When oil became waste: a week of turmoil for crude, and more pain to come

MOSCOW (MRC) -- The magnitude of how damaged the energy industry is came into full view on April 20 when the benchmark price of U.S. oil futures, which had never dropped below USD10 a barrel in its nearly 40-year history, plunged to a previously unthinkable minus USD38 a barrel, as per Hydrocarbonprocessing.

In just a few months, the coronavirus pandemic has destroyed so much fuel demand as billions of people curtail travel that it has done what financial crashes, recessions and wars had failed to ever do - leave the United States with so much oil there was nowhere to put it.

While the unusual circumstance of negative oil prices may not be repeated, many in the industry say it is a harbinger for more bleak days ahead, and that years of overinvestment will not correct in a period of weeks or even months.

“What happened in the futures contract the other day indicated things are starting to get bad earlier than expected,” said Frederick Lawrence, vice president of economics and international affairs at the Independent Petroleum Association of America.

“People are getting notices from pipeline companies that say they can’t take their crude anymore. That means you’re shutting down the well yesterday."

Evidence of the erosion of value for a product that has been a mainstay of global society since the late 19th century abounded across the world last week.

In Russia, one of the world’s top producers, the industry is considering resorting to burning its oil to take it off the market, sources told Reuters.

Norwegian oil giant Equinor slashed its quarterly dividend by two-thirds. Next week will bring earnings reports from the world’s largest oil companies including Exxon Mobil Corp, BP PLC and Royal Dutch Shell PLC. They are all expected to detail additional spending cuts, and investors will be watching closely for how those companies plan to manage dividends.

U.S. billionaire Harold Hamm’s Continental Resources Inc sent servicers out into fields in Oklahoma and North Dakota in the middle of the week to abruptly shut wells, and the company declared it could not make crude deliveries to customers due to poor economics.

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.
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MOSCOW (MRC) -- China is set to release its first-ever quotas to export very low sulfur fuel oil (VLSFO) with total volumes of 10 million tons for this year, reported Reuters with reference to six industry officials with knowledge of the matter.

The quotas, which followed Beijing’s policy in January to offer tax sweeteners to boost local production of the fuel, paves the way for Chinese refiners to almost fully cover the demand from its coastal bonded marine fuel market of 12 million tons annually.

The quotas will be issued to four state-run firms - Sinopec Group, CNPC, China National Offshore Oil Company (CNOOC) and Sinochem Group - as well as private refiner Zhejiang Petrochemical Corp.

Sources requested anonymity as the matter is not public.

China’s Ministry of Commerce did not immediately respond to a request for comment.

China announced in January to waives consumption tax and value-added tax on the fuel, to make Chinese production competitive versus rival supplies from Singapore and South Korea.

Under the allotment, Sinopec is expected to receive 4.29 million tons, CNPC 2.95 million tons, CNOOC 860,000 tons and Sinochem at 900,000 tons, the sources said.

Companies did not immediately respond to requests for comment.

Two sources at ZPC said its refinery, located in China’s top bunker port Zhoushan, will be allotted one million tons, though the refiner is required to export via state-run companies as proxies.

China’s commerce ministry will include VLSFO into its export license management scheme from May 1, it said in a statement on Tuesday.

The government may top up with another 5 million tons quotas in a second allotment later in the year if required, two of the sources said.

The global shipping industry has since start of this year shifted to cleaner, 0.5% or lower sulfur marine fuel, to comply with new emission rules by the International Maritime Organization.

As MRC informed before, China Sinochem Group is expected to start up a new crude processing unit and a petrochemical complex in southeastern China around mid-2020, marking the state firm's first foray into making petrochemicals.

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) -- Mainetti, traditionally a manufacturer and recycler of garment hangers and packaging solutions, will begin manufacturing protective face shields for frontline medical and care services at its Scottish plant in Jedburgh, the company announced.

The company is re-engineering the business in order to be able to produce PPE equipment for healthcare workers on an industrial scale.

Initially, the aim is to produce 8,000 protective face shields a day, with 1000 being donated to the plant’s local hospital, Borders General Hospital in Melrose.

Production can then be scaled up based on demand. While the initial focus will be on meeting the needs of healthcare providers, the face shields will also be available to non-medical businesses who are looking for equipment to protect their colleagues.

All face shields will be CE certified and produced to EN 166 standard – the specification required by the NHS.

Mainetti fortunately has the capabilities to adapt its operations to produce PPE equipment, said Nick Cranston, spokesperson for Mainetti UK and EU.

“We all have a role to play in the fight against COVID-19 and we are working to respond to the surge in demand and deliver these protective face shields to those who need them most.”

Orders for the face shields are being taken now for delivery at the beginning of next month (May).

As per MRC DataScope, March PP production in Russia fell to 146,600 tonnes compared to 157,700 tonnes a month earlier. SIBUR Tobolsk shut its PP production in mid March for a turnaround. Russia"s overall PP production reached 472,900 tonnes in the first three months of 2020, compared to 346,000 tonnes a year earlier. Five out of eight producers increased capacity utilisation, while the main increase in operating hours was provided by a new producer - ZapSibNeftekhim.

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MOSCOW (MRC) -- Alpla aready has done similar training in Mexico and China. The Austrian model is now being rolled out for 250 apprentices around the world, including its home country of Austria and Germany, said Sustainableplastics.

The dual training program is a long tradition in Europe, the company said in a news release. "The aim is to be one step ahead in covering the rising demand for skilled workers in these regions," Alpla officials said.

India's first training program is currently under development in Hyderabad. Two Indian officials will oversee their practical training at the plant while a local polytechnic school will oversee the classroom side of things.

In Poland, the training is set for the Warsaw area of Ostrow Mazowiecka with six trainees. "The dual training model is very attractive for young people in Poland," said Julian Fassler, who is responsible for rolling out Alpla's dual training globally.

At the end of the training, the apprentices take an exam in front of Austrian representatives. A certificate of equivalence can be applied for in Austria as the vocational and practical knowledge acquired is in line with the basics of the Austrian job profile.

As MRC informed earlier, Alpla, the Austrian packaging solutions specialist, and FROMM (Switzerland) have agreed on a collaboration in relation to PET recycling. Both companies operate recycling plants for PET bottles, thus ensuring the necessary supply of materials for their own production facilities.

As per MRC's ScanPlast report, the estimated consumption of polyethylene terephthalate (PET) in Russia increased in January 2020 by 9% year on year. Totally, Russia recycled 55,390 tonnes of PET chips in January (excluding shipments of Russian material to the countries of the Customs Union). PET chips production in Russian in January 2020 totalled 43,200 tonnes.
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MOSCOW (MRC) -- Portugal’s Galp Energia said the collapse in demand caused by the coronavirus pandemic was set to further impact its performance in the second quarter as it slashed its planned investment for this year by about half, according to Hydrocarbonprocessing.

Galp, which reported a 72% slump in first-quarter net profit to 29 million euros (USD31 million) from a year earlier, said that although a recovery in the third quarter of 2020 remained uncertain, it was “prepared to adapt quickly if that is to happen sooner and stronger than expected”.

Galp shares fell 3% to 9.13 euros in early trading.

The company said recovery relied on a number of factors, including government policies, the impact of the pandemic on the wider economy and supply and demand for oil.

In a statement, Galp said it had slashed its short-term annual net capital expenditure to between 500 million and 700 million euros, from previous guidance of 1 billion to 1.2 billion euros, and said it would make a final dividend payment of 0.38 euros per share by the end of June.

During the first three months of the year, the sale of oil products to clients fell around 13% due to government-imposed lockdowns which confined people to their homes in both Portugal and Spain.

Galp said one of its priorities was to ensure a “timely response to unprecedented conditions” including by preparing lockdown exit strategies and adapting its operations.

On April 10, it suspended output at the smaller of its two refineries, in Matosinhos near Porto, and said last week it would shut down the Sines refinery in the south of the country for a month from May 4 after a drastic drop in demand left it out of storage space.

The Sines stoppage would bring all its domestic operations - making up 20% of refining capacity on the Iberian peninsula - to a halt.

Although the pandemic will leave scars, Galp said it would continue to invest in renewable energy and new businesses.

It said it would complete the previously announced deal to buy solar power projects from Spain’s ACS for 2.2 billion euros in the second quarter, and expected to announce new partnerships.

Earlier this year, Galp said it would kick off its green business by installing renewable energy capacity of 10 gigawatts in the next decade, enough to power millions of homes.

As MRC reported before, earlier this year BP set one of the oil sector's most ambitious targets for curbing emissions, although some environmental campaigners accused it of greenwash and said it had not given enough detail on how it would achieve its targets.

We 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.
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