COVID-19 - News digest as of 05.06.2020

1. BP slashes capital spending in 2020 due to COVID-19, expects outbreak to hurt downstream results

MOSCOW (MRC) -- BP says it will reduce its planned organic capital spending in 2020 to about USD12 billion as part of its response to the coronavirus disease 2019 (COVID-19) pandemic, down 25% compared with the company's prior full-year guidance, with an expected spending cut of about USD1 billion in its downstream business segment, which includes petrochemicals, reported Chemweek. No further details on the cut in downstream expenditure have been given by BP’s CEO, Bernard Looney, who says that despite the company's actions to reduce spending and costs, "the challenging environment is expected to have an impact on our first-quarter results and there is uncertainty around how long current depressed commodity pricing and weakness in product demand will continue." Market conditions are "currently volatile and extremely challenging," says Looney.


MRC

MOSCOW (MRC) -- The German chemicals company BASF has emerged as the biggest beneficiary of the Bank of England’s emergency coronavirus loan scheme, borrowing GBP1bn in cheap government-backed funding, reported The Guardian.

Threadneedle Street revealed for the first time the names of 53 big companies that have borrowed GBP16.2bn between them, amid rising pressure on the government to place tougher conditions on firms that receive state-backed support.

The list of businesses benefiting from the cheap funding, which is designed to help businesses weather the economic storm caused by the coronavirus pandemic, included many with a sizeable carbon footprint.

According to campaigners, about a fifth of the emergency loans were made to firms with heavy carbon emissions in aviation, oil and car manufacturing, prompting criticism for the government.

Ministers’ have previously made assurances that the government would prioritise a green economic recovery from the coronavirus crisis.

Alongside BASF the list of major overseas companies receiving support backed by the British state also included the German pharmaceuticals company Bayer, the French luxury brand Chanel and the Japanese carmakers Toyota, Nissan and Mitsubishi.

BASF employs about 850 people in Britain at eight plants across the country, producing farming pesticides and chemicals for the car industry.

As MRC wrote previously, BASF says it has successfully issued corporate bonds with a total volume of EUR2.0 billion (USD2.28 billion) on the capital market, including its first-ever placement of a green bond that will be used purely to finance sustainable products and projects.

We remind that BASF has restarted its No. 1 steam cracker following a maintenance turnaorund. Thus, the company resumed operations at the plant on September 30, 2019. The plant was shut for maintenance in mid-August, 2019. Located at Ludwigshafen in Germany, the No. 1 cracker has an ethylene production capacity of 235,000 mt/year and a propylene production capacity of 125,000 mt/year.

Ethylene and propylene are feedstocks for producing 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.

BASF is the leading chemical company. It produces a wide range of chemicals, for example solvents, amines, resins, glues, electronic-grade chemicals, industrial gases, basic petrochemicals and inorganic chemicals. The most important customers for this segment are the pharmaceutical, construction, textile and automotive industries. BASF generated sales of EUR59 billion in 2019.
MRC

MOSCOW (MRC) -- OPEC and its allies will meet June 6 via webinar to finalize the terms of extending a 9.7 million b/d production cord, indicating a standoff with Iraq over its quota compliance has been resolved, reported S&P Global.

OPEC will meet at 2 pm CET (1200 GMT), and Russia and nine other allies will join the talks at 4 pm (1400 GMT), OPEC announced June 5.

A delegate-level OPEC+ technical committee, co-chaired by Saudi Arabia and Russia, is scheduled to meet June 5 to discuss market conditions and review compliance.

The OPEC+ alliance is expected to extend the cuts through July.

Without an extension, the 9.7 million b/d in cuts - the largest coordinated supply accord in the market's history -- are set to roll back to 7.7 million b/d starting July 1 through the end of 2020. But the uncertainty of the global economy as it takes its first tentative steps towards a recovery from the COVID-19 pandemic has brought members into agreement that continuing the deeper cuts is prudent, sources in the organization told S&P Global Platts.

Saudi Arabia and Russia, the two largest OPEC+ members and its de facto leaders, had been pressuring Iraq and other frequent quota violators, such as Nigeria and Kazakhstan, to improve their performance and also implement extra cuts in the coming weeks to make up for their excess production.

The compliance talks had delayed closing the deal, with a mooted meeting June 4 pushed back, but those issues have now been resolved, said the sources, who asked not to be named because the talks were sensitive.

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

MOSCOW (MRC) -- BP says it will reduce its planned organic capital spending in 2020 to about USD12 billion as part of its response to the coronavirus disease 2019 (COVID-19) pandemic, down 25% compared with the company's prior full-year guidance, with an expected spending cut of about USD1 billion in its downstream business segment, which includes petrochemicals, reported Chemweek.

No further details on the cut in downstream expenditure have been given by BP’s CEO, Bernard Looney, who says that despite the company's actions to reduce spending and costs, "the challenging environment is expected to have an impact on our first-quarter results and there is uncertainty around how long current depressed commodity pricing and weakness in product demand will continue." Market conditions are "currently volatile and extremely challenging," says Looney.

"BP continues to monitor the impact of COVID-19 on our global operations and in the first quarter there was no significant operational impact. This could change through the second quarter," he says. BP expects its downstream business's first-quarter results to be squeezed by a "significant and growing decline in demand for fuels, jet fuel, and lubricants as countries implemented significant measures to address COVID-19. This has been particularly evident in China and, towards quarter-end, has extended into our larger US and European markets,” Looney adds. "In downstream, we expect a reduction in spend of around USD1.0 billion, which includes reduced spending across our fuels marketing, refining, and petrochemicals businesses," he notes.

Downstream refining availability for BP is expected to be in a range of 95-96%, with some reduction seen in utilization toward the end of the first quarter due in particular to falling demand for fuel, according to Looney.

Regarding the spending cuts and other measures to protect the company’s financial health, Looney says, “This may be the most brutal environment for oil and gas businesses in decades, but I am confident that we will come through it - we know what to do and we have done so before.” The company entered the current environment with good operating momentum and financial discipline, strong liquidity, and extensive optionality in its portfolio, he says. BP will continue to review these actions and any further ones that may be appropriate, in response to changes in prevailing market conditions, he adds.

BP says it has about USD32 billion of cash and undrawn facilities available at the end of the first quarter. The company’s existing divestment program to deliver USD15 billion of announced transactions by mid-2021 remains on track, although the phasing of receipt of USD10 billion of divestment proceeds by the end of 2020 "may be revised as transactions complete, particularly while volatile market conditions persist," it says. To date, USD9.6 billion of transactions have been announced since the start of 2019, with about USD3.4 billion of cash proceeds received, BP adds.

Cash cost savings of about USD2.5 billion are also expected by the end of 2021, compared with 2019, with digitization and increased integration across the company to be the key drivers of the savings, according to BP. It also continues to review potential first-quarter impairment charges and currently expects to take a noncash, nonoperating charge of about USD1 billion in the quarter.

BP says it has also implemented actions such as changed shift patterns at its various plants worldwide to make social distancing easier, restricted workplace access, and is reducing nonessential activity and manning levels at its development projects “where possible” to reduce the risk of the spread of COVID-19.

"Job security is a big worry at this time, so we have taken the decision that for the next three months no BP employees will be laid off as a result of virus-related cost cutting. We simply do not want to add another burden during what is already an incredibly stressful time for individuals and families," says Looney. The company has also donated USD2 million to the COVID-19 Solidarity Response Fund to support the work of the World Health Organization in leading and coordinating the international pandemic response, he says.

The company is using its own stocks and supply chain to donate personal protective equipment to health services in the US, UK, France, Belgium, Spain, the Netherlands, and Germany, he adds. In Brazil, BP is also diverting some of its sugarcane ethanol production via its biofuels joint venture to make a disinfectant product for supply to local health services serving a population of 1.4 million.

As MRC informed before, BP has entered into an agreement to license its latest generation technology for the production of purified terephthalic acid (PTA) to China’s Dongying Weilian Chemical Co., Ltd. Weilian Chemical is a subsidiary of Dongying United Petrochemical Co., Ltd, one of the leading manufacturers and distributors of petroleum and petrochemical products in China. Weilian Chemical intends to build a 2.5 million tonnes per annum PTA production unit at the Dongying Port Economic Development Zone in eastern Shandong province, adding to Dongying United Petrochemical’s existing refineries and paraxylene (PX) facilities portfolio.

PTA is used to produce polyethylene terephthalate (PET), which, in its turn, is used in the manufacturing of plastic bottles, films, packaging containers, in the textile and food industries.

According to MRC's ScanPlast report, April total estimated PET consumption virtually did not change year on year, totalling 60,840 tonnes (in April 2019 - 60,980 tonnes). 235,160 tonnes of PET chips were processed in Russia in January-April 2020.

BP is one of the world's leading international oil and gas companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items.
MRC

MOSCOW (MRC) -- Formosa Petrochemical plans to shut down its No.3 cracker in Taiwan for maintenance in mid-August, 2020, reported Chemweek with reference to OPIS.

The 1.2-MMt/y No. 3 cracker is due to be offline until end-September.

As MRC wrpte previously, Formosa took off-stream its No.2 cracker in Taiwan on 1 June, 2020. No reason for unplanned closure was given. The cracker is expected to be idle during one week. Located at Mailiao in Taiwan, the No.2 cracker has an ethylene production capacity of 1.03 million mt/year, propylene production capacity of 515,000 mt/year and butadiene production capacity of 162,000 mt/year.

Formosa, Asia's top naphtha importer, operates three naphtha crackers in Mailiao. These units have a total capacity of 2.93 million tpy of ethylene.

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.

Formosa Petrochemical is involved primarily in the business of refining crude oil, selling refined petroleum products and producing and selling olefins (including ethylene, propylene, butadiene and BTX) from its naphtha cracking operations. Formosa Petrochemical is also the largest olefins producer in Taiwan and its olefins products are mostly sold to companies within the Formosa Group. Among the company's chemical products are paraxylene (PX), phenyl ethylene, acetone and pure terephthalic acid (PTA). The company"s plastic products include acrylonitrile butadiene styrene (ABS) resins, polystyrene (PS), polypropylene (PP) and panlite (PC).
MRC