreak in China delayed its start-up plan from mid-February to this month because of a lack of workers.

Zhejiang Zhengkai will be the second-largest PET bottle chip producer in China following the Chongqing start-up behind Jiangsu Sanfangxiang. Zhejiang Zhengkai currently operates three PET bottle chip units with a total capacity of 1.25mn t/yr in east China's Zhejiang province.

According to MRC's ScanPlast report, Russia's estimated PET consumption decreased to about 53,890 tonnes in February 2020, down by 3% year on year. 100,830 tonnes of PET chips were processed in Russia in the first two months of 2020. February PET production in Russia dropped to 45,800 tonnes, down by 5% year on year. Russia's overall PET production fell in January-February 2020 by 13% year on year.
MRC

MOSCOW (MRC) -- Russian state oil company Rosneft's decision to cease operations in Venezuela and sell its assets there to a Russian government-owned company was a "maneuver" made in reaction to collapsing oil prices, a US State Department official said Tuesday, reported S&P Global.

"Rosneft is now losing money, its joint ventures can't sell crude oil for a profit, its trading activities around the world, trying to sell Venezuela oil, are really in trouble," Elliott Abrams, the US State Department's special representative for Venezuela, told reporters during a briefing.

Abrams said that the US government was still trying to learn more about the sale, such as how the new company would be structured and whether it would control all of Rosneft's assets in Venezuela.

The sale, which Rosneft announced Saturday, follows the imposition of US sanctions on two Rosneft trading subsidiaries, Rosneft Trading and TNK Trading, over their activities in Venezuela earlier this year.

Abrams said State estimates that the decline in oil prices has caused Venezuelan oil output to fall to 500,000 b/d.

Venezuelan oil output averaged 820,000 b/d in February, according to the latest S&P Global Platts OPEC survey.

"I think it's very clear that the amount of money going to (Venezuela's Maduro) regime is in very steep decline," Abrams said. "They're not getting the cost of production so you can see the impact is enormous."

Earlier in the briefing, Secretary of State Mike Pompeo denied that the Trump administration saw low oil prices as an opportunity to ratchet up oil sanctions, something analysts have said the administration is doing.

"Oil prices will go up, they'll go down, our mission set remains unchanged," Pompeo said.

On Tuesday, the State Department unveiled a proposal which would lift all sanctions on Venezuela, including US sanctions on petroleum exports, if it establishes a new, transitional government and holds internationally-sanctioned presidential elections within a year.

As MRC informed before, Russian oil giant Rosneft said its refinery plant in Ryazan stopped a primary crude processing unit to carry out planned maintenance on March 17, 2019. The plant remained closed until March 31, 2019, according to the energy ministry's statement.

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.

Rosneft became Russia's largest publicly traded oil company in March 2013 after the USD55 billion takeover of TNK-BP, which was Russia’s third-largest oil producer at the time.
MRC