Sinopec to launch USD5.7 B refinery

MOSCOW (MRC) -- China’s Sinopec Corp is set to launch a new USD5.7 billion refining and petrochemical complex in the south of the country in second-quarter 2020 using crude oil from Kuwait as a key feedstock, industry officials with knowledge of the matter said, as per Reuters.

The project being developed by Asia’s top refiner, a 200,000 barrels-per-day (bpd) plant in Zhanjiang, a coastal city in Guangdong province, will become the third greenfield refinery-petrochemical complex to be built in China within a space of two years.

Sinopec is seeking to finalize a crude oil supply deal that will help boost Kuwait’s oil sales to China to a record of nearly 600,000 bpd next year, the sources said. They declined to be identified because they were not authorized to talk to media.

The 40 billion yuan ($5.69 billion) complex comes on the heels of two privately invested mega-refineries - Hengli Petrochemical and Zhejiang Petrochemical Corp - that have piled onto an over-supplied domestic fuel market where demand for transportation fuels slowed and China’s fuel exports soared.

Sinopec did not respond to a request for comment.

The refinery is slated for start-up in April, followed by an ethylene plant in June next year, said one official briefed on the progress of the plant, located on Donghai island, Zhanjiang.

As MRC wrote earlier, in mid-September 2019, SIBUR Holding (SIBUR) and China Petroleum & Chemical Corporation (Sinopec) signed a framework cooperation agreement to produce SEBS (styrene, ethylene and butylene-based block copolymers). SEBS is a pelletised modifier for thermoplastics used to impart elasticity to plastic materials or as a primary polymer to produce elastic components. SEBS boasts excellent durability and is leveraged across a variety of industries such as plastics and bitumen modification, adhesives, modification compounds, and toys. Under the agreement, SIBUR and Sinopec will establish a 50/50 joint venture (JV) in Russia to produce at least 20 ktpa of SEBS.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,589,580 tonnes in the first nine months of 2019, up by 7% year on year. Shipments of all PE grades increased. The estimated PP consumption in the Russian market was 976,790 tonnes in January-September 2019, up by 4% year on year. Shipments of PP block copolymer and homopolymer PP increased.

Sinopec Corp. is one of the largest scale integrated energy and chemical company with upstream, midstream and downstream operations. Its principal business includes: exploring, developing, producing and trading crude oil and natural gas; producing, storing, transporting and distributing and marketing petroleum products, petrochemical products, synthetic fiber, fertilizer and other chemical products. Its refining capacity and ethylene capacity rank No.2 and No.4 globally. Sinopec listed in Hong Kong, New York, London and Shanghai in August 2001. Sinopec Group, the parent company of Sinopec Corp., is ranked the 5th in Fortune Global 500 in 2012.
MRC

MOSCOW (MRC) -- BASF has broken ground on a USD10bn petrochemical complex in southern China, becoming the latest foreign company to increase its presence in the country as Beijing gradually relaxes restrictions on overseas investment, said the company.

Martin Brudermuller, the German chemical group’s chief executive, said the facility in Guangdong province is the largest investment in BASF’s 154-year history and reflects confidence in the growth of the Chinese market.

The company forecasts that China will account for 50 per cent of global chemical demand by 2030, up from 40 per cent today. BASF said the plant would be fully operational within a decade and employ thousands of workers.

Beijing loosened restrictions that excluded foreign companies from investing or taking ownership stakes in industrial and financial sectors after the pace of growth of foreign direct investment into China slowed to just 3 per cent last year.

Foreign companies have long been excluded from several high-growth sectors or forced to form joint ventures with Chinese companies. US and European chambers of commerce have called on Beijing to accelerate access for foreign investment.

The BASF facility, in the city of Zhanjiang, is the first of its kind in China that will be fully owned by the company after Beijing allowed full foreign ownership of chemical “cracking” facilities used to produce plastics.

BASF said the plant would produce 60,000 metric tonnes of plastic by 2022. Chinese central government officials attended the groundbreaking ceremony on Saturday.

As MRC informed before, in early September 2019, SIBUR, the largest petrochemical comples in Russia and Eastern Europe, and BASF, Geman petrochemical major, agreed to closely cooperate on sustainable development to share their best practices. SIBUR held a design session on sustainable development in the petrochemical industry. At the event, BASF shared details on its new sustainability strategy and its integration into the company's overall strategy. The participants were also presented with the company's methods of environmental impact assessment and approach to the circular economy, which embraces opportunities for chemical recycling of plastics, such as the ChemCycling project. With chemical recycling, fossil resources for chemical production can be replaced with recycled material from plastic waste.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,589,580 tonnes in the first nine months of 2019, up by 7% year on year. Shipments of all PE grades increased. The estimated PP consumption in the Russian market was 976,790 tonnes in January-September 2019, up by 4% year on year. Shipments of PP block copolymer and homopolymer PP increased.

BASF is the leading chemical company. It produces a wide range of chemicals, for example solvents, amines, resins, glues, electronic-grade chemicals, industrial gases, basic petrochemicals and inorganic chemicals. The most important customers for this segment are the pharmaceutical, construction, textile and automotive industries.
MRC

MOSCOW (MRC) -- Premiums for January-loading ESPO Blend crude oil have dropped after rising to a record last month as Chinese refineries cut purchases before the Lunar New Year holidays and as refining margins fell, several trade sources said, as per Hydrocarbonprocessing.

The drop in spot premiums for Russian ESPO ESPO-DUB, one of the most popular crude grades for Chinese independent oil refiners, also known as “teapots”, could signal softer demand for other types such as Brazil’s Lula and Angolan crude.

Russian oil producer Surgutneftegaz sold late on Wednesday two 740,000-barrel ESPO cargoes, loading over Jan. 8-15 and Jan. 11-18, at premiums of around $6.60-$6.90 a barrel to Dubai quotes, the sources said.

Russia’s Paramount Energy also sold about four cargoes of January-loading ESPO crude at premiums of around USD6.50-USD7 a barrel to Dubai quotes, with the late-January loading cargoes sold at the lower end of the price range, the sources said. The buyers of the cargoes are not immediately known.

The premiums are nearly USD1 a barrel lower than a Surgutneftegaz ESPO tender awarded on Monday for cargoes loading on Dec. 31-Jan. 5 and Jan. 4-9, which were sold at about USD7.60 and about USD7.80 a barrel.

Some traders attributed the falling ESPO spot premiums to weak Chinese crude demand as cargoes loading in mid-and late-January from Russian’s Kozmino port will arrive in China close to the Lunar New Year holiday starting on Jan. 24 when the country winds down economic activity.

Crude purchases from China, the world’s top oil importer, are also declining because of falling refining margins. In November margins for plants across the country averaged about 160 yuan per tonne, or USD3.11 a barrel, down from 200 yuan per tonne, or USD3.89 a barrel, in October, according to data from Wang Zhao, an analyst at Sublime China Information Co.

As MRC informed earlier, Kazakhstan plans to increase the transit of Russian oil to China by 30 percent after 2023. Russia’s Rosneft currently sends 10 million tons of oil annually to China through Kazakhstan under a deal which will last until 2023. Some of Rosneft’s oil is consumed by a Kazakh refinery and replaced under a swap arrangement.

We remind that, Russia's output of chemical products rose in October 2019 by 5.4% month on month.
However, production of basic chemicals increased by 3.9% in the first ten months of 2019. According to the Federal State Statistics Service of the Russian Federation, the largest increase in production volumes on an annualized basis accounted for mineral fertilizers and polymers in primary form. Thus, 210 ,000 tonnes of ethylene were produced in October, compared to 200,000 tonnes a month earlier. Limited production was a result of scheduled shutdowns of several large producers in September-October.
MRC

MOSCOW (MRC) -- The physical crude oil market and the structure of the oil futures curve have rarely been more aligned over the past few years than in recent weeks, and they tell a counterintuitive story of a tight oil market next year, reported Reuters.

While OPEC and the International Energy Agency point to a swelling oil glut next year due to booming non-OPEC supplies including in the United States, the physical market offers a different story.

Traders are prepared to pay near-record premiums for sweeter barrels as new marine fuel regulations from 2020 encourage refiners to switch to crude grades that produce smaller quantities of high-sulfur fuel oil.

However, premiums for heavier grades, which produce more fuel oil, also continue to rally due to a deficit created by US sanctions on Iran and Venezuela.

In addition, the structure of the oil futures market shows that premiums of front months to later dates – known as backwardation - have narrowed in recent weeks, also suggesting the market’s expectations of a glut are diminishing somewhat.

To be sure, benchmark oil futures do not necessarily follow the physical market and could still decline next year if global oil demand falls because of the U.S.-China trade dispute or if US oil output surprises again on the upside.

Soaring physical crude prices are also negatively impacting refining margins, often prompting refiners to cut processing.

New marine fuel rules have created a rally in certain crude oil grades. From January 2020, the United Nations’ International Maritime Organization (IMO) will ban ships from using fuels with a sulfur content above 0.5%, compared with 3.5% now, unless they have sulfur-cleaning kits called scrubbers.

Nigeria’s biggest crude stream, Qua Iboe, is valued at a premium of USD3.30 a barrel, the highest since 2013, Refinitiv Eikon data shows. Azeri Light, or BTC, has a premium of USD5.10 to the benchmark, its highest since 2013.

Both crudes are valued especially highly by simple refineries as they are ideal for producing IMO-compliant bunker fuel oil, said Eugene Lindell, an analyst at JBC Energy in Vienna.

"The focus now is on not producing high-sulfur fuel oil at all costs. If you are a simple refinery, it comes down to choosing the right crude,” he said.

“The end result is a lot of people are going to be seeking these grades and that boosts the price. They will remain strong and may increase further."

While the rally in those two light, sweet grades stands out, sour crudes such as Russian Urals have been supported by other factors. Urals in northwest Europe is trading at a premium of USD1 a barrel to dated Brent, a record high.

"The strength in sour crudes, despite IMO 2020, is due to the loss of sour crude supplies from Venezuela and Iran and high demand for heavy molecules to feed the conversion units of more complex refineries," analysts at Energy Aspects wrote.

US sanctions on Iran and Venezuela have forced the two OPEC members to cut oil exports sharply, tightening the market for sour crude.

Voluntary OPEC cuts due to a supply pact that producers are expected to renew in December have also curbed output. Expectations of a growth slowdown in U.S. shale could also tighten the market further.

North Sea crude grades, which underpin the Brent futures contract, are also rallying. Ekofisk, one of the five grades that can set the value of dated Brent, jumped to its highest since 2013 on Tuesday.

The rally in physical crude is being reflected in strengthening time spreads in the Brent futures market, even though the outright price at USD62 a barrel is well below this year’s high of USD75.

The first-month Brent contract is trading at a premium to the second month, indicating current tight supply. Backwardation persists for future months, although it becomes shallower next year.

"We expect Brent oil prices to continue trading around our ISD60-a-barrel forecast with backwardation likely to persist as the ongoing OPEC cuts and slowing shale activity offset rising other non-OPEC supply and moderate demand growth," Goldman Sachs said in a report this month.
MRC

MOSCOW (MRC) -- With Saudi Aramco yet to name any major foreign investors in its upcoming share sale, Malaysia’s state energy company Petronas decided to take a pass, reported Reuters.

Expectations that Aramco customers and allies around the world would take significant stakes in the company have so far not materialized, with the listing looking like it will be reliant on local retail and institutional investors.

Petronas follows Russia’s second largest oil producer Lukoil in turning its back on the initial public offering (IPO) which is likely to rank Aramco as the world’s most valuable company.

Petronas and Aramco have a joint venture in a USD27 billion refinery and petrochemicals complex in southern Malaysia that is set to start commercial operations this year.

Aramco kicked off the sale process on Nov. 3 after a series of false starts and Petronas, which has a joint venture with the Saudi firm in Malaysia, said it had been asked to invest.

"Petronas would like to confirm that after due consideration, the company has decided not to participate in Saudi Aramco’s initial public offering exercise," Petronas said in an emailed statement.

Aramco is a major oil supplier to China, Japan and South Korea and their plans for the IPO are not yet clear, however, the head of Japan’s largest refiner said earlier this month that Japanese companies were unlikely to invest because it was difficult to ascertain Aramco’s true value.

Aramco plans to sell 1.5% of the company, looking to raise up to USD25.6 billion and giving the company a potential market value of between USD1.6 trillion and USD1.7 trillion.

It is the centerpiece of Crown Prince Mohammed bin Salman’s plans to diversify the Saudi economy away from its reliance on oil.

But the company has canceled marketing roadshows for its listing outside of the Gulf because of the lack of interest from foreign institutional investors.

That has raised questions about to what extent the listing can really diversify the country’s economic interests.

"Just selling a 1.5% stake in an oil company is not really going to achieve an enormous amount," said Charles Hollis, a former UK-Saudi diplomat and director at intelligence consultancy Falanx Assynt.

Aramco did not immediately respond to a request for comment on potential anchor investments or the impact its IPO will have on diversifying the economy.

Saudi Arabia’s Samba Financial Group said on Thursday that the IPO has attracted about 73 billion riyals (USD19.47 billion) in institutional and retail orders so far.

Although no major state company or fund has stepped forward, talks have been taking place with sovereign investors including the Abu Dhabi Investment Authority, Singapore’s GIC and other funds, sources have told Reuters.

As MRC informed earlier, Saudi Aramco, which temporarily lost half of its oil production following the September 14 attacks on two key oil facilities, is running its local refineries at full capacity and is forging ahead with plans to start up new refineries. The company is also starting up a joint venture refinery in Malaysia next year. According to Aramco's bond prospectus released in April, the refining and petrochemical joint venture with Petronas - the Malaysian national oil company - collectively known as PRefChem, was supposed to start this year.

The PRefChem joint venture includes a 300,000 b/d refinery, an integrated steam cracker with capacity to produce 1.3 million mt of ethylene located in Johor, Malaysia. Aramco was supposed to provide a significant portion of PRefChem's crude supply under a long-term supply agreement. Jazan and PrefChem will help Aramco reach a gross refining capacity of 5.6 million b/d, it said in the prospectus. The company currently owns and has stakes in four refineries abroad with a total refining capacity exceeding 2 million b/d.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,436,390 tonnes in the first eight months of 2019, up by 9% year on year. Shipments of all PE grades increased. At the same time, the PP consumption in the Russian market was 909,260 tonnes in January-August 2019, up by 10% year on year. Shipments of PP block copolymer and homopolymer PP increased.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.
MRC