Oil climbs as Hurricane Zeta takes more US output offline

MOSCOW (MRC) -- Energy prices settled higher Oct. 27 as US Gulf of Mexico operators shut in crude production ahead of Hurricane Zeta, tightening supply outlooks, reported S&P Global.

NYMEX December WTI settled USD1.01 higher at USD39.57/b and ICE December Brent climbed 74 cents to USD41.20/b.

Roughly half of all the oil and gas production from the US Gulf of Mexico was shut in Oct. 27 ahead of Hurricane Zeta, which is expected to make landfall in southeastern Louisiana.

An estimated 914,811 b/d of crude production and 1,500 MMcf/d of natural gas production was shut in, reflecting 49.45% and 55.35% of US Gulf output, respectively, according to the US Bureau of Safety and Environmental Enforcement. About 25% of the Gulf's platforms and rigs, or 157 facilities, have been evacuated thus far, BSEE said, with more underway.

Chevron, Shell, BP, BHP, Murphy Oil and Equinor all confirmed they've shut down platforms and production ahead of the storm. BP and Chevron count among those shutting in all of their operated platforms.

NYMEX November RBOB settled 3.18 cents higher at USD1.1434/gal and November ULSD was up 3.559 cents at USD1.1577/gal.

"Crude prices are rallying as Hurricane Zeta triggers further disruptions to crude output in the Gulf of Mexico," OANDA senior market analyst Edward Moya said in a note. "Risk aversion took a break today and that gave oil a chance to stabilize a bit before the lower boundaries of its two-month trading range."

Zeta, which weakened to a Tropical Storm after making landfall on Mexico's Yucatan Peninsula Oct. 26, was expected to regain hurricane status later on Oct. 27 and make a second landfall late Oct. 28 near southeastern Louisiana, according to the National Hurricane Center.

The current path of the hurricane targets roughly 2.7 million b/d of refining capacity, mostly in Louisiana.

Refiners continue to monitor the storm, based on their hurricane readiness and response plans. Decisions to slow or shut down plant depending on the intensity, location and timing of landfall of the storm are likely to be made within the next 24 hours, sources familiar with operations at several refineries said.

The Platts USGC unleaded 87 gasoline front-month crack against WTI climbed to USD6.504/b, up 48 cents from the session prior and the strongest since Oct. 14. The USGC ULSD crack against WTI jumped 51 cents to a 12-session high USD7.088/b.

As MRC informed previously, at least five Louisiana oil refineries in the path of Tropical Storm Zeta plan to remain operating as it makes a US landfall. Oil and gas producers evacuated offshore production platforms and shut wells as the storm moved across the Gulf of Mexico. Zeta could strike the Gulf Coast between Louisiana and Alabama at or near hurricane intensity, forecasters said.

Thus, Exxon Mobil Corp’s 517,700 barrel-per-day (bpd) Baton Rouge, refinery, Royal Dutch Shell Plc’s 227,400 bpd Norco and 211,146 bpd Convent, Louisiana, refineries are proceeding with normal operations. Exxon’s Baton Rouge plant is about 110 miles (177 km) northwest of the forecast path while Shell’s Convent and Norco refineries are 78 miles and 54 miles northwest of the latest storm track. Exxon and Shell are monitoring the storm, spokes people said. Shell also said it is prepared to take action as appropriate.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,496,500 tonnes in the first eight months of 2020, up by 5% year on year. Shipments of all ethylene polymers increased, except for linear low desnity polyethylene (LLDPE). At the same time, PP shipments to the Russian market reached 767,2900 tonnes in the eight months of 2020 (calculated using the formula - production minus exports plus imports - and not counting producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
MRC

BASF forges ahead with USD10-billion China project, battery material investments despite COVID-19

MOSCOW (MRC) -- BASF will “energetically pursue” it’s USD10.0-billion (USD11.7 billion) petrochemical project at Zhanjiang, Guangdong Province, China, as well as its investments in the production of battery materials, despite taking a more cautious approach to capital expenditure (capex) as a result of the COVID-19 pandemic, reported Chemweek with reference to chairman Martin Brudermuller's statement.

Speaking Wednesday on a conference call with analysts following the release of BASF’s third-quarter results, Brudermuller said that the company had cut capex by EUR600 million in 2020 to EUR2.8 billion and that over the next five years it would “strictly review projects and focus our spending,” which would involve “some postponements” to capacity additions. However, the company is not slowing the China project - a phased investment due for completion in 2030 - or battery-material investments because of the bright outlook for the two strategies. “The pandemic does nothing to change these two large growth opportunities,” he said.

China is making a V-shape recovery from the crisis and BASF’s sales volumes in the country grew at double-digit rates in the third quarter, Brudermuller said. “Market expectations for growth in China are even better than before the pandemic,” he said. “This gives us confirmation that our long-term assumptions about China are right.”

Meanwhile, “extreme growth” is still expected for battery materials, even though it will be a little slower than previously expected over the next few years, Brudermuller said. “The volumes needed for all the (electric) cars to be produced is a positive for BASF,” he said. Electric vehicles have increased their share of the overall market even during the sharp decline in the automotive industry this year caused by the pandemic, he added. BASF expects an overall 20% decline in worldwide light vehicle production in 2020.

BASF CFO Hans-Ulrich Engel said during the call that completion of the previously announced €1.15-billion divestment of BASF’s pigments business to DIC Corp. (Tokyo, Japan) had been delayed from the fourth quarter of 2020 to the first quarter of 2021, because of impacts from COVID-19. Meanwhile, the planned initial public offering (IPO) of the Wintershall DEA upstream oil and gas joint venture, originally planned for the second half of 2020, will likely take place in 2021, “subject to market conditions,” Engel said.

Following the pigments and Wintershall DEA deals, there will be “no urgent need” for major portfolio adjustments at BASF over the next three years, Brudermuller said. “We will focus on organic growth. Don’t expect big portfolio measures although in the smaller part (of the portfolio), there is always work that has to go on,” he said.

BASF has also delayed, until 2021, 10% of the 6,000 job cuts it had announced by the end of 2020, “due to labor effects caused by the pandemic,” Engel said. The job cuts form part of BASF’s “excellence program” that is on course to deliver a positive EBITDA contribution of €2 billion by the end of 2021, he said. The program is expected to generate EUR1.4 billion of the contribution by the end of 2020 with associated costs this year of about EUR300 million. The 2,000 job cuts announced recently at BASF’s global business services unit are not included in the 6,000 in the excellence program.

BASF included EUR2.8 billion of impairments in its third-quarter accounts to reflect the impacts of COVID-19 as well as restructuring. About EUR1 billion were in BASF’s surface technologies business and a combined EUR1.3 billion were in the company’s chemicals and materials businesses, Engel said.

Brudermuller told analysts that average daily order entries registered by BASF are “slightly lower” in October year on year. “Customers remain very cautious and are ordering lower volumes more regularly,” he said. About 80% of all BASF’s orders on hand will be booked in the next two months, according to Brudermuller. “We continue to have no clear view beyond that,” he said.

As MRC informed before, in September 2020, BASF-YPC Co., Ltd. (BYC), a 50-50 joint venture between BASF and SINOPEC, expanded the production capacity of neopentylglycol (NPG) at the state-of-the-art Verbund site in Nanjing, China. The plant was established in 2015 with an annual capacity of 40,000 metric tons. With the completion of the expansion in August 2020, the annual capacity will reach 80,000 metric tons.

We remind that Russia's output of chemical products rose in September 2020 by 6.7% year on year. At the same time, production of basic chemicals increased by 6.1% year on year in the first nine months of 2020, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-September output. Last month's production of primary polymers decreased to 852,000 tonnes from 888,000 tonnes in August due to shutdowns in Tomsk, Ufa and Kazan. Overall output of polymers in primary form totalled 7,480,000 tonnes over the stated period, up by 16.4% year on year.

BASF-YPC Company Limited (BASF-YPC) is a 50-50 joint venture between BASF and Sinopec, founded in 2000, with a total investment of approximately USD5.5 billion. The integrated petrochemical site produces about three million tons of high-quality chemicals and polymers for the Chinese market annually. The products serve the rapid-growing demand in multiple industries, including agriculture, construction, electronics, pharmaceutical, hygiene, automotive and chemical manufacturing. All BASF-YPC plants are interconnected in order to use products, by-products and energy in the most efficient way, to save cost and to minimize the environmental impact. BASF-YPC posted sales of approximately CNY 19.6 billion in 2019 and employed 1,942 people as of the end of the year.
MRC

OMV and Mubadala complete Borealis transaction

MOSCOW (MRC) -- OMV, the international integrated oil and gas company headquartered in Vienna and Mubadala Investment Company, the Abu Dhabi-based strategic investment company, have today completed the transaction for OMV to acquire an additional 39% stake in Borealis, a leading, global chemicals company, from Mubadala, said the companies.

Following the initial agreement announced in March this year, the transaction was completed in line with the expected timeline and in accordance with all regulatory requirements. OMV now holds a 75% interest in Borealis and Mubadala retains a 25% interest in the company.

OMV is entitled to all dividends in relation to the additional shares in Borealis distributed after December 31, 2019. OMV will fully consolidate the results of Borealis in its financial statements. In 2019, Borealis generated total sales of EUR 9.8 bn and a net profit of EUR 872 mn. The operating cash flow of Borealis – including dividends from its joint venture Borouge –amounted to EUR 1.5 bn in 2019. In the first nine months of 2020, Borealis achieved an operating cash flow including Borouge dividends of EUR 1.1 bn, 6 percent higher than the same period of last year, despite the difficult market environment due to the COVID-19 pandemic.

Musabbeh Al Kaabi, CEO, Petroleum & Petrochemicals, Mubadala Investment Company: “This transaction is well aligned with our strategy as a responsible investor and we are confident in the value this partnership will create for all three companies. Both OMV and Borealis are champions of the Mubadala portfolio, and this decision is consistent with our asset management model and our commitment to partner with like-minded players."

Rainer Seele, Chairman of the OMV Executive Board and CEO: “This transaction is another milestone in the implementation of our strategy. We are thus establishing an integrated and sustainable business model extending OMV’s value chain towards higher value chemical products and recycling, thereby repositioning the Group for a lower carbon future."

The purchase price of the transaction amounts to USD 4.68 bn. Based on closing adjustments, the cash-out for OMV, net of cash acquired, is EUR 3.8 bn. The adjustments include the first quarter dividends to which OMV is entitled based on the increased shareholding, currency effects, and the cash position of Borealis at closing. Following the successful issuance of senior and hybrid bonds of EUR 4.5 bn Euros, OMV paid the entire amount in full at closing. As a result of the synergies identified in the last few months, OMV is increasing the synergy potential from EUR 700 mn to more than EUR 800 mn. In addition, OMV has successfully started its divestment program, which will realize EUR 2 bn by the end of 2021. The sale of the 51-percent share in OMV’s gas logistics subsidiary Gas Connect Austria has already been signed and will have a deleveraging effect of EUR 570 million for OMV.

With its head office in Vienna, Borealis currently has more than 6,800 employees and operates in over 120 countries. The company provides services and products to customers globally, both directly and in collaboration with Borouge, a joint venture with the Abu Dhabi National Oil Company (ADNOC) and with Baystar™, a joint venture with Total in Texas, USA.

Global demand for monomers and polymers is growing rapidly. The purchase of a controlling majority in Borealis makes OMV a leading provider of polyolefins and base chemicals. The joint production capacities make OMV and Borealis the number one producer of ethylene and propylene in Europe and one of the top 10 polyolefin producers worldwide. The acquisition is a strategic extension of OMV’s value chain into high value chemicals. This provides a natural hedge against the cyclicality of each value chain step with respect to both volumes and market spreads, de-risking OMV’s exposure to volatile markets.

Furthermore, OMV and Borealis will jointly expand their know-how and activities in the plastics circular economy. Borealis’ activities in plastics recycling, through its subsidiaries EcoPlast (Austria) and mtm plastics (Germany), Project STOP (Ocean Waste) and the Design For Recycling (DFR) initiative are a perfect addition to OMV’s ReOil technology for the chemical recycling of post-consumer-plastic. The proprietary ReOil® technology converts hard-to-recycle plastic waste into high-quality feedstock for its refineries, substituting the need crude oil.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,496,500 tonnes in the first eight months of 2020, up by 5% year on year. Shipments of all ethylene polymers increased, except for linear low desnity polyethylene (LLDPE). At the same time, PP shipments to the Russian market reached 767,2900 tonnes in the eight months of 2020 (calculated using the formula - production minus exports plus imports - and not counting producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

OMV produces and markets oil and gas, innovative energy and high-end petrochemical solutions – in a responsible way. With Group sales of EUR 23 bn and a workforce of around 20,000 employees in 2019, OMV Aktiengesellschaft is one of Austria’s largest listed industrial companies.

Mubadala Investment Company is a sovereign investor managing a global portfolio, aimed at generating sustainable financial returns for the Government of Abu Dhabi. Mubadala’s USD232 billion (AED 853 billion) portfolio spans six continents with interests in multiple sectors and asset classes. We leverage our deep sectoral expertise and long-standing partnerships to actively source deals. In the UAE, we are driving sustainable growth by optimizing scale and efficiency, supporting the continued diversification and global integration of the local economy while growing our shareholder value. Headquartered in Abu Dhabi, Mubadala has offices in London, Rio de Janeiro, Moscow, New York, San Francisco and Beijing.
MRC

Formosa Plastics USA to shut HDPE blowmolding unit

MOSCOW (MRC) -- Petrochemicals producer Formosa Plastics USA, part of Formosa Petrochemical, will shut down its high density polyethylene (HDPE) blowmolding unit in Point Comfort, Texas for maintenance on October 30 , several sources told S&P Global Oct. 28.

The turnaround at this plant is expected to last for 30 days.

The company was not available for immediate comment on the shutdown.

"I don't think this is going to shift pricing in any way," one trader source said. "HDPE blowmolding has been tight (for exports) for several months and pricing will continue to be very firm," the source added.

The HDPE blowmolding unit has a capacity of 200,000 mt/year and was previously scheduled for a maintenance in October 2020, sources told Platts on June 11.

As MRC reported earlier, Formosa Plastics broke ground on its USD9.4 billion petrochemical complex in St. James Parish, Louisiana in late March, 2020, after receiving final permits but has now agreed to limit its construction activities until February 2021. The company plans to build the complex in two phases over 10 years. The first phase would include a 1.2-million metric tons/year ethylene plant using ethane as feedstock, with downstream facilities that will produce high-density polyethylene (HDPE), linear low-density polyethylene (LLDPE), and ethylene glycol (EG). A propane dehydrogenation plant and a polypropylene (PP) facility are also planned.

According to MRC's ScanPlast report, September estimated HDPE consumption in Russia fell to 55,790 tonnes from 119,750 tonnes a month earlier. ZapSibNeftekhim increased its export polyethylene (PE) sales. Kazanorgsintez's production capacities were also shut for a turnaround. Overall HDPE shipments to the Russian market totalled 911,650 tonnes in the first nine months of 2020, up by 6% year on year. Production grew significantly, whereas imports slumped by 27%.

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

South Korean refiners to embrace Saudi crude amid market uncertainty

MOSCOW (MRC) -- South Korea would heavily favor Saudi crude oil over US or other arbitrage barrels for the rest of the year as local refiners find their staple medium sour Middle Eastern crude to be the most viable and economical feedstock option in times of volatile refining margins and tepid consumer fuel demand, according to S&P Global.

South Korea made rigorous efforts to diversify its crude import sources over the past several years, with the share of Middle Eastern crude in its yearly procurement basket falling below 71% in 2019, compared with more than 85% in 2015.

However, Asia's fourth biggest oil consumer made a U-turn on its refinery feedstock diversification strategy in 2020.

South Korea's crude imports from Saudi Arabia in September climbed 8.3% from a year earlier at 23.1 million barrels, according to data from state-run Korea National Oil Corp. released Oct. 26.

The country's overall crude imports over January-September fell 7.8% year on year at 744.13 million barrels, but its Saudi crude imports rose 3.7% during the first nine months at 238.66 million barrels.

The low oil price environment and volatile refined product cracks prompted South Korean refiners to increasingly return focus to Middle Eastern crude, the feedstock that the companies are most comfortable with, said trading managers at SK Innovation, GS Caltex and Hyundai Oilbank.

As South Korean refiners continue to take the more safe and familiar feedstock procurement options in times of heightened market uncertainties, there's little room to explore arbitrage barrels, according to a market research manager at Korea Petroleum Association based in Seoul.

The country was Asia's biggest US crude customer in 2019. However, South Korean refiners imported 8.267 million barrels of US crude in September, down 34.4% from a year earlier and marking the fifth consecutive monthly decline, the KNOC data showed.

South Korean refiners are expected to continue to embrace Saudi crude in the coming trading cycles as Saudi Aramco maintains relatively attractive official selling prices.

Middle Eastern producers have been seen regularly cutting their monthly OSPs in 2020 and the attractive Persian Gulf OSPs appealed to many refiners grappling with tepid refining margins since the COVID-19 outbreak, the trading managers told S&P Global Platts.

South Korean refiners paid an average outright price of USD43.82/b for Saudi crude imported so far this year, sharply lower than USD53.91/b paid for the shipments from the US, USD45.83/b from Mexico and USD50.53/b from Kazakhstan, the KNOC data showed.

KNOC's import cost figures include freight, insurance, tax and other administrative and port charges.

"Light sweet US crude used to come cheaper than Saudi or any other Middle Eastern crude oil despite WTI's superior quality, but that's no longer the market condition nowadays," a feedstock manager at GS Caltex said.

In 2019, South Korea paid on average USD65.17/b for crude shipments from the US, cheaper than an average of USD66.87/b paid for Saudi crude cargoes received in the year.

Apart from Saudi oil, imports from the UAE in September also jumped 49.6% year on year at 5.562 million barrels, the KNOC data showed. Abu Dhabi crude grades that South Korean refiners typically purchase are light sour Murban crude and medium sour Upper Zakum, the trading managers with direct knowledge of the matter told Platts.

South Korean refiners and condensate splitters processed 76.616 million barrels of crude in September, down 12.3% from 87.329 million barrels a year ago, following a 9% decline in July and August and a 4.7% drop in June, the KNOC data showed.

The drop in crude processed comes as local refiners have lowered run rates to cope with weakening refining margins and tumbling demand of oil products, according to a KNOC official.

The country's top refiner SK Energy has shut its No. 3 crude distillation unit with a capacity of 170,000 b/d since late September, earlier than the original maintenance schedule, a company source told Platts.

The source declined to provide details on when SK Energy will restart the unit, but indicated that maintenance is likely to be longer than usual as the refiners are seeking to keep their crude run rates lower amid the COVID-19 pandemic.

As a result of the drop in crude processing, South Korea's crude stockpiles fell 11.3% year on year at 44.924 million barrels as of end-September.

As MRC reported earlier, SK Global Chemical, a subsidiary of SK Innovation, plans to shut down its production processes for ethylene and ethylene propylene diene monomer (EPDM) within its naphtha cracking center in Ulsan, South Korea. The 200,000-t/y naphtha cracker, which started commercial operation in 1972, and the EPDM unit, which began commercial operation in 1992, will be mothballed from December 2020 to shift the company's focus to high-value added chemicals.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,496,500 tonnes in the first eight months of 2020, up by 5% year on year. Shipments of all ethylene polymers increased, except for linear low desnity polyethylene (LLDPE). At the same time, PP shipments to the Russian market reached 767,2900 tonnes in the eight months of 2020 (calculated using the formula - production minus exports plus imports - and not counting producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
MRC