Japanese Eneos to hasten refinery consolidation as virus slams demand at home

MOSCOW (MRC) -- Japan’s biggest oil refiner Eneos Holdings Inc will hasten its transformation into a supplier of low-carbon energy and materials as domestic oil demand drops more than expected due to the COVID-19 pandemic, reported Reuters with reference to new President Katsuyuki Ota's statement.

A quicker timeline comes amid a wider consolidation in Japan’s refining sector, which has been cutting capacity as it struggles to get business from a shrinking, ageing population that consumes less fuel because of more efficient vehicles.

Eneos, formerly JXTG, unveiled last year its long-term plan to transform with an assumption that domestic oil demand would halve by 2040, or fall 2% annually. It said in May 2020 it would spend 1.5 trillion yen (USD14 billion) in three years to March 2023 to drive the change.

But “Japan’s oil demand may not return to the levels we had anticipated before the pandemic”, said Ota, who became president in June. “We need to tackle various reforms faster” to develop growth businesses such as renewable energy and streamline the refinery structure, he added.

“It would not only mean shutting refineries down, but also turning them into chemical refineries or energy platforms for electric power, hydrogen and others.”

To this end, Eneos’ refineries in a petrochemical complex in Kashima, east of Tokyo, and Mizushima, western Japan, among others have potential, Ota said.

Eneos operates 11 refineries with 1.93 million barrels per day (bpd) capacity. Their run rate in April-June plunged to 68%, lowest since 2010, as the pandemic slammed demand.

It has already decided to stop refining at its 115,000 bpd Osaka refinery, and teamed up with Mitsubishi Chemical to strengthen petrochemical refining at their plants in Kashima.

The end of refining at Eneos’ Osaka plant will cut Japan’s overall capacity to just over 3.4 million bpd, from 5.94 million bpd in the 1980s.

To cope with sliding demand, four of Japan’s biggest oil companies have merged into two, Eneos and Idemitsu Kosan, in recent years.

Ota said further alliances would likely be with players in other industries such as electricity, gas and chemicals.

Eneos is still in talks with Vietnam National Petroleum Group (Petrolimex) to collaborate on refinery projects, and it eyes renewable energy projects in Australia to make CO2-free hydrogen, he said.

As MRC reported previously, Eneos Corporation restarted its fluid catalytic cracker (FCC) unit in Japan on 14 August, 2020. The company halted operations at this unit on July 28, 2020. Located at Sendai, Japan, the FCC unit has a propylene capacity of 100,000 mt/year.

Propylene is the main feedstock for the production of polypropylene (PP).

According to MRC's DataScope report, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Japan's largest refiner JXTG Nippon Oil & Energy was renamed ENEOS Corporation on 25 June, 2020, as part of a wider re-organization of the parent company JXTG Holdings. The move, which also involved renaming the parent company to ENEOS Holdings upon approval at its annual shareholders meeting in June 2020, comes as it strives to be a more comprehensive energy and materials company under its 2040 vision announced in May, 2019. JXTG Holdings was formed as a result of a merger between JX Holdings and TonenGeneral in April 2017. This followed the establishment of JX Holdings as a result of the merger between Nippon Oil and Nippon Mining Holdings in April 2010.
MRC

Push to restart storm-hit energy operations gets yawn from oil markets

MOSCOW (MRC) -- Energy companies last Friday continued efforts to restore operations at US Gulf Coast offshore platforms and refineries shut by Hurricane Laura as oil markets largely shrugged off the storm's impact, reported Reuters.

Some 300 offshore production facilities and half-dozen refineries halted ahead of a Category 4 storm that hit the coast of Louisiana early Thursday with winds of 150 mile per hour (240 kph). The destructive winds cut a narrow path through the area, sparing facilities not directly in its path.

However, repairs to Citgo Petroleum's s 418,000-barrel per day Lake Charles, Louisiana, plant that was on the storm's path could take four to six weeks, according to Mizuho Securities. The company did not immediately reply to a request for comment.

Motiva Enterprises, operator of the largest US refinery, and Valero Energy Corp on Friday began restarting their Port Arthur, Texas, refineries, said people familiar with plant operations.

US crude futures traded at USD43.10 per barrel early Friday, up six cents, and not far from its USD42.34 level a week ago. US gasoline futures were up two cents, but are up less than 2% from a week ago, before the storm.

ExxonMobil Corp said its 369,024 bpd Beaumont, Texas, refinery, about 50 miles (80 km) west of where the storm's landfall, required "minor repairs," a spokesman said, and the company was taking steps to restart once power and port operations were restored.

"Refiners may be reluctant to quickly return to production when the product they make is a money losing proposition," Robert Yawger, director of energy futures at Mizuho Securities, wrote on Friday.

The ports of Beaumont, Orange and Sabine, Texas, and Cameron and Lake Charles, Louisiana, remained closed on Friday, according to the US Coast Guard.

Houston, the United States' largest energy export port, restarted operations on Thursday and had nearly halved the list of 53 vessels waiting on Thursday to reenter the port.

One-way movement and other restrictions were in place on Friday at points along the Houston Ship Channel, according to the US Coast Guard.

As MRC informed before, Exxon Mobil Corp restored stable power to its 369,024-barrel-per-day (bpd) Beaumont, Texas, refinery as it prepares to begin restarting production units. Exxon’s Beaumont refinery and chemical plant were shut down last Tuesday as Hurricane Laura was menacing the southeast Texas coast. In Beaumont, the company also operates a cracker with a capacity of 830,000 mt of ethylene and 195,000 mt of proplyelen per year, low density polyethylene (LDPE) plant with a capacity of 236,000 mt per year and linear low density polyethylene (LLDPE) plant with a capacity of 727,000 tonnes per year.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

Changing demand for petroleum products has led to operational changes at US refineries

MOSCOW (MRC) -- Demand for transportation fuels in the United States has fallen since mid-March because of the spread of coronavirus and efforts to mitigate it, according to Hydrocarbonprocessing.

Demand for motor gasoline and jet fuel in particular has fallen to its lowest levels in years. In response, U. refineries reduced their operations to adjust to changing levels of overall demand for petroleum products and made other changes that resulted in proportionately less production of motor gasoline and jet fuel and more production of distillate fuel oil.

Beginning in April, refiners responded to less demand for transportation fuels by decreasing overall refinery runs. Refinery runs were 22% lower in April 2020 compared with the full year 2019 average of 17.0 million barrels per day (b/d). In May, inputs to distillation units were similar, at 21% lower than the 2019 average. These reductions largely resembled the overall declines in demand for finished petroleum products in those months, as measured by product supplied.

Because demand for motor gasoline and jet fuel was disproportionately affected by travel restrictions and other measures that were in place throughout much of the United States starting in late March, refineries changed operations in ways that resulted in less production of motor gasoline and jet fuel and more production of distillate fuel oil.

These three products generally have the highest yield percentages from refineries. In 2019, refinery yields for motor gasoline averaged 46%; distillate fuel oil, 30%; and jet fuel, 10%. Refinery yields reflect the volumetric ratio of a finished product to refineries’ total inputs of crude oil and net inputs of unfinished oils.

In April, refinery yields for motor gasoline fell to 41%, and jet fuel yields fell to 5%. Both values were, at the time, the lowest in the US Energy Information Administration’s (EIA) monthly data series for refinery yields, which dates back to 1993. Refinery yields are zero-sum, meaning a decline in one product’s yield will mean an increase in another product’s or group of products’ yields.

In April, US distillate fuel oil yields increased to 38%, their highest value on record. In the US Gulf Coast region, distillate fuel oil yields surpassed those of gasoline for the first time, reaching 40% for distillate and 39% for gasoline. In May, as travel increased, motor gasoline demand increased, but jet fuel demand continued to fall.

Refineries can change their petroleum product output by running downstream units, or units that process the output from distillation units, differently. EIA surveys the amount of material (referred to as fresh feed) that runs through four types of downstream units (catalytic reformers, catalytic crackers, catalytic hydrocrackers and cokers). Of these four types, catalytic crackers tend to be associated with motor gasoline production, and these units were operated less than other downstream units in April.

The amount of fresh feed processed through catalytic crackers in April 2020 was 30% lower than its 2019 average of 4.7 million b/d. The amount of fresh feed processed through all other downstream units (reformers, hydrocrackers, and cokers) was 20% lower than the collective average of 6.9 million b/d in 2019.

Earlier this year, as MRC wrote previously, 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.

And 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 DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

Pemex tests limits of investor influence on climate change

MOSCOW (MRC) -- At a time when oil production is at historic lows, lenders who want Mexican oil giant Pemex to adapt to climate change are struggling to be heard, according to Hydrocarbonprocessing.

Big oil companies such as BP, Royal Dutch Shell and Repsol have begun to build strategies to cut the carbon they emit. But state-owned Petroleos Mexicanos, one of the biggest borrowers in emerging markets, is determined to push in the opposite direction.

President Andres Manuel Lopez Obrador, a leftist oil nationalist, has staked his reputation on reviving Pemex, which has been a powerful symbol of Mexican self-reliance since its creation in 1938 but is now heavily indebted. Earlier this year, Pemex became history’s largest “fallen angel” - a borrower that descends from investment grade to junk.

Lopez Obrador has said rehabilitating the country’s six outdated oil refineries and building a seventh one in his home state, Tabasco, is key. He considers the new refinery a milestone towards energy independence, one top source in the finance ministry said, adding that this concern has become more pressing in light of US President Donald Trump’s power to stifle Mexico’s economy. Lopez Obrador is determined to keep Pemex focused on exploration for oil, the sources said.

Pemex, which employs nearly 150,600 workers and is the source of almost a fifth of Mexico’s budget revenues, is set to be a critical test case for both institutional investors and climate change campaigners looking to push through change.

If its management does not heed calls to curb carbon emissions, “it will become tougher for them to issue debt,” said Marie-Sybille Connan, an analyst at asset manager Allianz Global Investors.

Investors have rarely spoken about their engagement with Pemex management, but Allianz is one of four major lenders who are now going public. Nearly 90% of the oil company’s USD107.2 billion total financial debt is held by bond investors, Refinitiv Eikon data, quarterly reports and filings related to recent refinancing transactions show. On top of this, it has USD64.9 billion in pension liabilities.

“It will become increasingly challenging for international institutional investors to invest in their bond issuances if they don’t address their sustainability concerns - whether climate, oil spills due to oil theft and health and safety,” Connan said.

The biggest challenge for both Mexico and Pemex is the fact that there are other things that take priority, said Aaron Gifford, emerging market debt analyst at T.Rowe Price, one of the largest holders of Pemex bonds. After the taxes the company pays to the government, there’s no money left to invest in new ways to produce oil.

“We’ve been very keen on speaking to Pemex’s board and really trying to get them to commit to making changes for good,” said Gifford. But management has canceled a lot of investor meetings and calls.

“Those meetings that I’ve been in, they’ve been very tense and sometimes even a little bit heated,” he said. “We have so many questions for them.”

Pemex, the Mexican finance ministry and the president’s office did not respond to requests for comment. Lopez Obrador, who has pointed to Mexico’s state-run hydroelectric plants to show he backs renewable energy, has blamed his predecessors for Pemex’s problems. Financial debt surged by 75% under the last government, a Reuters analysis of accounts from the past decade shows.

On paper, Pemex is barely solvent. Its liabilities exceed its assets by more than USD110 billion, its accounts show. The reason international investors keep lending is because the market considers the Mexican government has given an implicit guarantee for Pemex.

This support was reiterated in April, after Pemex’s bonds were downgraded. “Now, more than ever before, Petroleos Mexicanos has the absolute backing of the federal government,” company executives said in a letter on government-headed notepaper to investors, seen by Reuters.

Market pressure is already building. The company’s yield spreads have widened, showing it is already getting harder to borrow as even yield-hungry investors are rethinking their investments. Yields on Pemex bonds are between about 7% and just under 9% for the most frequently traded ones as of Aug. 28, according to MarketAxess data.

Investors such as Allianz said that even if Pemex has pressing problems now, it shouldn’t ignore long-term objectives. None expect radical change, but the four who spoke to Reuters said they feel the company is not taking their concerns seriously.

If international investors become reluctant to lend, Mexico’s own access to credit could also be at stake. Ratings agencies have repeatedly cited the company’s unsustainable debt level as a risk factor for the sovereign rating. Mexico’s sovereign bonds are skirting the edge of a downgrade.

Climate Action 100+, a group of 450 asset managers with collective assets of some $40 trillion, told Reuters earlier this month it would add Pemex to the list of 160 companies it seeks to speak to directly to prompt them to develop strategies for a lower carbon future.

“When we look at what peers are doing, Pemex should do more, show more ambition in terms of commitment to reduce carbon emissions,” said Jaime Gornsztejn, who leads the engagement with Latin American companies for Federated Hermes, a fund manager which is spearheading that effort.

He and others said companies such as Colombia’s Ecopetrol and Brazil’s Petroleo Brasileiro, or Petrobras, have gone further than Pemex to address climate concerns.

“We haven’t had much traction so far,” he said.

Pemex’s credit options are constrained by Mexico’s proximity to the United States. Even if other countries were hypothetically open to lending to the company, Jorge Sanchez, director at Mexican financial think tank Fundef, said it was unlikely Mexico would turn to them.

“It’s not about Pemex, it’s about geopolitics,” Sanchez said. “The United States won’t be happy if the main investors in Pemex, Mexico’s largest company, were Chinese or Russian.”

Pemex was the ninth biggest energy producer of carbon and methane emissions globally between 1965 and 2018, according to data from the Climate Accountability Institute, an NGO, with emissions of some 23 billion tonnes of CO2 equivalent.

That is less than the largest state-owned emitters, Saudi Aramco and the National Iranian Oil Company, but more than any other Latin American oil company, the data showed.

Even so, sources with direct knowledge of the matter told Reuters the company has no plans to change its strategy.

Lopez Obrador’s energy agenda rolls back some of the moves made by his predecessor to open the energy market to the private sector. Next year’s budget will likely be dedicated to boosting oil extracted from shallow waters, one senior Pemex executive with direct knowledge of the draft proposal said, adding there was no allocation for greener policies.

While the President says he is committed to clean energy, he has justified government efforts to impede the roll-out of new privately built solar and wind capacity on the grounds that those plants were tainted by corruption in past administrations. “(Renewable energy) was used as a pretext for doing lucrative business ... to get government subsidies, to push up the price of electricity and affect us all,” he said in July. He has also complained that wind farms are an eyesore.

“There’s no way the government will consider another scenario for its energy policy,” a person at the oil company’s commercial arm PMI said, on condition of anonymity. “What they’re looking for is becoming a big player in exploration, production and refining.”

The kind of oil Pemex mostly produces, known as “heavy sour crude,” has fallen out of favor over environmental concerns because refining it tends to produce highly polluting sulfur-rich fuel oil. Last December, Mexico’s energy regulatory commission agreed that the government could postpone a planned rule that would have required Pemex to produce and sell only ultra-low sulfur diesel across the country.

Pemex had asked the courts to give it more time to comply with the rule, saying Mexico lacked the infrastructure to comply.

As MRC informed earlier, Pemex is advancing a refinery rehabilitation program that will enable it to process 1.2 million b/d of crude oil by the end of 2020 and evaluating a reconfiguration of its petrochemical facility at Cangrejera, Mexico, into what would be its eighth refinery.

We also remind that in 2016, Pemex shut its steam cracker at its Cangrejera complex for maintenance on February 15. The cracker was idle for about 14 days. The conducted repairs at the cracker were a part of planned maintenance.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Pemex, Mexican Petroleum, is a Mexican state-owned petroleum company. Pemex has a total asset worth of USD415.75 billion, and is the world's second largest non-publicly listed company by total market value, and Latin America's second largest enterprise by annual revenue as of 2009. Company produces such polymers, as polyethylene (PE), polypropylene (PP), polystyrene (PS).
MRC

Hurricane Laura shuts two sites at US emergency oil reserve

MOSCOW (MRC) -- The US Energy Department announced the shutting of two of four sites of the national emergency oil reserve temporarily to remove workers ahead of Hurricane Laura, but that the remaining sites could deliver oil if the facility gets any requests for deliveries, reported Reuters.

The department last Wednesday shut the Strategic Petroleum Reserve’s Big Hill site in Texas and the West Hackberry site in Louisiana due to Laura, Steve Winberg, an assistant secretary at the department, told reporters in a call.

He said the department had a reentry team on its way to Big Hill and it should know the condition of the facility in a few hours.

West Hackberry was “more in the eye of the storm,” Winberg said. The department has reentry teams ready to go to that site but roads in the area are not yet passable. “As soon as we can get through the roads and get across the bridges then we’ll be assessing that facility.”

The two sites were shut because the department needed to evacuate the operations teams, a department official told Reuters. “This was a planned evacuation that took place yesterday prior to the storm reaching the site.”

The other two SPR sites, Bryan Mound, in Texas, and Bayou Choctaw, in Louisiana, are open and can deliver oil should the department receive requests from refiners, Winberg said.

There have been no requests so far for oil from the reserve and fuel supplies are high in the region due to the hit in demand from the coronavirus pandemic.

Laura has since been downgraded to a tropical storm. US oil prices eased nearly 1% to USD43.04 a barrel last Thursday as the market expected a quick recovery for crude production platforms shuttered ahead of the storm.

As MRC wrote previously, most chemical production facilities in the region between Beaumont-Port Arthur, Texas, and Lake Charles, Louisiana, have shut down in preparation for Hurricane Laura, which was forecast to make landfall near the Texas-Louisiana border last Wednesday night or early Thursday. Several olefin crackers and associated derivative polymer units have been shut down, as has about 2.5 million b/d of refining capacity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and PP.

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC