Pemex business strategy needs urgent modification: IMF report

MOSCOW (MRC) -- Pemex needs a complete overhaul that includes modifications to its business strategy and reforms to its governance and procurement as the state oil company puts a drag on the country's growth, reported S&P Global with reference to the International Monetary Fund's statement.

Despite missing its financial objectives, Pemex has kept its strategy mostly unchanged, even after the coronavirus pandemic, and will likely need additional budget support, the IMF found in its 2020 Article IV Consultation report on Mexico.

"Given lower oil prices and a downgrade to speculative grade, Pemex's business strategy needs urgent modification," said the report, released Nov. 4.

This reluctance to reconsider its goals contrasts with the reaction by other major oil companies around the world, which have reduced capex and reset production and refining goals, the report said.

In the opinion of the IMF economists who wrote the report, Pemex will not be able to reach its midterm crude production goal and will "at best" stabilize its current production.

The company has promised to reach 2.4 million b/d by the time the president ends his six-year term in 2024. However, private analysts expect the output to actually fall to between 1.5 million-1.6 million b/d, with some pessimists even pointing to as little as 1.1 million b/d, the report said.

"The bulk of existing production comes from just a few fields that in many cases have peaked and are on a declining trend," the report said.

To increase crude output, Pemex needs to partner with third parties who possess the highly specialized technologies needed. But with recent decisions like the cancellation of licensing rounds, the government might be reducing overall interest in the energy sector from private investors, the report found.

The refining strategy also poses major execution hurdles, the IMF concluded.

The Mexican President Andres Manuel Lopez Obrador has said he intends to turn Mexico into an "energy independent" country, ultimately stopping all imports of refined products, mainly from the US, and has actually started the construction of a new refinery in the port of Dos Bocas.

Mexico imports between 70% and 80% of the gasoline and diesel it needs, according to official data from the Energy Secretariat.

Mexico in 2019 imported 1.2 million b/d of petroleum products from the US with a total value of over USD29 billion, according to the US Energy Information Administration.

The refining strategy will likely augment the company's financial losses further as the Dos Bocas refinery will subsume the bulk of the company's expenditures, putting pressures on margins, and leaving little for maintenance investments, the report concluded.

Finally, the IMF mentioned in the report that consideration should be given to ways to strengthen Pemex governance and procurement processes, considering the company's challenges in meeting its financial objectives and the corruption scandals it has suffered in the past.

A company representative did not respond to requests for comment.

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 ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers" inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

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

MOSCOW (MRC) -- Covestro has lifted force majeure at its 270,000-metric tons/year toluene diisocyanate (TDI) plant in Dormagen, Germany, said Chemweek.

"We have lifted the force majeure for TDI in the EMEA [Europe, Middle East, and Africa] region on 1 November. Our TDI plant in Dormagen is up and running," says a spokesperson. The company declared force majeure mid-October, following the failure of a central pump at the facility, affecting all of its TDI products in the EMEA region. The plant had been undergoing maintenance and was originally expected to restart mid-October.

"The producer is recovering slowly but has not started the plant fully due to some challenges,” according to a market source. “They are still sourcing some TDI from their other plant in China,” the source adds.

Covestro’s TDI plant in Shanghai, China, has a capacity of 275,000 metric tons/year, according to IHS Markit data. Covestro took this TDI unit offline for 30 days from 22 October, and will supply from inventories, according to James Elliott, principal research analyst at IHS Markit.

As MRC informed earlier, Covestro has launched a new production line for polycarbonate (PC) films in the Map Ta Phut Industrial Estate in Thailand.

As MRC reported earlier, Covestro has closed the sale of its European polycarbonates (PC) sheets business to the Munich-based Serafin Group effective January 2, 2020. This includes key management and sales functions throughout Europe as well as production sites in Belgium and Italy.

According to MRC's ScanPlast report, overall estimated consumption of PC granules in the Russian market reached 58,000 tonnes in January-July 2020, up by 22% year on year (47,500 tonnes).

Covestro (formerly Bayer MaterialScience) is an independent subgroup within Bayer. It was created as part of the restructuring of Bayer AG from the former business group Bayer Polymers, with certain of its activities being spun off to Lanxess AG. Covestro manufactures and develops materials such as coatings, adhesives and sealants, polycarbonates (CDs, DVDs), polyurethanes (automotive seating, insulation for refrigerating appliances) etc. With 2019 sales of EUR12.4 billion, Covestro has 30 production sites worldwide and employs approximately 17,200 people (calculated as full-time equivalents) at the end of 2019.

MRC

MOSCOW (MRC) -- US crude exports for the week ended on Oct. 30 fell by 1.195 million b/d to 2.265 million b/d, the biggest week-on-week fall since Jan. 3, when exports were reported to have fallen nearly 1.4 million b/d from the week prior, reported S&P Global with reference to the US Energy Information Administration Nov. 4.

Not only were exports significantly lower on the week, but crude exports four-week moving average sunk to 2.724 million b/d, the lowest level since the period ended on Jun. 19, when the four-week moving average was at 2.713 million b/d.

Compared to the same time last year, the four-week moving average is around 700,000 b/d lower than the four-week moving average of 3.415 million b/d for the period ended on Oct. 25.

Looking ahead, S&P Global Platts Analytics expects US crude exports to remain around current levels through November, before continuing to fall in 2021 as declining US shale production results in fewer barrels being available.

Platts Analytics forecasts 2021 US production to be 1.2 million b/d lower during 2021 from 2020 levels, and 2 million b/d lower than the 2019 average. This fall in production is expected to result in weekly exports falling to around 2.1 million b/d on average through 2021.

As MRC wrote before, US exports fell to a 14-month-low over the week ended Oct. 9, and are expected to remain weak into 2021, as sources note poor demand in the export market. The US exported an average of 2.135 million b/d of crude over the weekend ended on Oct. 9, the lowest level since the week ended on August 2, 2019, when exports were reported at just 1.865 million b/d, according to weekly data from the US Energy Information Administration.

We remind that in August, 2020, US refiner Phillips 66 said it plans to reconfigure its refinery in Rodeo, California to produce renewable fuels from used cooking oil, fats, greases and soybean oils.

We also remind that US-based Phillips 66 remains open to developing another ethane cracker for its Chevron Phillips Chemical (CP Chem) joint venture, the refiner's CEO said in March 2018.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers" inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
MRC

MOSCOW (MRC) -- Crude oil prices pared back sharp overnight gains in mid-morning trade in Asia Nov. 10 as concerns over weak near-term demand fundamentals weighed on the rally spurred by the announcement of progress in the development of a vaccine, according to S&P Global.

At 10.40 am Singapore time (0240 GMT), ICE Brent January crude futures were down 46 cents/b (1.08%) from the Nov. 9 settle at USD41.94/b, while the NYMEX December light sweet crude contract was down 55 cents/b (1.37%) at USD39.74/b.

The markers had surged 7.48% and 8.48% Nov. 9 after Pfizer and BioNTech announced their COVID-19 vaccine had proven more than 90% effective in a phase 3 trial, but subsequently lost steam as more immediate concerns over the progression of the pandemic took precedence.

This came after New York City mayor Bill DeBlasio DeBlasio warned the city was "dangerously close" to second wave of the pandemic that could prompt another lockdown and shutter some parts of the economy, and New Jersey Governor Phil Murphy imposed light restrictions in the state and warned they could be tightened if the outbreak worsened, local media reported.

With many countries in Europe already under lockdowns of varying severity, the prospect of renewed restrictions in the US weighed on the market, with analysts noting that Pfizer and BioNTech's vaccine was still months away from commercial production and widespread distribution.

"Unquestionably the vaccine will be a game-changer for the oil complex. However, the pandemic still matters most for near-term concerns," AXI chief global market strategist Stephen Innes said in a Nov. 10 note. "As lockdowns in Europe accelerate and localized outbreaks in the US [become more severe], the oil market's top-side ambitions will be held in check; it will likely take six months for many of us to receive the vaccine," he added.

Meanwhile, indications of OPEC+ intervention continued to spur optimism, with Saudi energy minister Prince Abdulaziz bin Salman saying Nov. 9 at the ADIPEC virtual conference that the alliance may "tweak" its current supply agreement "beyond what the so-called analysts are talking about," depending on how circumstances evolve.

Analysts generally expect the OPEC+ alliance to maintain its current production cuts into 2021 instead of easing them by almost 2 million b/d as originally planned, but OPEC+ delegates have told S&P Global Platts that the cuts could even be deepened.

However, unanimous agreement by all OPEC+ members would be required for any change to be ratified.

"We have the ability to tweak if we have to tweak, but we have to all be convinced that that tweak is required," UAE energy minister Suhail al-Mazrouei said.

As MRC informed previously, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.

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.

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).

ccording to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
MRC

MOSCOW (MRC) -- BP and Danish renewable energy group Orsted have partnered to develop zero-carbon hydrogen at a German oil refinery, BP's first full-scale project in a sector that is expected to grow rapidly, reported Reuters.

The project will produce so-called green hydrogen at the Lingen refinery in north-west Germany through the electrolysis of water using wind power from the North Sea.

It is in its early stages and initially aims to build a 50 megawatt (MW) electrolyser to replace 20% of natural gas-based hydrogen at the plant, BP said in a statement. Production is expected to start in 2024.

The project could be expanded to up to 500 MW at a later stage to replace all of Lingen’s fossil fuel-based hydrogen, Louise Jacobson Plutt, BP’s senior vice president for hydrogen, told Reuters.

Hydrogen is today mostly used in the industrial sector as feedstock to make products such as fuels.

But the use of green hydrogen is expected to grow sharply in the coming decades as the European Union and governments around the world seek to reduce greenhouse gas emissions to net zero by 2050.

BP aims to expand its hydrogen output to 10% of the market by 2030.

Green hydrogen is however much more expensive than natural gas-based, or grey, hydrogen. Reducing its cost of production will be key to expand the use of the fuel.

“We see a path to (price) parity with grey hydrogen by the end of the decade” as more green hydrogen projects are launched and technology advances, Anders Nordstrom, Orsted vice president for hydrogen said.

The projected cost of the projected was not disclosed.

As MRC wrote previously, BP Australia plans to shut its 146,000 b/d Kwinana refinery in Western Australia and convert it into a fuel import terminal, according to the company's statment Oct. 30. The continued growth of large scale, export-oriented refineries throughout Asia and the Middle East has structurally changed the Australian market, BP said, adding that regional oversupply and sustained low refining margins mean the Kwinana refinery is no longer economically viable. Converting the refinery into an import terminal will help ensure ongoing security of fuel supply for Western Australia, the company said. Refining activities will wind down over the next six months and conversion works will carry on out to 2022.

We remind that a “technical defect” disrupted production at part of the Gelsenkirchen integrated refinery and petrochemicals complex in Germany, in late October. The company operates plants in the Horst and Scholven districts at Gelsenkirchen, with the defect occurring at Horst. BP sais it was working to resume normal operations as soon as possible. It did not specify which unit has been affected, with sources suggesting it was the fluid catalytic cracker, but this was not confirmed by the company.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

BP plc (formerly The British Petroleum Company plc and BP Amoco plc) is a British multinational oil and gas company headquartered in London, United Kingdom. It is one of the world's seven oil and gas "supermajors", whose performance in 2012, made it the world's sixth-largest oil and gas company, the sixth-largest energy company by market capitalization and the company with the world's 12th-largest revenue (turnover). It is a vertically integrated company operating in all areas of the oil and gas industry, including exploration and production, refining, distribution and marketing, power generation and trading. It also has renewable energy interests in biofuels, wind power, smart grid and solar technology.
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