COVID-19 economic shock, capacity overhang to pressure petchem margins, stall investment

MOSCOW (MRC) -- The worldwide economic shock due to the coronavirus disease 2019 (COVID-19) pandemic and a major petrochemical production capacity overhang could mean weak industry margins and low plant utilization rates for several years, according to the International Energy Agency (IEA; Paris), said Chemweek.

The wide-ranging annual benchmark analysis by the IEA in its world energy investment report also includes a forecast for the largest annual decline in energy investment on record in 2020, with the total to plunge by $400 billion compared to capital spending in 2019.

The economic crisis and expectation of a worldwide recession is widening the near-term gap between capacity additions and demand growth for midstream and downstream infrastructure, raising questions about the “safe havens” of investment in petrochemicals and liquefied natural gas (LNG), the IEA says. A surge in investment in recent years in the petrochemical, refining, and LNG sectors has left each “now facing a major overhang of capacity, putting intense pressure on margins and pushing back many investment plans and timelines,” it says. Natural declines in upstream fields offer a hedge against overinvestment, but there is “no such protection further down the value chain against demand coming in below expectations,” it adds.

Investment in new petrochemical capacity driven by higher margins, rising US shale production, and optimism about future demand had already started to run ahead of near-term growth in consumption, according to the IEA. Since 2014, some $120 billion has been invested in building new petchem capacity or expanding existing plants, with over 70% of this invested in China and the US, it says. The effects on demand of the COVID-19 crisis, however, “means that this problem of overcapacity now looms very large."

Despite clear opportunities remaining, given that longer-term demand expectations for plastics and gas are relatively robust, the IEA says there are also risks, “given that these sectors involve large, capital-intensive investments that require high levels of utilization over time. Unlike the production declines in the upstream, there is no natural protection against the risk of demand coming in below expectations."

Prices for chemical products in 2019 were already falling and 2020 has put further pressure on the economics of production facilities, triggering “a reassessment of the timelines for some of the planned projects that have not yet started construction,” it notes. In both petchems and LNG, uncertainty around the trajectory of demand and prices and the shape of an eventual recovery from the economic slowdown “are going to weigh heavily on investment decisions,” it adds.

Highlighting worldwide ethylene capacity additions that were already outpacing growth in demand in 2018-19, with more new capacity scheduled to start this year, the petchems investment boom “implies lower margins and utilization in the coming years despite relatively robust long-term demand prospects,” the IEA says. The annual increase in worldwide ethylene production capacity in 2019 was 60% higher than the level of demand growth, leading to a “significant drop in ethylene prices across the board” and a sharp decline in earnings of between 60-80% for many commodity chemical companies compared with 2018, it says.

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.
MRC

Coronavirus: Calls to delay single-use plastic ban until 2022

MOSCOW (MRC) -- Coronavirus safety worries have led to calls for the Welsh Government to delay its ban on single-use plastics, said BBC.

Straws and cutlery are among items set to be outlawed or subject to restrictions from 2021. The Foodservice Packaging Association (FPA) has twice written to First Minister Mark Drakeford, asking to delay the ban and "learn the lessons" of the pandemic.

The Welsh Government says it remains committed to the ban. As lockdown is gradually lifted, the FPA claimed the demand for hygienic single-use products should override concerns like environmental impact.

The organisation is calling on the Welsh Government to push the ban on to 2022. It wants more consultation so expert food safety and hygiene evidence can be presented.

Executive director Martin Kersh said people had to learn from the pandemic. "The world has moved away from plastic plates, cutlery and straws in line with EU legislation," he said.

"During the pandemic the demand from the NHS, care homes and other institutions has been incredible. "I'm not a scientist so I can't say how the virus travels, but psychologically, those who make those purchase decisions believe this is the best solution, so that when you are feeding patients and residents you are not inadvertently spreading the virus."

He said society compromised on hygiene "at our peril." The Welsh Government said it remained "committed" to banning or restricting the sale of "a range" of single use plastics. A spokesman said: "We intend to issue a consultation on these proposals later this year. "The outcome of this consultation will inform future regulations to impose the bans".

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

US crude stocks drop, diesel inventories surge

MOSCOW (MRC) -- US crude oil stockpiles unexpectedly fell last week, but diesel inventories surged as fuel demand remains impaired due to the coronavirus pandemic, reported Reuters with reference to the Energy Information Administration's statement.

Most US states have eased restrictions on movements to halt the spread of COVID-19, but activity is picking up slowly. Crude stockpiles have dropped, but consumption is not keeping up with refining production, boosting inventories.

Crude inventories dropped 2.1 million barrels for the week to May 29 to 532.3 million barrels, compared with analysts’ expectations in a Reuters poll for a 3 million-barrel rise.

Distillate stockpiles, which include diesel and heating oil, rose by 9.9 million barrels to 174.3 million barrels, versus expectations for a 2.7 million-barrel build. Overall demand for diesel and similar fuels is down 13% from the year-ago period over the last four weeks.

"That headline number is really substantial for diesel and has to be a concern," said Tony Headrick, energy markets analyst at CHS Hedging. "That increase in products particularly diesel fuel, is so far weighing on the market."

U.S. crude futures were little changed after the data release, rising 1 cent to USD36.82 a barrel as of 10:57 a.m. EDT (1457 GMT). Heating oil futures, which reflects distillate markets, were down 2.6% on the news.

US gasoline stocks rose by 2.8 million barrels, exceeding a forecasted 1 million-barrel build. Gasoline product supplied, a proxy for demand, picked up last week, but the four-week average still shows a 23% drop from the year-ago period.

Imports edged off the previous week’s surge built on arrivals of large tankers of crude from Saudi Arabia, but overall imports were still higher than most recent weeks. Net US crude imports fell last week by 639,000 barrels per day to 6.2 million bpd.

Refinery utilization rates increased 0.5 percentage points, the EIA said.

As MRC informed previously, global oil consumption cut by up to a third in Q1 2020. 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 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
MRC

Arkema partners with Nutrien in hydrogen fluoride supply deal

MOSCOW (MRC) -- Arkema has announced a long-term partnership with Nutrien, the world’s largest integrated fertilizer company, for the supply of anhydrous hydrogen fluoride (AHF) to Arkema’s Calvert City, Kentucky site, as per Chemweek.

The project will secure Arkema’s access to AHF, the main raw material used in fluorine chemistry. It supports the company’s growth of fluoropolymers in the water treatment, electronics and batteries segments and offers greater environmental protection than more traditional production processes, the company says.

As part of the agreement, Arkema will invest USD150 million in a 40,000 metric tons/year AHF production plant at Nutrien’s Aurora, North Carolina site, scheduled to start up in the first half of 2022. About half the capacity will be used in the production of high value added polymers and fluoro derivatives, and the remainder for the production of low-global warming potential fluorogases. AHF is the key raw material in the fluorine chemistry, including production of fluoropolymers and specialty derivatives.

The Aurora facility will produce AHF from naturally occurring fluoride that Nutrien will recover in the process of phosphate production and convert it to AHF, replacing the more usual source of mined fluorspar ore. Arkema says that this innovative investment is the first of its kind in the United States and is in line with its new climate plan as it reduces overall energy consumption and greenhouse gas emissions. The partnership will secure the supply of AHF at a stable and competitive price, and support the continuing development of new applications, notably for batteries, 5G electronics, and water treatment.

In its 2 April 2020 strategy update, Arkema said that it will explore possible alternatives to minimize its exposure to the most emissive applications of its fluorogases. The business comprises two separate operations, specialty segment with sales of about EUR200 million (USD224.4 million) last year and which is an essential contributor to Arkema’s fluoropolymers and fluoro derivatives for electronics and batteries. The remaining fluorogases business with emissive applications, such air conditioning and refrigeration and which last year had sales of €500 million, will be either divested or placed into partnerships, Arkema said.

As MRC reported before, Arkema said earlier this week that it has finalized the divestment of its functional polyolefins business to SK Global Chemical. The divestment was announced last year. Arkema says the sale forms part of its strategy to refocus the group’s activities on specialty materials.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

Arkema is a global manufacturer in specialty chemicals and advanced materials, with 3 business segments - High Performance Materials, Industrial Specialties, and Coating Solutions - and globally recognized brands. The Group reports annual sales of EUR8.8 billion. Buoyed by the collective energy of its 20,000 employees, Arkema operates in close to 55 countries.
MRC

Exxon Baytown, Texas, refinery workers ratify contract

MOSCOW (MRC) -- Workers represented by the United Steelworkers union (USW) at Exxon Mobil Corp’s Baytown, Texas, refinery ratified a new three-year contract night, a company spokesman said, as per Reuter.

The contract provides a 2% pay increase in the first year and 2.5% pay increase for the second year, said sources familiar with the agreement. The pay increase in the third year will match the increase agreed to in a new national pattern agreement to be worked out between the USW and oil companies in January 2022, according to the sources.

"We are pleased with this successful outcome and settlement of the contract for the Baytown Refinery,” said Exxon spokesman Jeremy Eikenberry. “We believe this agreement is mutually beneficial for both the union workers and the company."

The Baytown refinery is Exxon’s largest refinery in the United States.

As MRC informed before, in September 2019, ExxonMobil announced plans to spend GBP140 million over the next two years in an additional investment program at its Fife ethylene plant, which has a capacity of more than 800,000 t/y.

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.

ExxonMobil is the largest non-government owned company in the energy industry and produces about 3% of the world's oil and about 2% of the world's energy.
MRC