Port congestion in China set to put brakes on Shandong refineries rising crude throughput, run rates

MOSCOW (MRC) -- The recent surge in China's crude procurement activity on the back of low oil prices has led to severe port congestion in Shandong province in recent weeks, causing logistical constraints that could put brakes on the upward momentum in independent refiners' run rates and crude throughput levels, reported S&P Global.

China's crude oil imports jumped 19.2% on the year to an all-time high at 11.34 million b/d, or 47.97 million mt, in May as refiners took full advantage of ultra low crude prices and ample storage capacity.

However, the recent flurry of tankers arriving in Chinese waters could not be handled in a prompt manner due to limited port capacity, as crude futures participants and more physical traders other than the independent refiners join the queue to bring in crude barrels compared with the last few months.

As of June 24, at least 41 ships carrying a combined total of around 51.07 million barrels of crude are waiting to be discharged at Shandong ports for more than a week, trade flow tracker Kpler showed.

Making matters worse, there were at least seven cargoes of crude oil jumping the queue to deliver into storage facilities designated by the Shanghai International Energy Exchange, or INE, since late May. These cargoes have occupied the logistics resources that used to cater only for independent refineries.

The congestion in Shandong ports will likely last until end of August, and many of the country's independent refineries based in the country's eastern province may have little choice but to cut down their operating rates as feedstock deliveries to processing units and storage tanks are delayed, a Beijing-based analyst said.

Most Chinese refineries have been aggressively raising crude throughputs to take full advantage of healthy domestic refining margins since late March.

Crude throughputs at Shandong-based independent refineries have lifted to an average of 10.9 million mt/month over April-May, up 41.6% from a 7.69 million mt/month average over the January-March period. It was also 18.3% higher than the average of 9.2 million mt/month during the same period a year earlier, according to data from local information provider JLC.

The congestion has already taken its toll on several independent refineries in Shandong province.

Daily crude throughput at an 8 million mt/year Weifang-based refinery was briefly cut by half to around 10,000 mt for about two to three weeks earlier this month because of the congestion and subsequent delay in crude feedstock delivery.

The refinery typically relied on the Huangdao-Weifang crude pipeline to deliver crude oil from a Shandong port to its plant, but the pipeline is currently used to transmit crude barrels designated for INE storage tanks for physical delivery settlement on Shanghai crude futures trades.

As a result, the refinery started to find other ways to transport crude oil from oil terminals to its facilities, including by trucks and trains.

However, recent shortage of available trucks to deliver crude oil has drastically slowed the delivery process, a refinery official said.

The prolonged congestion could seriously affect operations and fuel output at many more refineries as they struggle to replenish their feedstock inventory on time, industry and market sources said.

"Refineries have been running at low stocks at their facilities now, to last for about 10 days only," said a source at another Shandong-based refinery.

If the congestion continues and they cannot get enough deliveries from ports, some refineries will start to worry about their feedstock supply, sources added.

It takes at least two to three weeks for a crude cargo to be discharged these days in Yantai, and even longer time, of around 20-30 days in Rizhao and Qingdao, port officials with knowledge of the matter told S&P Global Platts.

"It will probably take until end of August to completely clear all those congested cargoes," said an official at Yantai port.

Apart from the delay in feedstock replenishment, a slip in domestic refining margins have also prompted some refineries to trim crude throughput levels.

Lanqiao Petrochemical, for one, cut its run rate slightly to around 70% in the week started June 21 from 75% earlier this month due to falling profit margins, according to a refinery source.

An analyst from JLC said the independent sector's run rates are likely to come off slightly in the week started June 21 from the recent peak, as domestic refining margins slipped to around Yuan 200-300/mt recently from Yuan 454/mt seen in May and Yuan 683/mt in April.

As MRC informed before, China is reviving a USD20 billion petrochemical project in eastern Shandong province as part of efforts to dial up infrastructure spending to support an economy struggling with the impact of the coronavirus pandemic. The 400,000 barrel-per-day (bpd) refinery and 3 million ton-per-year ethylene plant in Yantai, Shandong, the country’s hub for independent oil refineries, was proposed years ago but approval has been slowing in coming because of China’s struggle with excess refining capacity. China’s state planner, the National Development & Reform Commission (NDRC), gave initial approval in June for the project, allowing Shandong province to start planning for construction.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

DSM completes share buy-back program

MOSCOW (MRC) -- Royal DSM, a global purpose-led, science-based company in Nutrition, Health and Sustainable Living, says it has recently completed the repurchase of 1.4 million of its own shares at an average price of EUR98.40 (USD111.4), for a total consideration of EUR137.8 million, reported Chemweek.

The repurchase follows the company’s announcement on 2 March that it would cover commitments under share-based compensation plans and shares for stock dividends, DSM says.

DSM has also decided to cancel the rest of its EUR1-billion share buy-back program, announced in February 2019, the company says. The decision to cancel the buy-back follows the acquisition of Erber Group, announced in H1 June, 2020, and is a "prudent measure" in the COVID-19 environment, the company says.

Under the program, DSM repurchased 5.4 million shares for a total consideration of EUR600 million in 2019 and another 1.3 million shares for a total consideration of EUR145 million in 2020, bringing the total number of shares repurchased to about 6.6 million for a total consideration of EUR745 million, the company says.

As MRC informed earlier, this month, Royal DSM and Clariant, a focused, sustainable and innovative specialty chemical company, announced an agreement for DSM to take over certain parts of Clariant’s 3D printing business portfolio.

We remind that in June 2020, TechnipFMC and Clariant Catalysts entered into a joint development agreement for the demonstration and commercialisation of Clariant’s new state-of-the-art AcryloMax propylene ammoxidation catalyst for the production of acrylonitrile (ACN).

Besides, in May 2020, Clariant’s CATOFIN catalysts was selected by Advanced Global Investment Co. (AGIC), a joint venture between Advanced Petrochemical Company (APC) and SK Group, to build a PDH facility in the Middle East.

Propylene is the main feedstock for the production of polypropylene (PP).

According to MRC's ScanPlast report, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

Royal DSM is a global science-based company active in health, nutrition and materials. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, pharmaceuticals, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials.

Neste and Jokey target to develop the market for rigid packaging

MOSCOW (MRC) -- Neste and Jokey, a leading international manufacturer of rigid plastic packaging, have started collaborating with a target to develop the market for rigid packaging from sustainable renewable and recycled materials for food and non-food applications, said the company.

By promoting the use of more sustainable materials in packaging, such as those produced with Neste’s hiqh-quality drop-in hydrocarbons produced from renewable and recycled raw materials, the partners wish to help other companies using such rigid plastic packaging to meet their materials-related sustainability targets. The joint aim of Neste and Jokey is to work towards a future with an increasing share of renewable and recycled materials and a plastics economy built upon solid circular value chains.

Jokey produces rigid plastic packaging, such as buckets, boxes and trays, which are up to 100% recyclable. Jokey packaging for food and non-food goods stands for the highest level of quality, hygiene, ease of use and innovation. Neste’s product for plastics production consists of renewable and recycled components derived from biomass, such as various waste and residue oils and fats, as well as chemically recycled plastic waste. It is very well suited for high-quality rigid packaging applications. The plastics produced with Neste’s renewable and recycled feedstock are compatible with existing production and recycling infrastructures, and their quality is identical to conventional plastics – they can be used safely even in sensitive applications, such as in healthcare and food packaging.

"With the Jokey Eco Concept 2.0, we are setting ourselves a sustainable development guideline. Our packaging is already designed to meet the requirements of a circular economy. We always look forward to exploring new paths and to inspiring insights with Neste, which will make our future even more sustainable", says Michael Schmidt, Chief Procurement Officer at Jokey SE.

"We see a great match between Neste’s and Jokey’s solid commitments to sustainability. We are inspired by the opportunity to support Jokey in its mission to offer their customers packaging solutions based on sustainable materials from renewable and recycled sources. We are equally delighted to join forces with Jokey to contribute to the industry’s transformation towards a circular plastics economy," says Mercedes Alonso, Executive Vice President, Renewable Polymers and Chemicals at Neste.

While aiming to deepen their collaboration, Neste and Jokey are inviting other value chain partners to join in their mission to develop circular plastics value chains and more sustainable plastics solutions.

According to MRC's ScanPlast report, April estimated HDPE consumption in Russia fell to 69,130 tonnes from 78,220 tonnes a month earlier. ZapSibNeftekhim significantly increased its export sales to China. Overall HDPE imports to the Russian market totalled 377,450 tonnes in the first four months of 2020, which corresponds to the last year's figure. Production increased significantly, and exports also grew by 5 times.

Solenis signs distribution agreement with German producer of oleochemical additives

MOSCOW (MRC) -- Solenis (Wilmington, Delaware) says it has signed an exclusive distribution agreement with Peter Greven (Euskirchen, Germany), a leading manufacturer of oleochemical additives, said Chemweek.

Under the terms of the agreement, Solenis will be the authorized distributor for Peter Greven's calcium stearate dispersions for paper coating applications in the EU, UK, and Russia, effective immediately.

"Calcium stearates are used in paper coating formulations, mainly in printing grades, as lubricants to facilitate the process of coating the paper," says Jose Santolaya, director/product management, EMEA at Solenis.

"The cooperation will strengthen both Peter Greven's and Solenis's market position in the paper industry," says Peter Greven, managing director at Peter Greven.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

Chevron-led Kazakh consortium fulfilling OPEC+ cuts for May-June

MOSCOW (MRC) -- The Chevron-led consortium that operates Kazakhstan's largest oil field, Tengiz, is imposing production cuts in line with government legislation covering May-June and is not yet aware of additional restrictions for July, reported S&P Global with referenceto its statement June 19.

In production since 1993, Tengiz is the mainstay of Kazakhstan's crude production and the CPC export blend loaded on the Black Sea coast. It accounts for 40% of Kazakh oil production, with output of 667,000 b/d in the first quarter. A major coronavirus outbreak at the site by the Caspian Sea has disrupted a USD46.5-billion expansion project expected to lift output to 900,000 b/d in 2023.

Kazakhstan has acknowledged a failure to fulfil production cuts agreed in April among the OPEC+ group of countries in response to collapsing demand and global oversupply. On June 18, the country's energy ministry said over-supply in the first 12 days of May had amounted to 3.13 million barrels, resulting from "industry inertia," and would be compensated through additional cuts in August and September.

S&P Global Platts estimates Kazakhstan's production was 160,000 b/d above its quota of 1.319 million b/d over the full month. The country told an OPEC+ monitoring meeting this week it would cut an extra 15,000 b/d in July and 50,000 b/d in August and September.

In emailed comments, Chevron said the TCO consortium was playing its part in production cuts, although it gave no indication of plans beyond June, following an agreement by the OPEC+ group to extend the first phase of cuts, totaling 9.7 million b/d, into July.

"TCO, as a law-abiding company, is following the Republic of Kazakhstan's government decree imposing oil production limitations in May and June and is not currently aware of additional legislative action. We remain focused on safe and reliable operations and continuously strive to meet the expectations of our shareholders," Chevron said, adding it was "generally TCO's policy not to comment on commercial matters."

A provisional program for CPC crude loadings for July suggests a sizable increase from June to 1.31 million b/d. This is close to Kazakhstan's production quota for May and June, however, not all CPC crude is produced in Kazakhstan, about 10% being from Russian oil fields in the northwest portion of the Caspian Sea.

The OPEC+ agreement in any case only covers crude oil, and not condensate, sizeable volumes of which supplement crude oil in the CPC crude stream. Kazakhstan's third largest hydrocarbon field, Karachaganak, is primarily a gas and condensate field, with liquids output of around 220,000 b/d in 2019.

TCO said this month that work on the Tengiz expansion project, known as the Future Growth Project-Wellhead Pressure Management Project, was now 77% complete, and it was "taking actions to safely execute the projects key critical-path activities."

Chevron, which is a 50% shareholder in TCO, has cut its capital spending plans for this year by almost a third, indicating that Tengiz will account for a significant portion of the savings.

The other shareholders are ExxonMobil, on 25%, state-owned KazMunaiGaz on 20% and Lukoil subsidiary LukArco on 5%.

We remind that, as MRC informed before, in late May, 2020, Borealis said it will not proceed with the development of a multi-billion-dollar integrated steam cracker and polyethylene (PE) project in Kazakhstan. “The decision to discontinue this project is based on a thorough assessment of all aspects of the prospective venture and impacted by the effects of the COVID-19 (coronavirus disease 2019) pandemic as well as the increased uncertainty of future market assumptions,” Borealis states.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim.