COVID-19 - News digest as of 20.04.2020

1. ConocoPhillips cuts production, buybacks, spending again

MOSCOW (MRC) -- ConocoPhillips said it would cut gross production by 225,000 barrels of oil per day while also suspending its share repurchase program and cutting back further on capital spending to weather the collapse in oil prices, said Hydrocarbonprocessing. Oil and gas producers have sunk deep into crisis mode over the past month as the slump in demand caused by coronavirus lockdowns left the world’s big producers producing far more than current needs and crude prices falling below USD30.


MRC

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

Lanxess earnings to drop in 2020 due to coronavirus impact

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

Saudi Aramco in talks with banks to borrow about USD10 billion for SABIC acquisition

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

Coronavirus spurs new clash between Big Oil and Big Corn over U.S. biofuels

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