Europe has a diesel problem; refiners are feeling the heat

MOSCOW (MRC) -- Europe, one of the world’s biggest diesel consumers, faces a major glut which combined with weak demand is weighing heavily on the ability of the region’s refineries to keep running, said Hydrocarbonprocessing.

Having hit record lows at the height of the COVID-19 pandemic in April and May, European diesel margins are trending lower again after posting a modest recovery in July. "Gasoil and diesel is 40%-50% of refining output so it has to be profitable otherwise refineries just burn cash and must shut down,” Hayal Ahmadzada, chief trading officer at Azerbaijain’s SOCAR Trading said.

He said the paper market was showing some traders expect diesel cracks to fall close to zero or even into negative, which would be unprecedented. "There are too many refineries for current demand," he said, adding some won’t be able to operate at those levels for much longer.

While the easing of lockdowns in recent months across Europe has boosted diesel demand, some countries are seeing the recovery stall. According to leading Spanish fuel distributor CLH, August diesel deliveries to the domestic market were around 9% lower than July levels at 2 million cubic meters.

Experimental data from Britain’s Department for Business, Energy & Industrial Strategy shows that in the past four weeks a recovery which started in mid-April in road fuel demand has stalled. The diesel market is also afflicted with high stocks.

According to oil analytics firm Vortexa, Europe now accounts for the biggest share of global middle distillates floating storage globally.

As it was written earlier, Turkish Competition Council has given permission to SOCAR and BP to establish a joint venture that will operate in the petrochemical sector. Earlier it was reported that SOCAR and BP applied to the relevant institutions in Turkey to establish a joint petrochemical company, which will be called Mercury complex, in April 2020. Recall that on December 20, 2018 SOCAR and BP signed contractual principles for evaluation of plans for creation a world-class petrochemical complex in Turkey and establishment of a joint venture to manage it.

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

MOSCOW (MRC) -- US refiners are stuck between meeting rising gasoline demand and the glut of supply in the lackluster diesel and jet fuel markets, reported Reuters.

Refiners cannot produce gasoline without making other products like diesel, commonly known as distillates. The coronavirus pandemic slashed demand by one-third worldwide, and so far the gasoline use has rebounded faster than that of distillates. Refiners still have big stockpiles of diesel and other fuels, and do not want to make more of those products due to poor margins.

Refiners have been running at around 80% utilization since the end of July, up from the spring, when the pandemic broke out, but still below usual levels. With summer driving season coming to a close, they are reluctant to boost output for the winter season, when gasoline demand declines.

“Once Labor Day wraps up, and especially this year where few parents are dropping off their kids (at school), gasoline and distillate demand will likely see more erosion than usual,” said Patrick De Haan with GasBuddy.

Refiners cannot bet on profit margins improving soon. The refining crack spread, a proxy for margins, fell last week to USD7.93, lowest since April 2020, because demand for product is not strong enough to draw down inventories, nor keep up with rising crude prices.

Several refiners shut during Hurricane Laura, reducing overall refining capacity use to less than 77%, but refiners have indicated that they will not ramp up much more due to concern of oversupply of distillates.

“Refineries are in no rush to reopen, because they’re making no money,” said Bob Yawger, director of energy futures at Mizuho.

One refining executive who requested to remain anonymous said they are constrained by distillate inventories and would continue to run plants between 80% to 82%.

US demand for gasoline has recovered by about 70% since early April, US Energy Information Administration data shows. Gasoline stockpiles have dropped over the last two months during the summer driving season.

Consumption for distillate fuel, which includes diesel widely used in trucks for construction and transporting goods, increased by only around 40% since April.

Distillate inventories are higher than usual, currently at 177.5 million barrels, or about 20% above the five-year average for this time of year, according to EIA data.

Jet fuel demand, meanwhile, is expected to drop by 40% this year to 3.1 million barrels per day, the International Energy Agency said earlier this month.

“I’m not convinced that we could get to full utilization in this industry if jet demand is where it is today,” PBF Energy Chief Executive Thomas Nimbley said on an earnings call in late July.

Refiners hope export demand will offset the weak domestic consumption, but there, too, distillates are lagging gasoline.

Finished gasoline exports in August were down just 4% from a year ago, compared to a 35% drop in middle distillate exports, said Matt Smith, director of commodity research at ClipperData.

We remind, as MRC wrote before, 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 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 ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.
MRC

MOSCOW (MRC) -- Huntsman says its polyurethanes segment is performing well above expectations owing to continued strength in construction-related markets, faster improvement in automotive demand, and higher overall margins, reported Chemweek.

The company says third-quarter results in its other segments are still roughly in line with previous guidance.

During its second-quarter earnings call on 28 July, Huntsman forecast a 30% year-over-year (YOY) decline in the segment’s third-quarter adjusted EBITDA, but the company now expects a figure close to the year-ago value of USD146 million.

During the second quarter of 2020, the polyurethanes segment turned in adjusted EBITDA of USD31 million, down 80% YOY, and revenue of USD730 million, down 28% YOY, both reflecting lower average selling prices for methylene di-para-phenylene isocyanate (MDI) and lower overall polyurethanes sales volumes.

As MRC informed before, in January 2020, Indorama Ventures Public Company Limited (IVL), a global chemical producer, completed its acquisition of Huntsman’s world-class integrated oxides and derivative businesses, including a large flagship site on the US Gulf Coast (USGC) at Port Neches, as well as Chocolate Bayou and Dayton in Texas, Ankleshwar in India, and Botany in Australia.

The acquisition is a profitable and growing end applications business along with unique products and geographical profile among the crowded olefins space. It has a well-integrated assets base with an extensive infrastructure and future expansion possibilities. The area is adjacent to many USGC feedstock suppliers. The cash value of USD2.0 billion makes it the largest acquisition by Indorama Ventures ever and now our capital employed is nicely spread over plastic, chemicals and fibers. The transaction value translates to an EV/EBITDA of ~5.7x and is expected to add substantial synergies to Indorama’s existing 450kta Ethane/Propane Cracker and our 550kta EO/EG. IVL will now be integrated from Ethane to PET as well as the high-margin EO and PO derivative businesses.

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.

Huntsman Corporation is a publicly traded global manufacturer and marketer of differentiated and specialty chemicals with 2019 revenues of more than USD7 billion. Its chemical products number in the thousands and are sold worldwide to manufacturers serving a broad and diverse range of consumer and industrial end markets. The company operate more than 75 manufacturing, R&D and operations facilities in approximately 30 countries and employ approximately 10,000 associates within its four distinct business divisions.
MRC

MOSCOW (MRC) -- PetroChina’s Daqing refinery has expanded its crude oil processing capacity to 10 million tons per year, or 200,000 barrels per day, from 6.5 million, after completing a two-year upgrade, reported Reuters.

The refinery in China’s northeastern province of Heilongjiang also revamped its 1.2 million tons hydrocracker and 1.2 million gasoline and diesel hydrotreating units.

With total investment of 4.45 billion yuan (USD651 million), Daqing also added a series of facilities, such as a 2 million tons per year fluid catalytic cracker, a 600,000 tons per year gas fractionation unit and two 20,000 tons per year sulfur recovery units.

The upgrade allows the refinery to process 3.5 million tons of Russian ESPO Blend crude oil annually, on top of its current refining capacity of 6.5 million tons of local Daqing crude.

“(The upgrade project) will help Daqing refinery to break the bottleneck of development, to adjust structure of units and products, and to improve risk resistance capacity as well as improve profitability,” parent China National Petroleum Corp (CNPC) said in a statement.

The city of Daqing, home to the refinery and China’s largest oilfield by production, said this year it planned to embark on a five-year plan to expand oil refining and high-value added petrochemical production.

The refinery is expected to produce 180,000 tons of propylene, 260,000 tons of liquid hydrocarbon, 220,000 tons of toluene and 280,000 of xylene to supply chemical plants in the region.

As MRC wrote previously, PetroChina Ningxia PC, part of PetroChina, brought on-stream its polypropylene (PP) plant following a turnaround. The company resumed operations at the plant on August 18, 2020. The plant was shut for maintenance on July 1, 2020. Located at Yinchuan, China, the PP plant has a production capacity of 110,000 mt/year.

Propylene is the main feedstock for the production of PP.

According to MRC's ScanPlast report, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.

PetroChina Company Limited, is a Chinese oil and gas company and is the listed arm of state-owned China National Petroleum Corporation, headquartered in Dongcheng District, Beijing. It is China's biggest oil producer.
MRC

MOSCOW (MRC) -- Although the COVID-19 pandemic has highlighted the unique value of plastics, plastic waste remains an increasingly urgent problem whose solution will require extensive collaboration throughout the value chain, reported Chemweek with reference to industry representatives' statement last Thursday during the IHS Markit PEPP 2020 Online: Annual Polyethylene-Polypropylene Chain Global Technology & Business Forum.

"The value proposition for plastic materials has been reemphasized in the consumer base," said Venetia Spencer, secretary general of the Polyolefin Circular Economy Platform (PCEP). "I think that people recognize the value of the product. They recognize the importance of food safety, of the application of plastics in personal protective equipment (PPE) and hygiene and medical applications. At the same time, the issue on end-of-use is still there."

Indeed, the pandemic has exacerbated the problem, said Justin Wood, vice president/strategic partnerships at The Alliance to End Plastic Waste. "Coronavirus is a major health crisis, and clearly it's also a major economic crisis, but it's also very much an environmental crisis, and particularly in the context of plastic," he observed. "If you look at the consumption of plastic globally, it is increasing the use of single-use plastic in many, many cases."

These include not only PPE for healthcare workers, but also home delivery of food and other products that consumers historically purchased in stores.

"So we've seen dramatic increase in many uses of plastic. But we've also at the same time seen collapsing management of the waste that is produced from all of that. In many cases, the materials recovery facilities and so on that process this waste plastic have been shuttered temporarily in name of social distancing. Equally, people have been much more reluctant to handle plastic waste from other people given scares around the virus, so this situation is really a double whammy, in the sense that you see soaring use of single-use plastic and, at the same time, falling collection and management of the plastic waste."

The pandemic has thus not only renewed appreciation for plastics, but also heightened awareness of the disposal problem.

"This is clearly a situation that companies need to get ahead of," said Wood. "Many companies are doing that, but … many of them are still thinking about how do they individually improve their performance, and how do they individually try to put in place measures to manage plastic waste."

Spencer agreed. "We have this great opportunity right now to shape policy, but to do that, we have to kind of stop (focusing on) competing, and really think about collaboration. So you have to share the expertise and start to understand everyone else's business. That's really what a value chain approach is, right? It's not just thinking about my business as a brand or my business as a waste management company. It's understanding how what I do impacts everyone else," she said. "I think that is really critical, and we need to do it right now so that we can properly have a value chain and position on what we want to see. Because once we do that, once we have a common viewpoint, we're going to be able to shape investment, policy, goals, and tools that help us deliver. But until we have that clear alignment within the polyolefin industry, we lose too much time fighting with each other and there just isn't time for that."

"The challenge… is very complex," said Bob Maughon, executive vice president/sustainability, technology and innovation as well as CTO and CSO at SABIC. " I think that you therefore need a suite of solutions." He noted that SABIC's new product platform, Trucircle, tackles the problem from four different directions: certified renewable products made from biobased feedstocks; certified circular products based on chemical, or feedstock, recycling; mechanically recycled solutions, which are compounds engineered for high recycled content; and designing for recyclability, whereby resins are tailored to make products easier to recycle.

"There's a need to think about …designing appropriately for the application, not overdesigning benefits and complexity into the structure of the package, which then makes recycling more complex," he continued. "There's definitely innovation [to do] on the material side, but it has to be done in concert with the machine manufacturers, the converters, and the brands to make sure that it meets the end requirements (without being) overdesigned."

Ultimately the problem is not plastics as such, but the efficient use of resources, the participants suggested.

"People are talking about the reduction of plastics, but I prefer talking about the smarter use of plastics and making sure that you try, when you can, to design for recycling," said Marco Jansen, circular economy leader at Braskem Europe. "It's not always possible -- sometimes it's more important to preserve food [than to] design for recycling specifically, but I think it's a very strong focus that we need to have."

Similarly, there is only so much resin producers can do to deliver economically viable circular solutions before end users may have to reconsider their assumptions about the aesthetics of packaging.

"I think that the brand owners and retailers maybe need to have a new view on recycled plastics and have a different perception of quality," said Jansen. "I'm thinking mainly for optical reasons. Sometimes we say, jokingly, that grey is the new white. People need to accept that grey isn't necessarily worse than white or natural packaging, and that in fact (there is) value in showing that something has been recycled."

As MRC informed earlier, Magnum's pint tubs are made using certified circular polypropylene (PP) from SABIC's TruCircle portfolio. When it comes to food and drink applications, recycled plastic has limited uses. Regulations forbid the use of post-consumer resin (PCR) in food & drink contact, as well as in hygiene and medical applications. However, brand owner Unilever and its partner SABIC have developed a solution and introduced it to some European markets. Their goal: prove that PCR can be transformed for use in food-contact applications safely.

According to MRC's ScanPlast report, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.
MRC