BP to slash operating costs by USD2.5 billion, cut almost 10,000 jobs

MOSCOW (MRC) -- BP says it will reduce its operating costs by USD2.5 billion in 2021 and cut close to 10,000 jobs, mostly before the end of this year, due to the collapse in oil demand because of COVID-19 and as part of its strategy to become a lower-carbon company, said Chemweek.

The UK major in early April announced a cut of around 25%, approximately USD2.5 billion, in its planned capital expenditure (capex) to USD12.0 billion for 2020. BP’s CEO Bernard Looney now says those capex cuts will total around USD3.0 billion. It will also now reduce its operating costs, currently USD22 billion, by USD2.5 billion. The company has not specified any specific business divisions that will be affected.

“It was always part of the plan to make BP a leaner, faster-moving and lower-carbon company. That is how we will deliver on our net zero ambition. And that is how we will seize opportunities throughout the energy transition. Then the COVID-19 pandemic took hold,” he says. Flagging the widespread economic fallout of the pandemic, Looney says the oil price has plunged “well below the level we need to turn a profit. We are spending much, much more than we make – I am talking millions of dollars, every day.” The company’s net debt rose by USD6 billion in the first quarter of this year as a result, he says, adding, “We have to spend less money.”

The previously flagged 25% cut in capex for this year is a reduction of “around USD3 billion,” but it “currently costs around USD22 billion a year to run the company—of which around USD8 billion is people costs,” says Looney. The company will reduce those operating costs by USD2.5 billion in 2021, he says, “and we will likely have to go even further."

BP introduced a three-month freeze on redundancies in March, a moratorium that ended today, 8 June. “We will now begin a process that will see close to 10,000 people leaving BP—most by the end of this year,” adds Looney, who took on the role as CEO in February. The majority of those affected, around 15% of its worldwide workforce, will be in office-based jobs and not in its retail business, according to the company. BP employs around 15,000 people in the UK and over 70,000 worldwide.

The statement by Looney also says the company will give no pay rises to senior employees and group leaders until March 2021 and that employees should not factor any cash bonuses into their financial plans this year. Pay raises will be reintroduced for less-senior employees as of 1 October. BP announced a round of senior management appointments last month that halved the size of its leadership team as part of Looney’s plans to reshape the company’s structure, with the company looking to reduce the number of group leaders “by around one third.”

“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP. While the external environment is driving us to move faster—and perhaps go deeper at this stage than we originally intended—the direction of travel remains the same,” Looney says. The moves will “help strengthen our finances” and help create a more competitive company, he adds.

In April BP reported a 61% fall in its first-quarter petrochemical earnings to USD65 million from USD169 million a year earlier on an underlying replacement-cost (RC) basis before interest and tax, while group underlying RC profit before interest and tax plunged 50% YOY to USD2.39 billion. The price of Brent crude declined 74% during the first quarter. The energy industry had been “hit by supply and demand shocks on a scale never seen before,” Looney said at the time, adding that it would take decisive actions to strengthen its finances.

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) -- Massachusetts and New York have initially restarted their container deposit programs, following an earlier move by Connecticut, after suspending operations in mid-March on coronavirus-related safety concerns, with Michigan soon to follow, said S&P Global.

In Massachusetts, reverse vending machines reopened on June 5 and enforcements of redemption requirements will resume at retailers on June 19, the state Department of Environmental Protection has said.

New York, where container redemption was considered an essential service throughout the pandemic, had relaxed retailer enforcements at facilities facing staffing issues. This meant retailers were not in violation of state law for turning away residential recyclables at drop-off locations. However, the state Department of Environmental Conservation announced that all redemption sites at supermarkets and big-box stores must have reopened by June 3.

Michigan will also begin the first phase of its reopening process on June 15, by allowing retailers to accept bottle and can returns exclusively by RVMs to limit person-to-person contact.

Ten states in the US currently have "bottle bills," or mandatory container buyback programs. Since the beginning of the pandemic, nine of these 10 states -- California, Connecticut, Iowa, Maine, Massachusetts, Michigan, Oregon, New York. and Vermont -- had temporarily halted or severely limited buyback operations.

By the end of June, residents in these three states will once again be able to drop off their collected recyclables for deposit value -- usually 5 cents or 10 cents -- but now under certain new criteria. These include limitations on the amount of items allowed at one time, requirements that all cans and bottles must be emptied and rinsed before returning, and strict enforcements of social-distancing policies.

For example, the Michigan Treasury Department stressed that during the initial phase "retailers must limit the volume of weekly returned beverage containers to no more than 140% of their average weekly collection volume" for April and May 2019.

As per MRC's ScanPlast, Russia's PET imports decreased by 35% in April to 11,200 tonnes against 17,400 tonnes in March; last April material imports amounted to 22,900 tonnes. Imports of Chinese injection moulding PET chips in Russia increased by 16% in January-April, compared with the same period a year ago and reached 40,400 tonnes. The same indicator in January-April 2019 amounted to 48,200 tonnes.
MRC

MOSCOW (MRC) -- OPEC, Russia and allies agreed on Saturday to extend record oil production cuts by one month until the end of July, five OPEC+ sources told Reuters.

The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.

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) -- Indian Oil Corp, the country’s top refiner, is seeking to buy up to 24 million barrels of U.S. oil for delivery between October 2020 and March 2021, tender documents showed, as part of its efforts to diversify supply, said Hydrocarbonprocessing.

The move will help IOC to hedge against unpredictable pricing moves by Middle East producers, a source familiar with the matter said, speaking on condition of anonymity.

IOC is requesting 2 million barrels of U.S. crude per month with the option of an additional 2 million barrels per month for discharge at the Paradip port on the east coast, the documents showed.

Asian refiners had anticipated state oil giant Saudi Aramco would raise July crude prices, despite weak refining margins, to track a jump in Middle East benchmarks, but the increase to Asian buyers was more than expected.

The producer on Sunday hiked the selling prices for its crude grades to all destinations for July, a day after OPEC, led by Riyadh, and its allies agreed to extend record output cuts to the end of July.

For Asian buyers, Aramco raised the July official selling price (OSP) for its Arab light crude to Asia to plus USD0.20 a barrel, up USD6.10 from June.

Other Middle East producers will likely follow Aramco in increasing OSPs, trade and refinery sources told Reuters on Monday.

Higher OSPs would push companies to diversify oil supply from the Middle East to other regions, the source said, adding IOC wants to increase its annual intake of U.S. oil in this fiscal year.

The tenders will close on June 12 with validity on the same date.

As MRC informed before, Haldia Petrochemicals’ plant and Indian Oil’s refinery in East Midnapore district have been put on high alert in the wake of cyclone Amphan.

Several measures have been taken by the Haldia Petrochemicals Ltd (HPL) management in view of the cyclone, said its plant head Ashok Ghosh.

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) -- Russia's Gazprom said June 8 it was prepared to begin talks with Belarus over gas supply to its western neighbor Belarus in 2021 provided that Minsk fulfils the terms of the current year's agreement, said S&P Global.

Moscow and Minsk have had regular disagreements over the terms of Russian gas supply to Belarus over the past two decades, with disputes leading to interruptions to deliveries in 2004 and 2010.

Gazprom and Belarus signed an agreement on gas supply and transit for 2020 at the end of December, but only agreed on the pricing element of the contract in mid-February.

Now, Belarus has requested that discussions resume over the terms of 2020 pricing, citing disagreements over the calorific value of Russian gas.

However, Gazprom -- which claims Belarus also owes it some USD166 million in unpaid gas bills -- seems to be standing firm. "The price terms of gas supply to the end of this year were agreed on February 14, 2020," it said.

"Subject to full compliance by Belarus with the agreements reached in 2020, Gazprom confirms its readiness to start negotiations on the terms of gas supply from January 1, 2021," it said.

Belarus has denied it owes any money to Gazprom and has asked for new information regarding the cost of Russian gas.

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.
MRC