China petrochemical expansion to overwhelm Japan, South Korea producers

MOSCOW (MRC) -- A massive surge in China’s manufacturing capacity for paraxylene, a petrochemical used to make textile fibers and bottles, could force leading exporters in Japan and South Korea to cut production as early as the second quarter of 2020, said Hydrocarbonprocessing.

China will add about 10 million tones of paraxylene manufacturing capacity from March 2019 to March 2020, according to company reports and officials, that is enough for making 22 trillion 500-milliliter plastic bottles.

The world’s top consumer of paraxylene (PX), China imports 60% of its need for the chemical to feed polyester demand that has more than doubled since 2010. Over half of China’s PX imports come from South Korea and Japan and the new capacity is expected to cut Chinese imports by about 50%.

Without Chinese demand, the profit margins for regional manufacturers such as Japan’s JXTG Holdings Inc (5020.T), South Korea’s Lotte Chemical (011170.KS) and Hyundai Cosmo Petrochemical and domestic producer Dalian Fujia are expected to drop further, likely causing a rollback in output and decline in earnings.

“We will see drastic cutbacks in PX operating rates among many Asian exporters, and potential capacity rationalization in sites where integrated refining-aromatics margins are poor,” said Darryl Xu, principal analyst for Asia chemicals at consultancy Wood Mackenzie.

Private companies are leading China’s latest PX boom through a string of projects often integrated with big oil refineries which make them more cost competitive and flexible.

China’s Hengli Group launched in March a PX plant capable of producing 4.5 million tonne per year (tpy) in the city of Dalian and Zhejiang Petrochemical is slated to start a 4 million tpy plant in Zhoushan late in 2019.

In July, Shandong-based Hongrun Petrochemical began trial runs at its 700,000 tpy plant and China Petroleum and Chemical Corp, or Sinopec (0386.HK), will start a plant in Hainan producing 1 million tpy in the third quarter.

Helen Yang, a researcher at JLC Consultancy, estimated China’s PX imports could fall to 7 million tonnes next year and further to 4 million tonnes in 2021. Imports this year will be 12.6 million tonnes, the first annual decline in over a decade, down from a record 16 million tonnes in 2018.
MRC

MOSCOW (MRC) -- India’s Mangalore Refinery and Petrochemicals Ltd has shut Phase-3 units at its 300,000 barrels per day (bpd) refinery in southern India due to a minor landslide, according to a company statement, as per Reuters.

Phase-3 project comprises a 60,000-bpd crude unit and some secondary units.

"The landslide has affected a pipe rack carrying pipelines between the process units and as a precautionary measure, the units in the Phase-3 complex have been temporarily shut down," the company said.

The other two crude units at the refinery are still in operation, the company said.

A company official said the Phase-3 project has been shut for the last three days.

As MRC informed earlier, in June, Mangalore Refinery and Petrochemicals Ltd will operate its 300,000 barrels-per-day refinery in southern India at about 50 percent capacity due to water shortage.

Mangalore Refinery and Petrochemicals Limited (MRPL), is an oil refinery at Mangalore and is a subsidiary of ONGC, set up in 1993. The refinery is located at Katipalla, north from centre of Mangalore city. The refinery was established after displacing five villages of Bala, Kalavar, Kuthetoor, Katipalla, and Adyapadi.
MRC

MOSCOW (MRC0 -- Finding a buyer for Philadelphia Energy Solutions’ oil refinery has grown urgent as the bankrupt company’s funds dwindle and no signs emerge that it is winning a fight for insurance payouts after a June blaze at the plant, reported Reuters with reference to court documents and bankruptcy experts.

Without access to the more than USD1 billion in insurance coverage, selling the refinery has become one of the company’s only options to raise cash before being forced to liquidate.

At least three parties have potential proposals to buy the shut Philadelphia refinery, each with plans to reopen the 1,300-acre (5.3-square km) site with a mix of oil refining and alternative energy production, sources familiar with the plans said.

Initial meetings are scheduled between the prospective buyers and a collection of vetters over the next several weeks, but it is unclear how long it would take for any official bid to come together, the sources said.

PES was not available for comment on whether it had reviewed any of the proposals or how viable it considered them to be.

For the second time in less than two years, PES filed for Chapter 11 bankruptcy on July 21, exactly a month after fire and blasts destroyed an alkylation unit at the 335,000-barrel-per-day refinery.

PES shut its final crude unit in late July, and more than 600 workers are in the process of being laid off without severance pay or the option for continued health insurance.

The company has no prepackaged arrangement to restructure the business or income from running the refinery, the largest in the US Northeast, raising the likelihood it will be forced to liquidate.

“They’re playing a game against the clock,” said Christina Simeone, a senior fellow at the Kleinman Center for Energy Policy at the University of Pennsylvania, who wrote a report last year predicting the refinery would close by 2022 due to poor economics.

To emerge from bankruptcy, PES needs to tap into USD1.25 billion in property damage and loss of business insurance coverage, according to court filings. So far, PES has been denied requests for payment, and at least one creditor has surfaced to fight for any future insurance proceeds. Seven others are objecting to PES’ bankruptcy plan.

It is unclear how much is left of the initial $65 million bankruptcy loan PES secured at the start of the process, which is needed to pay for attorneys, wind down the massive refinery complex, utility bills and salaries.

PES recently asked the court to retain law firm Kirkland and Ellis for USD4.6 million and another firm for USD1 million, according to court documents.

On Friday, the US Trustee appointed to the bankruptcy case objected to Kirkland and Ellis, saying the firm has represented PES’s largest equity holders in unrelated matters, creating a potential conflict of interest, court documents show.

“Given the incident which precipitated the filing of this Chapter 11 proceeding, there is a strong likelihood that the assets of the debtor will be liquidated rather than reorganized,” the trustee wrote in court documents.

PES hired investment bank PJT Partners about two weeks ago to market the site. PJT declined to comment on its efforts to find a buyer.

Companies in Chapter 11 bankruptcies generally face two scenarios when attempting to sell assets, said Eric Snyder, a bankruptcy expert and partner at New York-based law firm Wilk Auslander, who is not working on PES’ case.

With the luxury of time, companies can enter into an agreement with a single bidder to be decided on by a bankruptcy court judge. Or, they can hold a bare auction, opening up the sale to all qualified bidders for a set period of time.

If no deal comes together before the company runs out of money, it could be forced to start Chapter 7 liquidation, Snyder said. Chapter 11 is a generally better outcome for creditors, as assets tend to fall in value during liquidation, which would leave them with less chance to collect on what they are owed.

“It’s in the creditors’ best interest to try to make it through Chapter 11, but for people interested in the PES site for future uses, it’s far better for it to go to Chapter 7,” the Kleinman Center’s Simeone said.
MRC

MOSCOW (MRC) -- Indian Oil Corporation Limited (IOCL), the country’s top refiner, has plans to take off-stream, its naphtha cracker for a planned turnaround, according to Apic-online.

A Polymerupdate source in India, informed that, the company has scheduled a turnaround at the cracker, in early-September, 2019. The cracker is slated to remain off-line, for a period of around one month.

Located in Panipat, in the northern Indian state of Haryana, the cracker has an ethylene production capacity of 857,000 mt/year and propylene capacity of 425,000 mt/year.

As MRC reported before, Indian Oil witnessed a massive blast in its refinery at Panipat, Haryana. A domestic source informed then that the blast took place in the naphtha cracker of the refinery in the afternoon, on 22 January 2018. One contractual employee of IOCL was reportedly killed in the accident while 5 others were injured.

Indian Oil Corporation Limited, or IndianOil, is an Indian state-owned oil and gas corporation with its headquarters in New Delhi, India.
MRC

MOSCOW (MRC) -- BP and Glencore are struggling to sell around 600,000 tons of tainted Russian oil more than three months after the contamination was discovered, according to six trading sources, said Hydrocarbonprocessing.

Russia’s oil industry was plunged into a crisis in April after about 5 million tons of oil for export was found to be contaminated with organic chloride, a chemical used to help boost oil extraction but which can damage refining equipment.

Exports through the Druzhba pipeline that transports oil to Germany, Poland, Hungary, Slovakia, the Czech Republic, Ukraine and Belarus were halted. The Baltic port of Ust Luga loaded some 15 cargoes or 1.5 million tons of the contaminated oil for Western buyers.

At least 6 cargoes that sailed from Ust Luga remain unsold, according the trading sources. Glencore is stuck with 500,000 tons in one very large crude carrier (VLCC) Amyntas and two smaller tankers - Searanger and Searuby, according to the sources and Refinitiv Eikon vessel tracking system.

BP has tried to sell its cargo Fsl Shanghai at a tender earlier this month but failed, according to the same traders. BP and Glencore both bought the oil from Russian state oil major Rosneft.

BP and Glencore declined to comment. Rosneft did not respond to a Reuters request to comment. They cannot claim compensation until they sell the oil.

"You can’t file a claim against Russia until you have actually sold your oil and counted your losses," one of the trading sources said. President Vladimir Putin said in April oil contamination had damaged Russia’s image as a reliable supplier. Transneft and Rosneft have been at loggerheads over efforts to resolve the situation.

The oil was transported by pipeline monopoly Transneft, which said it was ready to pay compensation to Russian shippers which in turn would pay compensations to overseas buyers.

Transneft and the Russian Energy ministry did not respond to Reuters requests to comment. So far, Transneft has only agreed to pay USD15 per barrel in compensation, or roughly a quarter of the cost of the oil, to Kazakh oil producers, whose barrels got contaminated while en route to Western markets.

“Many buyers of Russian oil believe USD15 per barrel won’t be enough,” a trading source in a major said. Some consumers who received tainted oil consider USD30 per barrel as reasonable compensation, two traders involved in the discussions said.

Several refiners, including Total’s Leuna in Germany, had to temporarily suspend refining of Russian oil because of fears of damaging refining equipment.

Another source with a large Western buyer said consumers would most likely file claims in the autumn when they finally manage to refine the dirty oil. Oil firms have to blend one barrel of tainted oil with as much as 10 barrels of clean oil to reach required quality standards and avoid damaging equipment, sources said.

Total, for example, offloaded its two tankers with dirty oil in Rotterdam and Lithuania for storage and blending and further refining.
MRC