Crude retreats as pandemic concerns overshadow US stimulus bill

MOSCOW (MRC) -- Crude futures settled lower Dec. 28 as pandemic-fueled demand concerns overshadowed the positive news of the passing of a US stimulus package, reported S&P Global.

NYMEX February WTI settled 61 cents lower at USD47.62/b and ICE February Brent pulled back 43 cents to be settled at US50.86/b.

Demand recovery outlook continued to face headwinds from the emergence of a more contagious strain of COVID-19. Several countries, including Canada, France, Japan, Spain and Norway, have reported cases of the new strain, and there are now fears that the variant may have been transmitted undetected to other countries, many of which do not conduct genomic sequencing as actively as the UK.

Another coronavirus mutation has been discovered in South Africa, and as a result, other areas like the UK and Hong Kong have banned arrivals from the African nation.

"Thin trading conditions should see oil prices consolidate for the rest of the week, but risks for a dollar rebound and nervousness ahead of next week's OPEC gathering could provide some headwinds," OANDA senior market analyst Ed Moya said in a note.

NYMEX January RBOB settled 1.12 cents lower at USD1.3677/gal and January ULSD finished down 1.1 cents at USD1.4790/gal.

US gasoline inventory builds likely resumed in the week ended Dec. 25 as the Christmas holiday weighed on already-weak driving demand, an S&P Global Platts analysis showed Dec. 28. Total US gasoline inventories are expected to have climbed 2.3 million barrels last week to around 240 million barrels, analysts surveyed by Platts said.

Apple mobility data showed US driving activity in the week ended Dec. 25 was down nearly 3% from the week prior, snapping back-to-back weekly gains in driving demand.

Total commercial crude inventories are expected to have declined 3.8 million barrels to around 495.7 million barrels in the week ended Dec. 25, analysts said. But despite likely drawing for a third straight week, inventories are expected to remain ample at nearly 11% above the five-year average.

Oil futures had rallied earlier in the session after US President Donald Trump on Dec. 27 signed a pandemic stimulus bill, ending several days of brinkmanship with Congress regarding the size of the relief payments and ensuring the continuation of federal unemployment benefits that had expired on Dec. 26.

The passage of the stimulus bill prompted US investment bank Goldman Sachs on Dec. 28 to revise its outlook for first quarter US GDP growth upward to 5% from 3%, according to media reports.

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% 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 decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- Alberta, home to Canada’s biggest concentration of chemical companies, hopes its new incentives program will not just attract investment to process plentiful hydrocarbons into value added plastic but also make the province a top hydrogen production region as well as a major recycling center, said Hydrocarbonprocessing.

Alberta’s associate minister of Natural Gas and Electricity, Dale Nally, said during a Reuters Events Downstream conference in November that the Alberta Petrochemical Incentive Program (APIP) targets USD30 billion in investments in new petrochemical plants as well as expanded facilities.

Alberta is Canada’s largest producer of petrochemicals “but we aim to reach higher and become a top global production powerhouse,” he said. Under the program, “companies investing in new facilities or expanding existing ones can receive 12% of their eligible capital costs back as grants once the facility is up and running,” he said.

Unlike a previous program in place, this makes it “easy for companies to factor in to their return on investment calculation” while also protecting Albertan taxpayers, he added. The new incentives replace a system of credit grants under which companies had to apply and qualify. The previous program also placed a limit.

“All projects will receive funding once they are successfully built and operational,” he said. “Unlike the previous incentive program, our government will not use a petitional evaluation process,” Nally added.

“Early last month we launched our natural gas vision and strategy which comprehensively outlines our focus for the natural gas sector,” Nally said. “Given our enormous reserves of natural gas, over 200 trillion cubic feet of potential recoverable gas, it is vital for Alberta to have a plan,” he added.

Despite the hydrocarbon abundance, investment in Alberta to develop petrochemical plants has lagged far behind that which went on in the United States Gulf Coast. The Alberta Petrochemical Incentive Program is an attempt to make future projects in Alberta more competitive by offering a direct cash incentive.

Despite an impact in 2020 from lower hydrocarbon prices, Alberta must make an effort to offer that incentive. Western Canada crude oils are heavy grades that sell at a deep discount to lighter crude oil grades such as West Texas Intermediate. Markets are relatively distant which requires transportation of the heavy grades.

Western Canada has also seen a progress slowdown in projects to process and ship LNG to Asia with some running slower than projected and others canceled. Covid-19 impacted hydrocarbon demand both in 2020 as well as the consumption projected for coming years. This has led to decisions to postpone investment decisions.

The reduced demand and weaker economic growth has led to project deferments. In Alberta, Pembina Pipeline and Kuwait’s Petrochemical Industries Company (PIC) deferred one of the two biggest petrochemical companies not only in Alberta but also across Canada. The deferment occurred in March. The Final Investment Decision announcement had been made in February 2019. A decision on whether to eventually proceed or not is pending.

We remind that PetroChina has nearly doubled the amount of Russian crude being processed at its refinery in Dalian, the company's biggest, since January 2018, as a new supply agreement had come into effect. The Dalian Petrochemical Corp, located in the northeast port city of Dalian, was expected to process 13 million tonnes, or 260,000 bpd of Russian pipeline crude in 2018, up by about 85 to 90 percent from the previous year's level. Dalian has the capacity to process about 410,000 bpd of crude. The increase follows an agreement worked out between the Russian and Chinese governments under which Russia's top oil producer Rosneft was to supply 30 million tonnes of ESPO Blend crude to PetroChina in 2018, or about 600,000 bpd. That would have represented an increase of 50 percent over 2017 volumes.

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

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- Expectations for a slow post-pandemic fuel demand recovery, which already shut down 2 MMbpd of refining capacity in 2020, will limit owners options in the future, said Hydrocarbonprocessing.

Demand erosion in 2020 for products like jet fuel, coupled with a weak outlook, means many closed refineries won’t go back to running crude, said Joseph Israel, president and CEO of Par Petroleum. “If you look at the recent months, the refinery closure list is pretty long, about two million barrels per day around the world,” Israel said during a Reuters Events Downstream conference in November.

Surviving refineries need to have a built-in flexibility to change the yield to maximize products that still have demand. The built-in flexibility also means capacity to run different grades of crude, he said. "Some refineries are not fortunate to have this flexibility," Israel said.

Some refinery owners “don’t have the balance sheet to hold and wait for better days,” he added. Par Pacific, which owns Par Petroleum, lists in its website 208,000 barrels per day (bpd) refining capacity in plants in Hawaii as well as in the Rockies and the Pacific Northwest. Its New York-listed shares traded in mid-November at less than half of where they were a year ago.

Total world crude oil demand was about 100 million bpd in 2019, roughly aligned with supply. The expectation at the time was for demand to grow along with increased economic activity. Before Covid-19, the projected world demand growth was for a 6 MMbpd increase in 3 years. Then demand for oil dropped by 20 MMbpd in the month of April or about 20% of the total, he added.

Many refineries had no option but to idle, he said. Some of these refineries that shut down in 2020 “will become terminals, some of them will become renewable diesel or biofuel plants,” Israel added.

Since the start of the pandemic, statistics related to Covid-19 hospitalizations in the world “only got worse month by month,” Israel said. Until the second quarter, oil demand deteriorated along with the intensification of the pandemic.

However, since about mid-year “oil demand took the other direction, and improved month by month” even as the pandemic continued to intensify, he added. “So in September-October we’re already back to 95% of pre-Covid numbers.” Nevertheless, the consensus for the oil demand loss in 2020 is likely to be about 8.5 MMbpd worldwide, he added.

In 2020, “emerging economies lost 3.3 MMbpd and you can see the U.S., Europe and all the industrialized countries with the same dynamic,” he said. The 2020 loss also included “3 MMbpd of gasoline demand, 3 MMbpd of jet fuel demand, and 1.7 MMbpd of diesel demand,” he said.

Early in the pandemic, as lockdowns were imposed, “gasoline got hurt the most and then from that point the recovery was the fastest,” he added. As for diesel, it has felt an impact correlated with economic growth. “The jet fuel loss this is definitely by far the worst impact and also the most consistent,” he added.

Pre-Covid there were 110,000 to 125,000 flights per day with that dropping to only 35,000 in the spring,” he said. It has only recovered to about 60,000 to 65,000, with international flights hit the most, he said. “So if you are an oil producer and you see 8.5 MMbpd of demand evaporating you have to do something,” Israel said.

As MRC informed earlier, Asian refining margins for jet fuel inched higher on Monday, but reimposed travel restrictions in several countries to slow the spread of a highly-infectious coronavirus variant is expected to dent passenger demand recovery. Refining margins, also known as cracks, for jet fuel ticked up USD0.05 to USD4.76/bbl over Dubai crude during Asian trading hours.

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

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

MRC

MOSCOW (MRC) -- Royal Dutch Shell, hit by a USD17.7 billion loss in the first nine-months of 2020 as Covid-19 slashed demand, will downsize to six refining-chemical integrated “parks” as part of a transition to lower carbon emission products, said Hydrocarbonprocessing.

The company sees production of renewables, as well as green hydrogen, playing a major role in its long-term sustainability. The success of this change will depend on whether there would be enough demand for low-carbon emission products as well as supporting government policies.

"As an industry we cannot simply supply lower carbon or more sustainable products if there is no demand,' said during a Reuters Events Downstream conference in late November Huibert Vigeveno, Shell’s downstream director. "Shell has the infrastructure, the system and the people to do it. We are playing our part to push things forward, but we need the pull too. We need the demand to make the transformation feasible and we need the right policies to encourage that demand,” he added.

Early this year Shell announced plans to become a net zero emissions energy business by 2050 or sooner. As an industry, “the business plans we have today will not make our ambition a reality. As society and our customers change over time, so too will our plans,” Vigeveno said. “Shell has been on the road to a low carbon future for some time. We are already much more than an oil and gas business,” he added.

To achieve the goal by 2050 “means finding ways to stop adding to the stock of greenhouse gases in the atmosphere."

“We want to turn our refineries into lower carbon sites that can respond better to changing future demands, what we will call energy and chemical parks, and the key is integration,” he said. “We will concentrate our portfolio into six sites mainly around the U.S. Gulf Coast, Northwest Europe and Singapore,” he added.

In addition to downsizing and changing refineries, the product portfolio will see changes, Vigeveno said "First we will work on net zero emissions for making our own products. Second, we seek to reduce the carbon intensity of the products we sell. This will mean selling more hydrogen, more biofuels and more renewable energy," he added.

“Thirdly, we, as a business that supplies energy, will work with sectors that use energy like aviation, heavy freight and shipping. We’ll help them find their own path to net zero,” Vigeveno added. “This is already happening. We are beginning to transform our refineries and our chemical sites,” Vigeveno said.

“Take our site in Rheinland, it’s the largest refinery in Germany and plays a significant role supplying fuel and products not just in Germany but in Switzerland and Austria as well,” he added. “The site is already integrated with our chemicals business which we plan to grow. In the future we aim to use recycled feedstock such as plastic waste, increase the use of biofuels, and produce sustainable aviation fuel on site,” he said.

“It is here that Shell and our partners are building the world’s largest PEM (Polymer electrolyte membrane) electrolizer to produce hydrogen using renewable energy. This production of what is called green hydrogen is a significant step in testing the feasibility of production on a large industrial scale,” he said. In the future, this hydrogen may feed the chemical processing on site or power fuel cell vehicles at Shell’s retail sites, Vigeveno added.

Shell is also already working with transportation companies to identify emission levels by ships moving commodities. The aim is to known and publish the data, as a first step to reducing it. Shell said on Sept. 30 it plans to cut operating costs with actions that would include up to 9,000 job reductions by the end of 2022. Shell is seeking a cost reduction of up to $4 billion by the first quarter 2021.

“This is an extremely tough time. We are making very difficult decisions. We are doing it because we have to,” Vigeveno said. Shell reported on Oct. 29 a loss for the first nine months of 2020 of USD17.7 billion, compared with USD14.9 billion net income in the same period a year earlier.

For the third quarter of 2020 Shell posted a net income attributable to shareholders of USD489 million, down 92% from USD5.9 billion in the same period of 2019. The third quarter and nine-month results “reflected lower realized prices for oil and LNG as well as lower realized refining margins and production volumes."

Earlier this year Shell closed the 110,000 bpd Tabangao plant in The Philippines because it was no longer economically viable. It will only remain as an import terminal, Reuters reported on Aug. 12. Shell decided to shut the Convent refinery in Louisiana, with 240,000 bpd capacity, after failing to find a buyer, The Advocate, a Louisiana-based newspaper, reported on Nov.5. Shell will continue efforts to try to sell the idled refinery, it said.

The Louisiana permanent shutdown is part of Shell’s asset consolidation from 14 sites down to six integrated complexes with the goal to produce more biofuels, hydrogen, and synthetic fuels as it transitions to a lower carbon footprint, The Advocate reported.

“It’s the right thing to do for the future of Shell and as an energy business we have to play our role in helping society reach net zero, and we can only do this if we change. We have to be simpler, more streamlined, and more competitive,” Vigeveno said. According to expert commentary also provided during the Reuters Events Downstream Conference, refineries without a built-in flexibility to adjust to the post-Covid fuel demand will have to be idled, turned to terminals, or converted into renewable fuel plants.

As MRC informed previously, Royal Dutch Shell plc. said in November that its petrochemical complex of several billion dollars in Western Pennsylvania is about 70% complete and in the process to enter service in the early 2020s. The plant's costs are estimated to be USD6-USD10 billion, where ethane will be transformed into plastic feedstock. The facility is equipped to produce 1.5 million metric tons per year (mmty) of ethylene and 1.6 mmty of polyethylene (PE), two important constituents of plastics.

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

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- Russia's overall polyethylene (PE) production totalled 2,722,000 tonnes in the first eleven months of 2020, up by 66% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output, according to MRC's ScanPlast report.

November total PE production in Russia rose to 272,800 tonnes, whereas this figure was at 244,900 tonnes a month earlier, Kazanorgsintez an ZapSibNeftekhim increased their capacity utilisation in the first month of calender winter. Thus, overall PE output in the country reached 2,722,000 tonnes in January-November 2020, compared to 1,639,000 tonnes a year earlier. Production of all PE grades increased, with low density polyethylene (LDPE) being the exception.

The PE production structure by grades looked the following way over the stated period.

November total high density polyethylene (HDPE) production reached 158,600 tonnes versus 140,200 tonnes a month earlier, Kazanorgsintez and ZapSibNeftekhim raised their output. Russian plants' overall HDPE output reached 1,664,400 tonnes in January-November 2020, up by 99% year on year.

Last month's total LDPE production grew to 55,500 tonnes from 50,900 tonnes in October, some Ufaorgsintez and Kazanorgsintez's production capacities were shut for maintenance in October. Thus, overall production of this PE grade totalled 574,600 tonnes over the stated period, down by 2% year on year.

November LLDPE production rose to 58,700 tonnes from 53,800 tonnes a month earlier, Kazanorgsintez increased its output. Overall LLDPE production grew to 482,900 tonnes in the first eleven months of 2020 from 218,600 tonnes a year earlier.

MRC