Oil refiners face reckoning as demand plummets

MOSCOW (MRC) -- The global oil refining industry is facing a reckoning from falling fuel demand that is the deepest and fastest ever, reported Reuters.

Within weeks, the industry will need to cut output by 30% or more as the coronavirus pandemic keeps much of the world at home with little need to drive or fly. Smaller and financially weak oil refiners may not emerge from the crisis, say refining consultants and traders.

"This Covid isn’t going to kill the refining industry, but it might kill those with underlying conditions," said John Auers, a refining analyst at consultancy Turner, Mason & Co.

Plant closings and production cutbacks are appearing across the globe. In Amsterdam, Canada, India, Italy and South Africa, small refiners have halted processing. Even the most complex and profitable US and European operators are cutting runs to produce as little fuel as possible without shutting down.

The coronavirus outbreak has cut global gasoline demand by 50% and jet fuel demand by 70%, according to consultancy Facts Global Energy.

About 5 million barrels per day (bpd) of the 18 million bpd US refinery capacity would operate if plants were to produce just enough fuel for current demand, said Michael Tran, commodity strategist at RBC Capital Markets, while diesel production and margins have declined only slightly this year.

In Northwest Europe, refiners that binged on sweet crude are paring 2 million barrels per day from run-rates, said Jan-Jaap Verschoor, an analyst at Oil Analytics in London. He estimated the drop in oil processing worldwide has already reached 5 million bpd.

Financially weak refiners and those serving small markets are at most risk of consolidation. If forced to shut down, they face a loss of customers that could make it harder to reopen. Those with little debt, a variety of products and proximity to crude supplies are best positioned to survive, analysts said.

The 130,000-barrel per day Come-by-Chance refinery in eastern Canada this week temporarily halted processing on economic and safety concerns. It follows shutdowns at small plants in Italy, France and South Africa.

Refineries in the US Midwest and Rocky Mountains that mostly produce gasoline are vulnerable to shutdowns as stocks build. The region’s storage tanks will be about 90% full this week, estimates Amy Kalt, a refining analyst at consultancy Baker & O’Brien Co.

The near-halt of air travel threatens US-based Monroe Energy, which provides parent Delta Air Lines with jet fuel. Monroe has cut its processing by 21%, and reduced staff to about two dozen workers. A spokesperson for the company declined to comment.

Several European refiners shut processing units for maintenance and then postponed the work, said Amanda Fairfax, an analyst at Genscape, which tracks refinery operations.

US refiners Exxon, Chevron, PBF Energy, Valero Energy and Marathon are reducing processing by as much as 30%.

"The guys who cut early are learning how to cut more," said David Hackett, president of refinery consultancy Stillwater Associates. The goal of many refiners is to reach a level “just to try and keep it running” because of the dangers inherent to restarting idle plants, he said.

While low run-rates generally reduce stress on equipment that can cause outages, operating individual units "below 50% could become unstable," said Baker & O’Brien’s Kalt.

Refiners spent the last decade expanding capacity to supply motor fuel to a rising middle-class in Africa, China, India and Latin America.

In the United States, struggling East Coast refiners got a temporary reprieve from financial woes from plentiful supplies of light crude from shale fields.

But bankruptcies among shale producers may threaten those supplies in the future. Whiting Petroleum Corp on Wednesday became the first major casualty of crashing oil prices.

In Asia, state-run refiners are have kept output high and maintained pre-crisis pricing.

"It’s not easy to consolidate because there are many state-owned companies," said K.Y. Lin at Formosa Petrochemical Corp, Asia’s sixth-largest standalone refiner.

Hopeful signs are emerging in China and Korea, which are ramping up refining as virus outbreaks ebb. China’s refining sector is forecast to reach about 77% of capacity in the current quarter, up from 63% two months ago. This month SK Energy, Korea’s top refiner, expects to increase output from the 85% to 90% of capacity in March.

Still, the sharp, sudden drop in demand will accelerate consolidation in the business and lead to fewer and larger refiners when markets recover.

Worldwide, predicts Turner, Mason’s Auers, there could be a loss of 1 million bpd to 2 million bpd from permanent refinery closures when the pandemic subsides.

As MRC wrote before, 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. 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.

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 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

MOSCOW (MRC) -- India’s state oil refiners have reduced crude processing as local fuel demand has tumbled due to lockdowns in much of the country that are aimed at halting the spread of coronavirus, reported Reuters with reference to industry and company officials' statement.

Asia’s third largest economy with 1.4 billion people has reported about 500 cases of the virus but health experts say a big jump could be imminent. The government has halted domestic flights and most train and metro services.

State fuel retailers and refiners Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp operate about 90% of retail fuel pumps in India.

These companies also buy products from refiners including Reliance Industries, Nayara Energy and Mangalore Refinery and Petrochemicals Ltd to meet local demand.

But declining consumption is forcing state refiners, which together own about 60% of India’s 5 million barrel per day (bpd) refining capacity, to reduce the amount of crude they process as storage facilities fill up with unsold products.

Top refiner Indian Oil Corp and its subsidiary Chennai Petroleum has cut refinery runs by an average of 15% to 20%, sources familiar with the matter said.

“About 65% of the crude is used to produce jet fuel, petrol and diesel ...demand for these products is very low,” one said.

Another source said: "IOC’s has storage capacity but that is used for operational requirement and not for demand management."

The sources asked not to be identified as they were not authorised to speak to media. IOC did not respond to a Reuters email seeking immediate comment.

India’s second biggest state-refiner BPCL cut crude processing by "significant" amount next week if consumption continued to fall, BPCL’s head of refineries R. Ramachandran told Reuters, adding diesel and petrol consumption tumbled in recent days.

"If the lockdown continues we are staring at double-digit decline in jet fuel, petrol and diesel demand in March, which will necessitate cut in our refinery throughput," he said.

Fuel sales in first two weeks of March fell 10% year on year.

"This is an extraordinary situation it has not been seen earlier," said M.K. Surana, chairman of HPCL, which will cut crude processing by 10% to 20% at its Mumbai refinery as it faces a problem storing bitumen.

Unlike petrol and diesel that can be supplied across the country by pipeline, refiners rely on trucks to transport bitumen, which is used to build road.

Surana said HPCL’s Vizag refinery was still running at full capacity but said this was only like to last a few more days.

MRPL, which is based in southern India and sells products to state fuel retailers and usually exports its surplus, said it was dealing with an "unprecedented" fall in demand from state fuel retailers.

"Even the international market is not favourable for export specially jet fuel,” said MRPL Managing Director M Venkatesh.

"MRPL will have to take a significant cut in crude processing. Slowdown in refining processing could begin in early April."

As MRC informed before, state-owned Bharat Petroleum Corporation Ltd (BPCL) will invest about Rs25,000 crore to set up an ethylene cracker plant at Rasayani, 50 kilometres from its Mumbai refinery, as the firm pushes further into the petrochemicals business to fuel growth.

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

MOSCOW (MRC) -- The estimated financial results of Advanced Petrochemical Company showed a 35.75% drop in net profit over the first quarter (Q1) ended on 31 March 2020, said Zawya.

The profits amounted to SAR 104 million in Q1-20, compared to SAR 161.88 million in Q1-19, according to a stock exchange filing on Sunday.

The lower earnings are due to a decrease in polypropylene sales volume and prices by 8.1% and 10.3%, respectively, and an increase in propane consumption by 10.3%.

Furthermore, the petrochemical company registered a share of losses from SK Advanced Co. of SAR 18.19 million in the Q1-20 when compared to a share of profit of SAR 20.70 million in the same quarter last year.

On a quarterly basis, the profits retreated by 45.84% when compared to the previous quarter where they totalled SAR 192 million.

It is worth pointing out that in 2019, the company’s profits went up by 5.8% to SAR 759 million from SAR 716.96 million in 2018.

As MRC informed earlier, Subsidiary AGIC and SK Gas have formed a joint venture named Advanced Polyolefins Company to work on the project. Saudi Arabian Stock Market-listed Advanced Petrochemical Company has signed a deal with South Korea’s SK Gas to construct and operate a propane dehydrogenation (PDH) and polypropylene (PP) plants in the kingdom’s Jubail Industrial City, with the project value being USD1.8bn (SAR6.8bn).

As MRC informed before, in September 2019, SK Advanced signed a joint venture agreement with South Korea’s Polymerae Ltd. to establish a polypropylene plant in South Korea with an annual design capacity of 400,000 metric tons. The facility is expected to launch commercial operations in 2021.

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.
MRC

MOSCOW (MRC) -- Brazilian state-run oil firm Petrobras is cutting its utilization rates at refineries from an already depressed level of 60%, a government official said, as demand for fuel plummets, said Reuters.

In an interview with radio personality Jose Luiz Datena, Brazilian Mines and Energy Minister Bento Albuquerque said April orders for Petrobras diesel, gasoline and jet fuel had fallen by 50%, 60% and 86%, respectively. Petroleo Brasileiro SA , as the firm is formally known, was further cutting utilization rates as a result, he said.

As MRC wrote previously, 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.

Besides, 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

MOSCOW (MRC) -- China has increased U.S. crude purchases with some buyers snapping up cargoes at the widest discounts ever as sellers seek to offload excess supplies in Asia, reported Reuters with reference to six trade sources.

China started processing in March applications from its companies to waive import tariffs on U.S. energy goods as part of the Sino-U.S. Phase 1 trade deal and they have since bought liquefied natural gas (LNG) and liquefied petroleum gas (LPG) from the United States.

The world’s largest crude importer is boosting U.S. energy imports at a time when the world is swamped with excess supply after the Organization of the Petroleum Exporting Countries (OPEC) and Russia failed to extend production cuts and as measures to curb the spread of the coronavirus undermined demand.

Cheap U.S. energy supplies will help China lower its import costs, but the deep discounts will add further pressure on U.S. producers to shut in production after U.S. crude futures CLc1 slumped to their lowest since 2002.

U.S. Mars Sour crude has been sold to Chinese buyers at discounts between USD7 and USD9 a barrel to September ICE Brent futures for July arrival while the discounts for West Texas Intermediate crude (WTI) in Midland were between USD6 and USD7 a barrel, the sources told Reuters.

BP (BP.L) and Equinor (EQNR.OL) may have sold some of these cargoes, they said, while the buyers were not immediately known. BP declined to comment while Equinor could not be immediately reached for comment outside office hours.

"Only the Chinese are buying and the rest of the world are selling," a Singapore-based trader said, leading to some “very aggressive offers” for U.S. crude into that market even though the oil’s benchmark is already at the lowest in 18 years.

In early March, independent refinery Panjin Haoye Chemical Co bought Mars crude from PetroChina in one of the first signs of Chinese refiners resuming U.S. crude purchases. Mars and WTI were then offered at spot premiums to benchmarks.

U.S. crude is mired in deep discount as producers, forced to clear pipelines stuck with unsold oil, are now flooding the U.S. gulf coast with cheap crude.

Strong demand to ship out excess U.S. crude to China has also caused freight rates to surge, with costs jumping to $8-$10 per barrel, two of the sources said.

At least 9 Very Large Crude Carriers (VLCCs) have been booked by traders and refiners to load crude from the U.S. over the next two months for Asia, four of which could be bound for China, according to a shipbroker’s reports.

(Graphic: Supertanker freight rates from U.S. to Singapore link: here)

Other Asian importers of U.S. crude such as India and Thailand are reducing refinery utilization rates to cope with a sudden plunge in domestic demand as their governments impose more stringent coronavirus lockdown measures.
Chinese refiners are gradually ramping up output after sharp cuts in February although they have yet to return to levels before the outbreak as demand recovery is still slow, the sources said.

“Demand is bad globally. Only China seems relatively OK,” said a source at a Shandong-based refinery.

“We are steadily increasing operation rates.”

As MRC wrote before, in mid-February 2020. Asia's largest oil and gas firm PetroChina resumed construction of its oil refinery and petrochemical project in southern Chinese province of Guangdong, as the number of new coronavirus cases fell for a second straight day.

We also remiand that Sichuan Petrochemical (part of PetroChina) undertook an emergency shutdown at its naphtha cracker in Sichuan province of China on July 11, 2018 owing to a gas leak at its natural gas supply pipeline. Further details on duration of the outage could not be ascertained. Located at Sichuan province of China, the cracker has an ethylene capacity of 800,000 mt/year.

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