Global oil demand recovery constrained more by economy than fuel switching

MOSCOW (MRC) -- Global oil demand may struggle to fully bounce back from the COVID-19 pandemic any time soon but will likely be constrained more by the pace of economic recovery than a sudden slide in the world's dependence on fossil fuels, reported S&P Global with reference to BP's chief economist Spencer Dale.

Even when global lockdowns to contain the pandemic are lifted, some market watchers have speculated that a shift to more home-based working, a sharp drop in business travel and other permanent changes in energy use will result in a major hit to near-term oil demand.

Any fall in the world's oil intensity after the lockdowns, although still unclear, will be overshadowed by the ability of the global economy to reboot itself, Dale said in an interview with IHS Markit.

"I think the factor that's going to dominate oil demand and everything else is how much can the economy recover," he said. "In a world where there's not a vaccine and you're still having to do social distancing... my hunch is... it's not the oil intensity of GDP it's just the level of GDP and how much GDP will come back."

Most market watchers estimate that the global economy will shrink by around 5% this year, the first contraction in decades and some three or four times worse the impact of 2008-2009 financial crisis. Last week, the head of the International Monetary Fund Kristalina Georgieva said the global economy will likely take longer to recover from coronavirus than initially expected with a full economic recovery next year still unclear.

Although now recovering, global oil demand likely collapsed by up to 30 million b/d, or 30%, during peak lockdowns in April, according to most oil analysts. While the massive demand collapse was historically unprecedented, Dale noted that the world was still consuming about 70 million b/d, demonstrating a level of oil demand resilience that might not have been expected.

"It's worth remembering that even in a world which is shut down and streets were deserted and people were kept inside their houses, the world was still consuming in the order of... 70-75 million b/d of oil," he said.

Dale said it also remains unclear whether social behavior changes post-pandemic might mitigate any slide in oil intensity from less travel. More home deliveries of food and goods in addition to greater private car use to avoid public transport could push demand in the other direction, he said.

Another big question mark over the pace of economic recovery remains key emerging markets such as Brazil, India, Russia, and Africa, where the pandemic is far from under control, he said.

"The impact that COVID has on those economies is critical both because of the nature of their health systems and because the ability of governments to support with fiscal policies is far more vulnerable, so I think that's the other big unknown."

Looking further out, Dale said he sees "big forces pushing in both directions" in terms of the outlook for long-term oil demand post-pandemic.

Massive levels of public debt for fiscal support programs could distract policy makers from pushing ahead with decarbonization and climate change agendas as they focus more on domestic resilience.

The pace of future globalization and expansion of international trade is also in question, he said, with more countries potential turning inwards in terms of their policies and spending priorities.

"What COVID has done is encouraged people to place more weight on resilience and less on optimization and stretching their supply chains," he said.

"On the other side ... COVID has reminded all of us about the fragility of the planet and the way where we're living. It's reminded people about the nature of global threats and the fact that global threats don't recognize national borders," he said.

Some countries may also start to worry more about energy security, focusing on locally produced energy rather than imported sources, he said. As a result, oil and gas imports into major consuming countries such as China and India could fall sharply and they push harder into renewable energy or local coal.

In its most recent long-term energy outlook, published in February last year, BP forecast that global liquids demand could peak by 2035 at around 108 million b/d as more of the world's energy needs are met by booming renewable fuels.

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

COVID-19 - News digest as of 25.05.2020

1.Japan refiners face 'larger than expected' OPEC supply cuts for June: PAJ chief

MOSCOW (MRC) -- Japanese refiners have received "larger than expected cuts" in their June-loading term crude supply from OPEC producers, keeping them balanced amid plummeting domestic demand due to the coronavirus pandemic, the newly appointed president of the Petroleum Association of Japan said, as per S&P Global. The refiners, however, are mulling the possibility of seeking spot barrels when there is supply shortage from the domestic demand recovery in the coming months, Tsutomu Sugimori told a press conference via webcast.




MRC

Sinochem starts up petrochemical complex in Fujian

MOSCOW (MRC) -- China’s Sinochem Quanzhou Petrochemical successfully started up its newly constructed naphtha cracker in Quanzhou, Fujian province on 16 May 2020, setting the company on track to bring its downstream units online by mid of the year, reported CommoPlast.

The cracker has an annual capacity of 1 million tons of ethylene.

The downstream units include a 350,000 tons/year polypropylene (PP) plant, 450,000 tons/year high density polyethylene (HDPE) plant, and 200,000 tons/year low density polyethylene (LDPE) units, which are expected to come on stream between June and July 2020.

Also at the same site, the company expanded the refinery units by 60,000 barrels per day, lifting the refining capability to 300,000 barrels per day from the previous 240,000 barrel.

As MRC informed before, in January 2020, Sinochem Energy, a unit of China’s Sinochem Group, agreed to sell a 20% stake to five state-owned firms for 11.56 billion yuan (USD1.65 billion).

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.

Sinochem Group engages in energy, agriculture, chemicals, real estate, and finance service businesses in China and internationally. It is involved in the exploration and production, refining and trading, warehousing and logistics, and distribution and retailing of oil and gas. The company also produces and distributes fertilizers, such as nitrogen, phosphate, potash, and other fertilizers.
MRC

Lotte Chemical buys minority stake in Japanese peer Showa Denko for USD132 mil.

MOSCOW (MRC) -- South Korea’s Lotte Chemical Corp. has acquired a 4.46 percent stake in Japanese peer Showa Denko K. K. in a bid for future growth, said Chemweek.

The share purchase worth 161.7 billion won (USD132 million) was carried out in two phases between March and April, Lotte Chemical said.

A Showa Denko spokesperson declined to comment on the deal.

Showa Denko completed their planned acquisition of an 87.61 percent stake in Hitachi Chemical Co., a Japanese chemical giant, for about 845 billion yen (USD7.9 billion) through a tender offer on April 20.

The South Korean firm had bid for negotiation rights for the sale of Hitachi Chemical by its parent conglomerate Hitachi Ltd., according to a Yonhap News report.

Lotte Group Chairman Shin Dong Bin said at a board meeting on Wednesday that the group needs to collectively invest in fields in which it can achieve future growth, the report said.

As MRC informed earlier, Lotte Chemical Titan might carry out a scheduled turnaround at its No. 1 cracker in Malaysia in 2021. No further details on the exact time period is revealed at the moment. The previous news reported that the company might shut down the No. 1 cracker with a capacity of 285,000 tonnes of ethylene per year and polyethylene (PE) 1 in June 2020 for 35 days overhaul.

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.

Lotte Chemical Titan produces Malaysia's most comprehensive portfolio of olefins and polyolefins which contribute to the enhancement of everyday life. Lotte Chemical Titan's production site in Malaysia consists of eleven process facilities, two co-generation plants and three tank farms. They are located on 2 sites in Pasir Gudang and Tanjung Langsat in the state of Johor. In 2006, Lotte Chemical Titan acquired PT Lotte Chemical Titan Nusantara, Indonesia’s first and largest polyethylene plant in the country. This acquisition boosted the polyolefins capacity by approximately 50%, thus making the company one of the largest producers in South East Asia. Lotte Chemical Titan was acquired by Lotte Chemical Corp., forming part of the Lotte conglomerate of Korea, in 2010. The company thus became one of Lotte Chemical Corp.’s largest overseas subsidiaries.


MRC

Shintech postpones expansion of PVC plant at its Louisiana complex

MOSCOW (MRC) -- Completion of Shintech's USD1.49 billion expansions across the PVC chain at its Louisiana complex has been pushed back to the first quarter of 2021 from late 2020 because of a slowdown in the work to ensure safety protocols on coronavirus pandemic concerns, said S&P Global.

n July 2018, Shintech began to construct a new integrated plant to PVC from salt. The new plant will be on industrial Isite developed by Shintech, located next to Shintech's existing plant in Plaquemine, Louisiana.

Shintech obtained permits to build a plant capable of producing 1.9 billion pounds (860 thousand tons) per year of vinyl chloride monomer (VCM), the raw material of PVC, and 660 thousand tons per year of caustic soda, and has commenced construction of the first phase of the plan. The first phase will increase production capacity by 640 million pounds (290 thousand tons) of PVC per year and 270 thousand tons of caustic soda per year. The amount of this investment is expected to be $1.49 billion, which Shintech will fund by itself. Completion of the construction is targeted for the end of 2020. Annual production capacity after the completion of the first phase will be 7.14 billion pounds (3,240 thousand tons per year) of PVC and 1,570 thousand tons of caustic soda per year.

As MRC informed earlier, Shintech completed a turnaround at its 1.4 million mt/year polyvinyl chloride (PVC) complex, also in Texas in April of 2020.

As per MRC's DataScope report, last month"s SPVC imports into the Ukrainian market decreased to 2,800 tonnes from 3,700 tonnes in March, plastic products producers cut purchases amid the spread of coronavirus. Overall SPVC imports reached 14,300 tonnes in January-April 2020, compared to 15,500 tonnes a year earlier. Weaker demand for PVC in the domestic market made some producers to increase exports in April. The key suppliers of PVC to the Ukrainian market were producers from Europe, their share in total imports for the period under review amounted to about 80%. Producers from the USA with the share of about 19% were the second largest suppliers.

Shintech, the North American division of one of the largest Japanese companies - Shin-Etsu Chemical Co. Ltd. Shintech is a leading global manufacturer of polyvinyl chloride (PVC) and silicone and specialty chemicals.
MRC