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Bankruptcy looms over U.S. energy industry, from oil fields to pipelines

April 28/2020

MOSCOW (MRC) -- U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads while engulfed in the worst crisis the oil industry has faced, said Reuters.

Fuel demand has tumbled roughly 30% worldwide as the coronavirus pandemic destroys demand for transport, provoking a massive glut of oil that has hammered global prices and left energy companies with no choice but to pump hundreds of millions of barrels into storage.

Just as demand plummeted, Saudi Arabia and Russia started an oil price war, and Riyadh flooded the market with even more crude. That left the oil industry facing the prospect of a long period with prices below their production costs. Shale producers came into the crisis with already high debt levels, namely from big investments to increase production across the United States in a bet on higher prices.

But in turning the United States into the worlds largest oil producer, the companies became the victims of their own success when the quick rise in supply meant returns were thin. Investors lost patience, tightened credit and pushed shale producers to stop expanding and pay them back.

Enter coronavirus. Oil prices have crashed 75% this year, and on Monday, closed at about minus-$38 per barrel. Most U.S. producers have announced one, if not two, rounds of spending and output cuts. But the crash sent prices to levels well below what companies and advisors had modeled in worst-case scenarios, according to energy lawyers.

About half of the top 60 independent U.S. oil producers are in danger of restructuring and will need to find ways to boost their cash pile, according to energy lawyers at Haynes and Boone. The reverberations from this price collapse will be felt throughout the industry and by everyone who provides services to the industry, said Buddy Clark, an Houston-based partner at the firm.

Companies that used debt to fund acquisitions before prices crashed, such as oil giant Occidental Petroleum Corp, are focusing on placating shareholders and preserving cash.

Numerous midstream companies backed by private equity are in danger of bankruptcy, according to some of the more than a dozen industry and financial sources Reuters spoke to for this article, while large banks are preparing to become owners of oil and gas fields as they seize energy assets.

As mRC informed earlier, Plastics companies operating in the Klaipeda Free Economic Zone (FEZ) have been fortunate. The impact of the COVID-19 outbreak has so far been limited. In fact, they report increasing demand, the opening up of new product and sales segments, and a renewed sense of worth in the eyes of society. The flip side, to date, has been the impact on turnover of falling raw materials and oil prices. Klaipeda. FEZ is the largest plastics hub in the Baltics. It is home to 5 companies active in the plastics industry, who together generated a total turnover of 890m in 2018, or nearly half of Lithuania's total for this industry.

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.
Author:Anna Larionova
Tags:North America, petroleum products, petrochemistry.
Category:General News
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