Pena Nieto proposes sweeping oil reform in Mexico

MOSCOW (MRC) -- Mexico's president has proposed an ambitious overhaul of Mexico's energy industry that would change the constitution to offer private companies profit-sharing contracts, according to Upstreamonline.

However, investors said the proposal might be too cautious, prompting a selloff of some Mexican assets, Reuters reported.

President Enrique Pena Nieto's proposal calls for changes to key constitutional rules that make oil and gas exploitation the sole preserve of the state. The changes are aimed at attracting new investment to stem sliding oil output.

If enacted, the reform would mark the largest private sector opening in decades for Mexico's oil and gas industry, which was nationalised in 1938 and is controlled by state monopoly Pemex.

The proposals will be sent to Congress this week and they are expected to pass because the government has backed away from more aggressive reform that would have faced bitter opposition from the left.

The government would also offer permits in association with Pemex to refine, transport and store hydrocarbons and petrochemicals.

Under the proposal, the state would also retain control of electricity transmission and distribution currently controlled by state monopoly CFE, while strengthening electricity regulator CRE and the energy ministry. But it would further open electricity generation to more private investment.

The reform would ease the financial burden on Pemex, lessening the amount it props up the government and using the leftover money to reinvest in the company, or to be paid out as a dividend for the government to invest in public spending.

Pena Nieto said the reforms would allow Mexico to boost oil output to 3 million bpd by 2018 and to 3.5 million bpd by 2025.

As MRC reported earlier, in early 2013, Mexichem announced that Pemex's Management Board authorized the co-investment between Pemex Petroquimica and Mexichem, seeking to bring viability and generate value in the country's VCM chain.

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).

Lanxess expects 2013 to remain challenging

MOSCOW (MRC) -- German specialty chemicals company LANXESS expects the business year 2013 to remain challenging after the German specialty chemicals company posted a decline in second quarter sales and earnings, reported the company on its site.

Compared to the strong second quarter of the previous year, sales were down by roughly 12 percent to EUR 2.1 billion in the second quarter of 2013. EBITDA pre exceptionals declined by 45 percent against the prior-year period to EUR 198 million and was in the middle of the guided range of EUR 174-220 million. Net income declined by 95 percent year-on-year to EUR 9 million.

In contrast to expectations in May, LANXESS does not see an improvement in business conditions in the second half of the year. Customers continue to destock their inventories, noticeably in Asia, and overall consumer sentiment remains weak.

For the year 2013, the company has substantiated its outlook given in May of EBITDA pre exceptionals of less than EUR one billion. LANXESS now anticipates EBITDA pre exceptionals of EUR 700-800 million, excluding potential inventory devaluations.

Against the background of the continuing weak demand in the current business year, the target of EUR 1.4 billion EBITDA pre exceptionals in 2014 is no longer realistic, even taking into account an expected upturn in demand next year.

Despite the difficult conditions, LANXESS is maintaining its mid-term target of EUR 1.8 billion EBITDA pre exceptionals in 2018, although it has become more challenging to reach it.

We remind that, as MRC wrote previously, in July 2013, LANXESS celebrated the opening of its first production facility in Russia. In the new plant at the Lipetsk site, LANXESS subsidiary Rhein Chemie manufactures polymer-bound rubber additives for the markets in Russia and the Commonwealth of Independent States (CIS), primarily for the automotive and tire industries. A production facility for the bladders used in tire production is to be added in 2016. The overall investment volume in euros amounts to a seven-digit figure and 40 new jobs will be created at the new plant in the medium term.

LANXESS is a leading specialty chemicals company with sales of EUR 9.1 billion in 2012. The company is currently represented at 50 production sites worldwide. The core business of LANXESS is the development, manufacturing and marketing of plastics, rubber, intermediates and specialty chemicals. The Butyl Rubber business unit is part of LANXESS’ Performance Polymers segment, which recorded sales of EUR 5.2 billion in 2012.

Shell closes its Egypt office

MOSCOW (MRC) -- Anglo-Dutch supermajor Shell has closed its offices in Egypt for the next few days and restricted business travel there after at least 525 people were killed in a security crackdown, according Upstreamonline.

Shell gave no details in a Reuters report on how many staff were affected by the closures nor where the offices were located.

A spokesman could not immediately say whether oil installations - mostly in the Western Desert and Nile delta - were affected.

"To ensure the safety and security of our staff, Shell offices in Egypt are closed for business today and into the weekend and business travel into the country has been restricted. We will continue to monitor the situation in Egypt," he said in a statement.

Among other big oil companies operating in Egypt, BP had no immediate update to provide.

A spokesman for BG, whose offshore LNG operations account for about a fifth of its production and which pulled out 100 expatriate staff and dependents in July, said there was no change to report.

"All our people are safe and accounted for, and we continue to monitor the situation," a BG spokesman said.

As MRC wrote before, Shell is to continue its round of asset sales in Nigeria as it looks to offload a pair each of onshore and offshore blocks. The Anglo-Dutch supermajor is selling oil mining licenses (OML) 13 and 16 onshore as well as 71 and 72 offshore.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. The present Shell’s strategy is to concentrate its global downstream businesses where it can be most competitive. Recent examples include the sale of refineries in the UK and Germany and downstream businesses in Finland and Sweden, as well as the establishment of joint ventures in Brazil and across Africa.

Oman to invite bids on USD3.5bn petrochems plant

МОSCOW (MRC) -- Oman plans to invite bids to build a USD3.5bn steam cracker plant with an annual production capacity of 1 million tonnes of petrochemical products, two sources close to the project said Constructionweekonline.

The planned cracker would be built in the northern industrial port city of Sohar and produce polypropylene and polyethylene.

The project will include building a 300km pipeline, a gas extraction plant and headquarters buildings, one industry source, speaking on condition of anonymity, told Reuters.

It will be financed by state-owned Oman Oil Refineries and Petroleum Industries Co (Orpic), which owns oil refineries in Sohar and Muscat. Orpic has so far declined to comment.

A second source said bids would be invited next month and the project was scheduled to be completed in 2016.

Oman is expanding the capacity of the Sohar refinery to 180,000 barrels per day from the current level of 116,000 bpd. The Gulf state has another refinery in Muscat producing 106,000 bpd. It also plans to build a 230,000 bpd refinery at Duqm. Orpic is also designing a 280km pipeline to carry refined products between Muscat and Sohar.

We remind that in late 2012 Orpic announced that its production of world class high quality polypropylene homopolymer at Sohar plant has crossed 1 million tonnes. This was a significant milestone for the polypropylene (PP) plant in Sohar, which began production in October 2006.

Petrochemicals sector of Saudi Arabia facing greater competition

MOSCOW (MRC) -- Rising competition and the threat of higher costs at home could see Saudi Arabian petrochemicals industry come under increased pressure. However, these impending challenges have so far failed to slow the progress of new projects being rolled out across the Kingdom, said Spyghana.

A report issued by National Commercial Bank (NCB) in mid-July said that while Saudi petrochemicals producers benefited from low costs thanks to subsidised feedstock, some of this advantage could be eroded in the coming years as vast new shale gas reserves come on-line in the US and elsewhere. With international natural gas prices likely to come down, local producers could find their comparative advantage challenged and profit margins reduced, the report said.

In the shorter term, the slowing global economy is also set to squeeze earnings, as will increased petrochemical production capacity in Asia and elsewhere in the Middle East. On July 23, Oman announced it would be developing a USD3.6bn polyethylene and polypropylene plant, which will raise the Sultanate’s petrochemicals production capacity to 1.4m tonnes per year. While nowhere near the output of some of Saudi Arabia’s leading producers, the Omani move is indicative of a rise in regional competition.

Some of this forecast pressure was reflected in the recent financial results of a number of the Kingdom’s leading petrochemicals firms. On July 21, Saudi Arabia Basic Industries Corporation (SABIC) announced its second quarter net profits of USD1.6bn that, while up by 12%, were below market expectations. SABIC, the world’s largest petrochemicals group in terms of market value, saw Q2 sales fall 3.2% year-on-year to USD12bn, a result it said was due to lower demand in key markets in Europe and China, with sales of some main line products such as petrochemicals, metals and fertilisers, down. The corporation said its improved profits were due in part to lower costs.

Pressure on industry players is likely to come from a different direction as well, with calls for the Saudi government to lift its base rate for gas, a move that would raise costs for petrochemical companies but which would act as an incentive for gas producers to boost production and develop new reserves. The official rate for gas paid by the state is set at USD0.75 per million British thermal units (Btu), among the lowest in the world. By comparison, 1m Btu costs close to USD4 in the US and up to USD12 in Japan, though these rates could fall, especially in the US, as shale gas deposits are developed commercially.

These potential problems do not appear to have deterred investors. In July alone, plans have been announced for a USD517m butanol plant at Jubail Industrial City, a joint venture between Saudi Kayan, Sadara Chemical and the Saudi Acrylic Acid Company, and SABIC awarded a USD387m design-and-build contract to Spanish firm Dragados for a new 50,000 tonne-per-year polyacetal plant that will product plastics for the automotive industry.

As long as Saudi Arabia’s petrochemicals sector can maintain its competitive pricing edge, it will continue to be one of the driving forces of the economy. However, it is expected that earnings margins will be tightened in the medium term, as more rivals enter the market and cheaper feedstock becomes more widely available.