Saudi Aramco in talks with banks to borrow about USD10 billion for SABIC acquisition

MOSCOW (MRC) -- Saudi Aramco, the world’s largest oil producer, is in early talks with banks for a loan of about USD10 billion to help finance its acquisition of a 70% stake in Saudi Basic Industries Corp (SABIC), reported Reuters with reference to three banking sources.

Aramco agreed last year to buy the controlling stake in SABIC from the kingdom’s wealth fund for $69.1 billion, sealing one of the biggest-ever deals in the global chemical industry.

"The financing would be for the SABIC deal, but the borrower is Aramco," said one of the sources, adding that the discussions were at an initial stage, with the company sounding out banks.

"Ten billion dollars is where they want to get to, (it’s) not clear if, in this market, they’ll manage to reach that."

A second source said banks involved in the talks included HSBC and JPMorgan, as well as lenders in the Gulf.

In response to a Reuters request for comment about whether it was seeking such a loan, Saudi Aramco said: "The company continues to review its financial options as part of its normal course of business, while prudently preserving its pristine balance sheet and its resilience."

JPMorgan declined to comment, while HSBC did not immediately respond to a request for comment.

A third banker said Aramco was looking to borrow in US dollars because it was cheaper than in Saudi riyals, in terms of interest, and to avoid pressuring Saudi banks’ liquidity.

The SABIC stake acquisition from Saudi Arabia’s Public Investment Fund (PIF) will help Aramco’s downstream expansion plans. The deal came after months of talks between the company and PIF and was one of the reasons for the delay of Aramco’s blockbuster initial public offering late last year.

The loan discussions come at a time when oil-producing nations have been hit by a plunge in demand for crude as a result of the coronavirus outbreak and a slide in oil prices.

OPEC and its allies led by Russia, a group known as OPEC+, have agreed to the largest oil output cut in history that could curb supply by up to 20%. But the agreement has done little to boost oil prices as many economies remain under lockdown due to the novel coronavirus pandemic, curbing demand.

Saudi Arabia, which owns more than 98% of the oil giant, is likely to sell new international bonds soon, according to sources, as the output cut deal further squeezes revenues hit by the plunge in oil prices.

We remind that as MRC informed before, in October 2019, McDermott International announced that it had been awarded a contract by Saudi Aramco and Total Raffinage Chimie (Total) for their joint venture (JV) Amiral steam cracker project at Jubail, Saudi Arabia. Amiral is a JV in which Aramco holds 62.5% and Total the rest. The plant, designed to produce 1.5 million metric tons/year (MMt/y) of ethylene, will be one of the world's largest mixed-feed crackers.

Aramco and Total launched their USD5-billion Amiral JV project in October 2018. The steam cracker will be fed with a mixture of 50% ethane and refinery off-gases. It will supply ethylene to a downstream 1 MMt/y polyethylene manufacturing complex and other petrochemical products. The project aims to fully exploit operational synergies with the adjacent refinery, owned by Satorp, another JV between Aramco and Total. Third-party investors, including Daelim and Ineos, will locate plants at the value park adjacent to Amiral with a combined investment of USD4 billion. A final investment decision is expected in 2021.

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

According to MRC's ScanPlast report, estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.

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.

Saudi Basic Industries Corporation (SABIC) ranks among the world's top petrochemical companies. The company is among the worldпїЅs market leaders in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol and fertilizers.
MRC

Coronavirus spurs new clash between Big Oil and Big Corn over U.S. biofuels

MOSCOW (MRC) -- A fuel demand meltdown caused by the coronavirus outbreak in the U.S. has started up a new fight between the oil and agriculture industries over the nation’s biofuel policy, this time over whether the policy should be suspended or expanded as a result of the crisis, said Hydrocarbonprocessing.

The issue once again places Republican President Donald Trump in a tough spot between two important constituencies, both of which have been pushed to the brink of collapse by the pandemic because of flagging consumption, disrupted supply chains and reduced workforces.

The oil refining industry and its backers have asked the Trump administration to help the industry weather the pandemic by suspending a regulatory requirement that they blend billions of gallons of corn-based ethanol into their gasoline each year, arguing it is a cost many facilities can not currently afford.

The corn lobby, meanwhile, has been pushing for the blending requirements, mandated under the U.S. Renewable Fuel Standard, to be expanded to help farmers who have seen demand for their crop drop swiftly as biofuel plants across the country go idle.

While the refining and corn industries have clashed for years over the biofuel blending requirements, the issue is now being framed as a matter of survival.

"We’re talking about a multi-billion dollar compliance cost that is going to impact whether some can continue operating the same way,” said Geoff Moody, senior director of government relations for the American Fuel and Petrochemical Manufacturers trade group, which represents refiners.

On Wednesday, the governors of Texas, Oklahoma, Utah and Wyoming asked the Trump administration for a nationwide waiver exempting the oil-refining industry from the blending laws to help it survive, adding heft to a similar request made by Louisiana the week before.

“We remind the Administration that oil refiners are not the only ones suffering from the economic fallout of the current situation,” said Brian Jennings, the head of the American Coalition for Ethanol, which had asked the administration earlier this month to expand ethanol blending requirements.

“Ethanol producers, and the farmers supplying them corn, are suffering a proportional economic disaster,” he said.

A spokesperson for the Environmental Protection Agency (EPA), in charge of overseeing the RFS, said the agency is watching the situation closely and “will make the appropriate determination at the appropriate time."

As MRC informed earlier, Russia’s oil export duty CL-EXPDTY-RU, a key source of tax revenue for the government, is likely to plummet in May to its lowest level in nearly two decades if oil prices stay low. The expected sharp decline in duty paid by Russian oil exporters will encourage oil producers to sell crude oil and make refining it less attractive, hitting the profit margins of Russian refineries.

As MRC informed earlier, based on the results of operations in the 1st quarter 2020, Gazprom neftekhim Salavat ramped up its stable gas condensate throughput and production output. The throughput performance of stable gas condensate during the 1st quarter 2020 (1 502 thousand tons) has grown by 15.7% at the Company’s Oil Refinery, as compared to the same period last year (1 298.5 thousand tons) due to increases in supplies.

It was previously reported that Gazprom Neftekhim Salavat (STS), one of the largest Russian petrochemical producers, plans to start scheduled repairs of acrylate production on April 20. This production will be closed until May 30.
MRC

Global oil consumption cut by up to a third

MOSCOW (MRC) -- What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021, reported Reuters.

The OPEC+ deal, finalised on Sunday, envisages production cuts of 9.7 million bpd in May and June, with the cuts tapering through the rest of 2020, 2021 and the first quarter of 2022.

It assumes further reductions will come about as a result of price-driven cuts to the output of the United States and other major oil producers not formally associated with the deal.

Even so, inventories of crude and refined products will start at a very high level, which will take months to whittle away, assuming consumption returns to near-normal quickly.

The bigger question is how much economic output and petroleum consumption will be lost permanently in the second half of the year and into 2021 as a result of the recession.

Some businesses will re-open and return to near-normal rapidly once the lockdown ends, but others will operate at severely reduced capacity, and some will not re-open at all.

Millions of employees have been furloughed and could return to their old jobs quickly, but millions more have become unemployed and may not find new work for some time.

In the face of the largest economic shock since before World War Two, businesses and households are moving to reduce non-essential spending and conserve cash.

But the second and third-round effects of that cash conservation imply a very large hit to aggregate demand and oil consumption which will persist through the rest of the year and into 2021.

Following the standard prescription of economist John Maynard Keynes, governments and central banks can use a combination of fiscal and monetary policies to make up the deficit in demand and jumpstart the economy.

But even Keynesian stimulus will take time to fill the demand gap and return petroleum consumption to something like near normal.

US petroleum consumption has fallen by around one-third over the last four weeks as the coronavirus epidemic and lockdowns have brought much of the economy to a halt

The volume of petroleum products supplied to the domestic market was just 13.8 million barrels per day (bpd) in the week ending April 10, down from 21.5 million bpd in the week ending March 13.

The sudden slump in petroleum consumption, as factories, retailers and offices are shuttered and transportation systems close, has no parallel in the history of the oil industry.

Consumption has fallen most severely for jet fuel (-73%) and gasoline (-48%) but middle distillates such as diesel have also been hit (-31%) and even propane and propylene are off (-29%).

US refineries have so far reduced crude processing by around 3.2 million bpd or 20%, causing crude stocks to surge, but even that has not been enough to prevent a build up of unused fuels.

Total stocks of crude oil and petroleum products, excluding the strategic petroleum reserve, have surged by almost 84 million barrels over the last four weeks, according to the U.S. Energy Information Administration (EIA).

The last three weeks have seen consecutive increases of 21 million barrels, 33 million barrels and 27 million barrels, three of the five largest weekly rises since the data began in 1990.

The 1.34 billion barrels of crude and petroleum products in storage, excluding stocks held in the strategic petroleum reserve, are a record for the time of year.

Similar reductions in oil consumption are likely to be occurring across the other advanced economies, though data for other economies in North America, Europe and Asia will only become available much later.

Britain’s Office for Budget Responsibility, the government’s independent fiscal monitor, has estimated the country’s output could fall by 35% in the second quarter of 2020.

The estimated reduction in Britain’s output is broadly similar to the reported reduction in US petroleum consumption and suggests oil use across the entire OECD could be down by a third this quarter.

OECD consumption is around 48 million bpd so a one-third reduction translates into the loss of 16 million bpd from the advanced economies alone.

Non-OECD economies consume a further 52 million bpd. Consumption losses there are harder to measure, though probably smaller in percentage terms, since many simply cannot afford to lockdown completely.

But if non-OECD economies see consumption decline by 20% or 10 million bpd, a conservative estimate, then total OECD and non-OECD losses could be as high as 26 million bpd.

The implication is that global oil storage has been filling at around 100 million barrels every four days, which is clearly unsustainable for any extended period.

Emerging storage and logistics constraints have sent prices for physical crude and products such as gasoline and diesel tumbling to massive discounts compared with prices for future deliveries.

In this context, production limits announced on Sunday by the enlarged OPEC+ group of oil exporters, led by Saudi Arabia and Russia, should slow the accumulation of inventories and push back the storage wall.

The production accord ended the volume war between the world’s two largest oil exporters and came after strong political pressure from the White House.

But production cuts had become inevitable, with exporters struggling to find buyers willing and able to purchase extra barrels, forcing them to sell to middlemen able to put the crude into immediate storage.

The OPEC+ deal provides a face-saving end to an output battle which produced only losers and no winners, except middlemen with access to tank farms and floating storage.

As MRC informed previously, 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.

We also remind that, 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 ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
MRC

Hexion switches production at two sites in Germany and Australia to hand sanitizer

MOSCOW (MRC) -- Hexion (Columbus, Ohio) has repurposed its manufacturing site at Letmathe, Germany, to produce hand sanitizer, with a second facility at Bunbury, Western Australia, set to start sanitizer production in the next few weeks, reported Chemweek.

The company is "leveraging its global manufacturing footprint and collective resources of its associates to help combat the challenges associated with the coronavirus disease 2019 (COVID-19),” it says. Hexion’s site at Letmathe has repurposed mixing machines typically used to produce other products, with hand sanitizer now being produced. The company’s joint venture site at Bunbury “is taking the final steps to begin producing in the coming weeks," it adds.

The two sites are expected to initially produce approximately 25 metric tons of sanitizer, with the company saying four of its other sites in Texas, Australia, New Zealand, and Italy have already produced smaller "laboratory-scale" batches for use by Hexion associates. It has also contributed its chemical products or donated personal protective equipment (PPE) wherever possible for COVID-19 relief, it says.

"While we are saddened by the devastating impact of the coronavirus globally, we are resilient as a company and committed to helping support relief efforts whenever we can," said George Knight, Hexion acting CEO and executive vice president and CFO. Hexion said in a regulatory filing 30 March that chairman and CEO Craig Rogerson had taken a temporary medical leave of absence due to a condition consistent with COVID-19. Knight has assumed Rogerson’s responsibilities until he returns from his leave.

As MRC informed earlier, in mid-January 2020, Hexion announced force majeure for the supply of bisphenol A (BPA) from the plant in Deer Park (Deer Park, Texas, USA). It was expected that this enterprise with a capacity of 140 thousand tons of BPA per year will resume its work in mid-February.

Such companies, as Hexion, Huntsman and Olin are large manufacturers of BPA and epoxy in the United States.

Bisphenol A is used as a hardener in the production of plastics, as well as plastic-based products. It is one of the key monomers in the production of epoxy resins and polycarbonate (PC).

According to MRC's ScanPlast report, overall estimated consumption of PC granules totalled 12,600 tonnes in the Russian market in January-February 2020 (excluding imports and exports to/from Belarus), compared to 9,600 tonnes a year earlier. Demand increased by 31%.

Based in Columbus, Ohio, Hexion Inc. is a global leader in thermoset resins. Hexion Inc. serves the global adhesive, coatings, composites and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries.
MRC

Gazprom neftekhim Salavat seasonally increased production of bitumen

MOSCOW (MRC) -- The seasonal product is being actively produced and shipped at Gazprom neftekhim Salavat bitumen unit. In April the demand for bitumens usually increases, said the company.

Presently 600 to 800 tons of bitumens are shipped on a daily basis. It is almost twice as many as shipped from the beginning of the year.

In February-March bitumen unit of shop No. 18 at the Oil Refinery produced and shipped bitumen of BND 70/100 grade in the quantity of 16,700 tons and BND 100/130 grade in the quantity of 10,200 tons as well as 6,300 tons of low-sulfur fuel oil M 100.

"We started producing bitumen of BND 70/100 and BND 100/130 grades two years ago, — says Andrey Bryzgalov, Bitumen Unit Supervisor. — They are in demand at the market as they allow for formation of high-quality bitumen-concrete mixes used for construction and repair of public regional and municipal roads pavements. In other words, the use of our bitumens considerably extends the service life of road pavements.

Bitumen products are shipped by road and railway transport to the Republic of Bashkortostan, Orenburg region, Chelyabinsk region, Kurgan region and Sverdlovsk region. As for low-sulfur fuel oil, it is shipped to Vladivistok.

In February an overhaul of the bitumen unit was carried out. Scheduled works increased reliability of the equipment operation. In the end of March additional restrictive and preventive measures were implemented at the unit and other Gazprom neftekhim Salavat facilities due to COVID-19 outbreak. As for the rest, the work is being done as per normal.

As MRC informed earlier, based on the results of operations in the 1st quarter 2020, Gazprom neftekhim Salavat ramped up its stable gas condensate throughput and production output. The throughput performance of stable gas condensate during the 1st quarter 2020 (1 502 thousand tons) has grown by 15.7% at the Company’s Oil Refinery, as compared to the same period last year (1 298.5 thousand tons) due to increases in supplies.

It was previously reported that Gazprom Neftekhim Salavat (STS), one of the largest Russian petrochemical producers, plans to start scheduled repairs of acrylate production on April 20. This production will be closed until May 30.

Gazprom neftekhim Salavat is one of the largest oil refining and petrochemical complexes in Russia. The Complex was founded in 1948. The Company is integrated into the Gazprom system. It has the basic advantage, consolidating on a single site a full cycle of crude hydrocarbons processing, petrochemistry and mineral fertilizers production. The Company comprises the Oil Refinery, Gas & Chemical Plant and the Monomer Plant.Gazprom neftekhim Salavat produces more than 100 items, over 50% of which are bulk products including motor gasoline, diesel fuel, fuel oil, styrene, polystyrene, low density polyethylene, high density polyethylene, DOP plasticizer, butyl alcohols, sulphur, ammonia, urea, acrylic acid, butyl acrylate etc. The oil refining and petrochemical products are exported to all the federal subjects of the country. The export reach covers over 50 CIS and non-CIS countries including Finland, China, Brazil, the UK, Western Europe countries and the Baltic states.