OMV sees hope for oil price recovery in second half

MOSCOW (MRC) -- Austrian energy group OMV sees hope for a recovery in oil prices in the second half of 2020 helped by increased fuel demand and output cuts by producers such as Saudi Arabia, reported Reuters with reference to its chief executive's statement.

The spread of the coronavirus has knocked global demand and weighed on crude prices and oil companies’ profits.

But the willingness of producers such as Saudi Arabia and Norway to drastically cut output shows oil prices have a chance to return to a reasonable level, OMV CEO Rainer Seele said.

"We therefore expect the oil price to gradually recover in the second half and to average USD40 for the year," Seele said in an interview with Reuters.

Gasoline and diesel consumption in Austria halved in April, but was back at 60% after all shops were allowed to reopen in early May and has hit 65% in the past few days, he said.

Austria was one of the first countries in Europe to close shops and restaurants and urge people to stay at home, but has also been early to ease lockdown measures.

OMV is curbing its oil production in the United Arab Emirates and in Norway to meet agreed quotas but it does not expect any production shutdowns, Seele said.

"I also do not see any major production interruptions in our refinery business."

OMV benefited from the fact that it has transferred its European refineries from predominantly fuel refineries to jet fuel and petchem units, allowing it to shift production from low-demand kerosene to sought-after plastics.

In particular, demand for polymers used to produce protective gear and sterile packaging has risen significantly.

"As a result, OMV has an above-average capacity utilisation of more than 80% in Europe," Seele said.

Rivals including BP and Total are currently operating refineries at 60-70%.

Confronted with investor criticism of doing less than rivals to limit global warming, Seele said he will announce concrete climate targets this summer.

To cover its energy consumption, OMV would rely to a large extent on renewable sources in the future.

"But we won’t build up (renewable energy) as a business unit, instead we will move towards high value chemical products and recycling."

Seele said he plans to decide on the sale of OMV’s nearly 300 German filling stations by year-end after more than 20 parties expressed interest.

A decision on its pre-coronavirus crisis proposed 2019 dividend of 2.00 euros per share will be made in the second half of the year.

"Once we have seen the second quarter and have an idea regarding the third quarter, then the management board will meet again and discuss."

As MRC informed earlier, Austria’s OMV AG is in talks to buy a USD4.68 billion stake in Borealis AG, a potentially record-breaking acquisition that would shift the state-controlled energy company’s focus to petrochemicals. Taking over the maker of polyolefins, base chemicals, and fertilizer would accelerate Chief Executive Office Rainer Seele’s move toward higher-value, lower-emission oil products. That rebalancing could be further amplified if OMV helps fund the purchase by selling some upstream oil assets or gas pipelines. OMV may buy a 39% stake in the affiliate from Abu Dhabi’s Mubadala Investment Co., it said in a statement in early March 2020. That would increase its holding in Borealis to 75%, while Mubadala would maintain a 25% stake. The emirate’s wealth fund also owns a quarter of OMV and is discussing joint investments in Abu Dhabi and Asia.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

Gazprom Neft Omsk Refinery upgrades infrastructure to supply oil products to areas in the Russian Far North

MOSCOW (MRC) -- Gazprom Neft’s Omsk Refinery has completed a major upgrading of its berthing facilities in time for the opening of the river-navigation season, said the company.

About 300,000 tonnes of diesel, gasoline and aviation fuels produced by the Omsk Refinery will be sent to ports in the Ob—Irtysh river basin this summer and autumn. The larger part of river shipments to customers in the Yamalo-Nenets and Khanty-Mansiysk Automous Okrugs comprise winter and Arctic diesel fuels essential to ensuring the continuous operation of specialist equipment.

In addition to which, every year the Omsk Refinery facilitates shipments of aviation fuels needed by airports — Anadyr, Pevek and Kereveem — in the Chukotka Autonomous Okrug, with shipments being made along the Irtysh and Ob rivers and, subsequently, along the Northern Sea Route.

Thanks to work on modernising technological pipelines and mooring equipment, efficiency in ensuring uninterrupted shipments to oil tankers via the Omsk Refinery’s berthing facilities will increase. The company has successfully implemented a system for measuring oil volumes shipped to oil-carrier vessels, ensuring the full accuracy of fuel shipments.

“The Gazprom Neft Omsk Refinery is constantly developing technologies for ensuring the high-precision, environmentally friendly shipment of oil products. In improving river shipments during the navigation season the business is effectively acting as a guarantor in ensuring the stability of fuel supplies to customers in the remote northern areas of the West Siberian Federal Okrug.”

As MRC informed earlier, in 2019, SIBUR and Gazprom Neft have consolidated 100% of the authorised capital in Poliom, a polypropylene plant in Omsk. Sibgazpolimer, a joint venture of the two companies, has signed an agreement to acquire a 50% stake in Poliom from the Titan Group.

Ethylene and propylene are feedstocks for producing PE and 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.

Gazprom Neft in Russia owns the Omsk Refinery and the Moscow Refinery, with refining capacities of 20.89 and 12.2 million tons of oil per year, respectively. In Serbia, the company owns the NIS processing complex, which consists of two plants (in Panchaevo and Novi Sad). The maximum capacity of the two enterprises exceeds 7 million tons of oil per year. Gazprom Neft also owns shares in YANOS (15 million tons) and the Mozyr Oil Refinery (Belarus, 14 million tons).

MRC

PBF sees slow refining rebound as U.S. gasoline demand creeps higher

MOSCOW (MRC) -- PBF Energy, the fourth-largest U.S. oil refiner by capacity, is holding processing near 70% of throughput even as more states relax stay-at-home orders, boosting demand for motor fuel, executives said, as per Hydrocarbonprocessing.

The gasoline crack spread RBc1-CLc1, which drifted negative in March as the coronavirus pandemic sharply cut air and road travel, has recovered to USD11.42 per barrel this week. However, fuel demand is off 23% in the United States over the last four weeks.

“We are just not going to do what everybody expects refiners to do, see an improvement in gasoline cracks and say, ‘The Holy Grail, there it is, let’s ramp up, let’s run,’” Chief Executive Thomas Nimbley said on an earnings call on Friday. “This thing is not over." PBF’s shares were up nearly 4% at USD9.62 on Friday. They are off nearly 70% year to date.

At the start of the year, PBF planned to run about 950,000 barrels of oil per day (bpd). But it now expects to run in the 650,000 to 750,000 bpd range, executives said on the call. Demand for gasoline has inched up and gasoline production has climbed for a third straight week to 7.5 million bpd, according to the latest data from the Energy Information Administration.“We’re not planning to get back to where things were prior to the pandemic, but I do believe at this point, we are starting to see green shoots related to a recovery,” Nimbley told investors.

PBF Energy joined rivals such as Marathon Petroleum in shifting production to gasoline after initially maximizing diesel output during the early surge of coronavirus cases. With COVID-19 cases rising in South America, exports are being reduced, Nimbley said.

PBF reported a quarterly loss in the first quarter on a USD1.28 billion inventory writedown amid the sharp decline in fuel demand. The company posted an adjusted loss of USD1.19 per share, wider than analysts’ average estimate of a USD1.04 per share loss, according to IBES data from Refinitiv.

The loss reflected refinery operating expenses that were higher than analysts expected and weaker margins from a turnaround at its Toledo, Ohio, plant, financial services firm Tudor Pickering, Holt & Co wrote in a note on Friday. PBF said it cut its 2020 planned capital expenditures further by a total of more than USD350 million, from its previous estimates of USD240 million.

As MRC wrote before, US refiner PBF Energy has completed its acquisition of Shell’s 157,000 bbl/day Martinez refinery near San Francisco, California. The USD1bn deal, agreed in June 2019, was completed effective 1 February 2020.

Besides, in late March 2020, PBF Energy Inc said it was operating its refineries at minimum rates, with throughput about 30% lower than the refiner’s expectations, as coronavirus-driven travel curbs hit fuel demand.

We also remind that 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.
MRC

Wave of diesel heads to Europe, pressuring refiners

MOSCOW (MRC) -- A record volume of diesel is set to reach Europe from the East in May after lockdown measures due to coronavirus left refiners in Asia and the Middle East with huge excess volumes of fuel, reported Reuters.

Refineries around the world have cut output in recent months in response to the unprecedented drop in demand due to movement restrictions imposed by governments to limit the spread of the coronavirus epidemic.

But that may prove insufficient after countries including India extended lockdown measures and others, including many European countries, recover activity at a slow pace, traders and analysts said.

The weak demand led to a rise in global diesel stocks and has put heavy pressure on profit margins for converting crude oil into diesel which last week hit an 11-year low below USD5 a barrel, according to Reuters calculations.

"Cutting refinery runs further means shutting units. It is much harder for refiners to make that decision but it will have to happen," a source at a European refiner said.

Over 3 million tonnes of diesel are set to arrive in Europe in May, up from a previous record of 2.8 million tonnes in June last year, according to Refinitiv data.

The sharp rise in fuel exports from Asia comes after China’s refineries cranked up operations in April following the easing of lockdown measures were eased.

Oil demand in the world’s top energy consumer is however recovering slowly, leading to higher exports from China.

The collapse in fuel demand initially hit jet fuel and gasoline the hardest, while diesel refining margins, or cracks, held well due to ongoing industrial activity.

With diesel accounting for around 50% of global refinery output, plants must now prepare to shut down crude distillation units, Vienna-based consultancy JBC Energy said in a note.

"Diesel cracks only last week started to plumb new record lows - this difference in timing in our view doesn’t signify a sudden drop off in diesel demand, but is rather the primary signal to reduce crude distillation."

As MRC informed previously, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

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 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

China refineries loom over Asia with record oil product exports

MOSCOW (MRC) -- The rebound in China’s crude oil processing in April looms large over Asia’s refineries, which are already battling weak profit margins from the slump in fuel demand caused by lockdowns aimed at containing the coronavirus pandemic, reported Reuters.

China’s refineries processed the equivalent of 13.1 million barrels per day (bpd) in April, up from a 15-month low of 11.78 million bpd in March, according to calculations based on official data released on May 15.

While the higher processing rate reflects a recovery in fuel demand in China after it lifted most lockdown restrictions, it also raises the likelihood that more refined products will be exported into a well-supplied Asian market.

There are already signs that China’s modern, low-cost refineries are playing a bigger role in Asia’s refined product markets, with official data showing fuel exports at a record-high 8 million tonnes in April, up 10.2% from March and 29.7% from the same month in 2019.

While a full breakdown by fuel type isn’t yet available, using a conversion factor of eight barrels of product per tonne gives a fuel-export figure of 2.13 million bpd.

For the first four months of the year, China exported 1.72 million bpd of refined products, up 15.1% from the same period in 2019.

The increase in fuel exports from China isn’t the sole reason for the regional weakness in refinery profit margins, but it certainly is a contributing factor, and appears to be largely structural rather than a temporary phenomenon.

China issued a second batch of fuel export quotas for this year to domestic refiners, allowing for 28 million tonnes of shipments, mainly for gasoline, diesel and jet kerosene, Reuters reported on May 11, citing four sources.

This follows the first 2020 allowance of 27.99 million tonnes and means Chinese refiners can keep product exports at the current high levels, should they so choose.

There are various methods of calculating refinery margins, with one of the benchmarks being the profit per barrel at a typical Singapore refinery using Dubai crude

This was showing a loss of USD3.29 a barrel in early trade on Monday, wider than the five-day average of a loss of $1.84 and well below the moving 365-day average of a profit of USD2.57.

The main culprit is gasoline, for which demand has been severely affected as a result of personal transport being curtailed by the lockdowns in various Asian countries.

The cost of producing 92-RON gasoline in Singapore from Brent crude was a loss of 85 U.S. cents per barrel on May 15.

While this was up from a record low of a loss of USD13.15 a barrel on April 14, it’s still well short of the high so far this year of a profit of USD9.35 on Feb. 11, just as the coronavirus was breaking out of China to spread around the globe.

The margin for gasoil, the building block of diesel and jet kerosene, has held up better, ending at a profit of USD3.45 a barrel on May 15, but this was just over a quarter of the USD12.79 high so far this year, reached on March 30.

Diesel demand has held up relatively well during the coronavirus crisis as freight, heavy vehicle transport, agriculture and mining have all largely continued.

Another factor that has perhaps prevented refining margins from falling more than they already have was the idling of capacity during recent weeks, with Refinitiv Oil Research data showing a sharp drop in utilisation.

Putting together the four biggest refining nations in Asia - China, India, Japan and South Korea - shows runs were just 84% of capacity in April, down from the annual averages of 94%-97% over the previous five years.

Refinery throughput is likely to increase in coming months, though, as more plants come back on stream as lockdowns are lifted. The question is whether the nascent recovery in fuel demand will be more, or less, than the additional volume of products being produced.

As MRC informed earlier, CNOOC Oil & Petrochemicals Co. Ltd (CNOOC), Shell Nanhai B.V (Shell) and the Huizhou Government have announced a strategic cooperation agreement to further expand the CNOOC and Shell Petrochemical Company (CSPC) 50:50 joint venture in Huizhou, Guangdong Province, China. Due to COVID-19 travel restrictions, the agreement was signed in a virtual online ceremony, attended by dignitaries including Party Secretary of Guangdong Province Li Xi, CNOOC Chairman Wang Dongjin, Shell CEO Ben van Beurden, CNOOC VP for Downstream Chen Bi and Shell Downstream Director Huibert Vigeveno.

The expansion is planned to serve the growing number of intermediate and performance chemicals customers in the key market of China, supplying products including SMPO, polyols, ethylene glycol, polyethylene (PE) and polypropylene (PP). These chemicals are used in a wide range of end products, in healthcare, construction, fabrics, packaging, transport and electronics. For the first time in Asia, Shell would apply its advanced technology for linear alpha olefins. The project is intended to include construction of a new 1.5 million-tonnes-per-year ethylene cracker, with the mega-site bringing economies of scale and enhanced competitiveness.

Ethylene and propylene are feedstocks for producing PE and PP.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC