US ethane price to soar in 2021 on declining availability, rising demand

MOSCOW (MRC) -- A fall in US ethane availability by 2021 due to the effects of the COVID-19 pandemic and the collapse in oil prices will coincide with an increase in demand for the gas as feedstock from petrochemical producers, leading to tighter market fundamentals and a forecast rise in US ethane prices, reported Chemweek with reference to IHS Markit.

The major slowdown in upstream activity as oil and gas producers shut down unprofitable production due to the low oil price means US crude output is expected to fall from its recent peak of 13 million b/d to 9 million b/d in 2021, with associated gas output to plunge by about 10 billion cubic feet/day. Ethane supply will fall from 2.7 million b/d in 2019 to 2.6 million b/d in 2021, says IHS Markit’s Midstream Oil and NGL Insight report.

"This number is a big shift from our view prior to the COVID-19 pandemic, which estimated ethane supply for 2021 to be about 3 million b/d," it says. "At the same time, ethane demand is expected to increase, both from higher operating rates and from new cracker startups, as global demand recovers from the COVID-19 pandemic, increasing the need for ethylene. Nonetheless, total ethane demand will still be lower than previously expected," it says.

An expected worldwide post-pandemic recovery in demand for petchem products will prop up ethane demand by 2021, resulting in US ethane rejection falling by an estimated 300,000 b/d from 900,000 b/d in 2019 to 600,000 b/d in 2021, and further to almost 450,000 b/d in 2023, according to the report.

Tighter ethane fundamentals and higher natural gas prices going into 2021 as dry gas plays ramp up production to cover the anticipated shortfall in associated gas production will result in higher ethane prices, with IHS Markit forecasting ethane prices to increase from 18.7 cts/gal in 2020 to 32.5 cts/gal in 2021, "as all available ethane from regions closer to the US Gulf Coast will be required to meet demand." The result is a "double whammy for ethane prices, with the gas price floor rising and ethane markets tightening," it says.

Access to low-cost ethane feedstock has been a driving force behind the US petrochemicals investment boom that has seen a wave of new steam crackers and other associated petchem facilities built on the US Gulf Coast in recent years, with US producers benefiting significantly from substantial cost advantages over more costly naphtha-based facilities in Europe and Asia.

As MRC informed earlier, in 2017, INEOS and China’s SP Chemicals agreed long term supply agreement for ethane from US Shale Gas. Agreement includes construction of new carrier ship, the largest ethane carrier ever built.

We remind that in January 2019, INEOS announced Antwerp as the location for its new petrochemical investment. The EUR3 billion investment will be the biggest ever made by INEOS and is first cracker to be built in Europe in 20 years. The investment is a game changer for the chemical sectors and will bring huge benefits to the Belgium and wider European economies. Thus, Antwerp, Belgium will be the location for its multi-billion Euro project for an ethane gas cracker and world-scale PDH unit in Europe.

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.
MRC

Venezuela PDVSA weighs plan to pay for refinery work with fuel, byproducts

MOSCOW (MRC) -- Officials from Venezuelan state oil company Petroleos de Venezuela have spoken with private contractors about paying for work fixing the country’s refineries with fuel and byproducts, reported Reuters with reference to a half dozen people familiar with the talks.

The possibility of in-kind compensation comes as US sanctions on PDVSA and severe cash-flow problems at the company have complicated its ability to pay third-party contractors, whose help it needs to revamp gasoline output at its 1.3 million barrel-per-day refining network, which is mostly halted.

The outages have contributed to widespread fuel shortages in recent months, which President Nicolas Maduro’s government temporarily alleviated by importing gasoline from ally Iran.

But the shortages have made it hard for farmers to harvest their crops and for doctors to get to hospitals.

“We want to attend to a humanitarian issue, because there are many people suffering,” said one of the people, who spoke on condition of anonymity because the talks were not yet public.

PDVSA has racked up sizable debts to contractors due to failure to make promised payments for work on oilfields and to infrastructure, which has led to the suspension of many projects and left many private contractors struggling with a lack of cash flow. The company has not recently published figures on its total debts to contractors.

The person said the private companies involved planned to discuss the plan with the US Treasury Department’s Office of Foreign Assets Control (OFAC), which enforces sanctions, to try to obtain a license permitting the activities despite the broad sanctions on PDVSA.

The US Treasury Department declined to comment. Neither PDVSA nor Venezuela’s oil ministry responded to requests for comment.

Payment in fuel could pave the way for those private contractors to export the products themselves. That could boost Venezuela’s oil exports by cutting sanctioned PDVSA out of the process, a bet that customers and shippers would be willing to interact with non-sanctioned private companies.

To be sure, that part of the plan likely would not hold up without an OFAC license. The Trump administration has sanctioned several oil and shipping companies for dealing with Venezuela in recent months to ratchet up efforts to oust Maduro, a socialist who has overseen an economic collapse and stands accused of corruption and human rights violations.

It is also weighing sanctions on a Venezuelan shipping magnate who coordinated a gasoline shipment to the country in April, which he described as “humanitarian work.”

Maduro blames the US sanctions for the fuel shortages and the once-prosperous OPEC nation’s economic woes. Washington has pressured PDVSA’s remaining customers not to send gasoline to the country in exchange for crude, a practice known as a swap that Venezuela had long used to supply the internal market.

The company has recently restarted the catalytic cracker at its 310,000 barrel-per-day (bpd) Cardon refinery, a necessary step for producing gasoline. It is also aiming to restart gasoline output at the 146,000 bpd El Palito refinery.

The sanctions have hindered PDVSA’s ability to pay contractors through bank transfers. In-kind payments are not the first method the company has come up with to overcome this obstacle: last year, it paid suppliers and contractors with euros in cash.

But cash has dried up as crude output continues to fall. Venezuela produced just 411,000 barrels per day on June 15 and an average of 421,000 in the first two weeks of June, according to an oil ministry document seen by Reuters. That was down from 573,000 in May, according to figures the country provided to OPEC.

The people said the products PDVSA could pay the contractors include fuel oil, jet fuel and petcoke - a byproduct of the refining process.

As MRC informed before, Russian state oil company Rosneft's decision to cease operations in Venezuela and sell its assets there to a Russian government-owned company was a "maneuver" made in reaction to collapsing oil prices, a US State Department official said earlier this year.

We remind that Angarsk Polymers Plant, part of Russian oil giant Rosneft, has shut down its low density polyethylene (LDPE) production for a scheduled turnaround. The plant"s customers said Angarsk Polymers Plant took off-stream its LDPE production for the scheduled maintenance on 22 June. The outage is scheduled to last for one month. The plant"s annual production capacity is about 75,000 tonnes.

According to MRC's ScanPlast report, April estimated LDPE consumption in Russia decreased to 52,270 tonnes from 55,160 tonnes a month earlier. Kazanorgsintez reduced its capacity utilisation. Russia's estimated LDPE consumption rose to 191,000 tonnes in January-April 2020, up by 5% year on year. Russian producers raised their production significantly, and LDPE imports also increased.
MRC

Fitch and Moodys affirm SIBUR credit ratings at investment grade BBB- and Baa3, outlook stable

MOSCOW (MRC) -- SIBUR Holding (Moscow), Russia’s largest integrated petrochemicals company, today announced that Fitch and Moody's rating agencies have affirmed its long-term issuer default ratings at investment grade BBB- and Baa3, with a stable outlook, said Chemweek.

This means that the company now enjoys investment grade credit ratings from all three key rating agencies.
In its rating commentary, Fitch notes that a stable outlook for the company reflects the higher utilization rate at its recently built ZapSibNeftekhim complex at Tobolsk, Russia, a fall in 2020–2021 capital expenditure due to the completion of large investments, and overall economic recovery after the downturn caused by the coronavirus pandemic.

The agency’s expectation is that in 2020 a slump in demand for Sibur’s key products--polypropylene and polyethylene--will not be as heavy as the global GDP decline, and over a longer horizon, demand for these products will keep growing above the global GDP growth rate.

Moody's expects SIBUR to be in a sufficiently strong position going forward thanks to its business resilience, an accumulated liquidity cushion, and successful completion of the active investment phase early in 2020, which will help drive its EBITDA growth.

"We have consistently focused on transforming Sibur into a highly resilient business prepared to navigate the uncertainty in global markets. The polymer capacities of our recently completed ZapSibNeftekhim project already contribute to EBITDA generation and help us to offset negative effects thanks to higher internal consumption of gas processing products and increased polymer output,” said Alexander Petrov, Sibur CFO. During the pandemic, Sibur has maintained utilization rates at all key production facilities by redirecting output to alternative markets, achieving significant cost optimization, and increasing liquidity reserves. “Our affirmed investment-grade ratings reflect the fundamental resilience of Sibur’s business and our commitment to stringent financial discipline," Petrov said.

As MRC informed earlier, in February 2020, Linde PLC recieved a contract to provide technology for PJSC SIBUR Holding’s cracker at Amur gas chemical complex (GCC). GCC is an integrated 1.5 million tons per year polyethylene and polypropylene production complex to be built near Svobodny in Russia’s far-east Amur region. The contract was awarded to Linde under a consortium with SIBUR subsidiary and project contractor NIPIgazpererabota (Nipigaz).

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.

SIBUR is the largest integrated petrochemicals company in Russia. The Group sells its petrochemical products on the Russian and international markets in two business segments: Olefins & Polyolefins (polypropylene, polyethylene, BOPP films, etc.) Plastics, Elastomers & Intermediates (synthetic rubbers, EPS, PET, etc.). SIBUR’s petrochemicals business utilises mainly own feedstock, which is produced by the Midstream segment using by-products purchased from oil and gas companies. More than 26,000 employees working in SIBUR contribute to the success of customers engaged in the chemical, fast moving consumer goods (FMCG), automotive, construction, energy and other industries in 80 countries worldwide. In 2018, SIBUR reported revenue of USD 9.1 billion and adjusted EBITDA of USD 3.3 billion.

MRC

BASF partners with Chinese firm to develop PU insulation panels

MOSCOW (MRC) -- BASF signed a strategic cooperation agreement with Shanghai Zhengming Modern Logistics Co., Ltd. (Zhengming) to develop insulating polyurethane (PU) sandwich panels, for use in the construction of refrigerated storages for the cold chain industry in China, said the company.

Under the agreement, BASF will support information and technology exchange as well as market development while Zhengming will designate BASF as its PU supplier for all joint cold storage projects. The two parties will also explore joint marketing and promotion opportunities for PU sandwich panels.

Huang Zhengming, CEO of Zhengming said, "Today, living standards are constantly improving and food safety standards are also becoming stricter. In addition, China’s cold chain industry is also developing rapidly. By using BASF's Elastopir solutions with excellent fire insulation performance in our products, we strive to protect the cold chain ecosystem and ensure our customers can enjoy high-quality goods produced by an integrated supplier."

BASF’s Elastopir is used in the core of insulated sandwich panels. In addition to being energy-efficient and safe, Elastopir also offers customers a more sustainable solution as fewer flame retardants and no bromine are needed for production.

"We have typically collaborated with various partners along the cold chain, such as panel producers, to develop PU sandwich panels. This new collaboration marks a significant milestone for BASF, as we are collaborating directly with a cold storage owner,” said Desmond Long, Vice President, Business Management, Performance Materials Greater China, BASF. “We would like to thank Zhengming for this exciting opportunity and look forward to enhancing the cold chain supply in China together."

We remind that BASF has restarted its No. 1 steam cracker following a maintenance turnaorund. Thus, the company resumed operations at the plant on September 30, 2019. The plant was shut for maintenance in mid-August, 2019. Located at Ludwigshafen in Germany, the No. 1 cracker has an ethylene production capacity of 235,000 mt/year and a propylene production capacity of 125,000 mt/year.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.

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. BASF generated sales of EUR59 billion in 2019.
MRC

Indian Oil reports drop in quarterly petchem earnings

MOSCOW (MRC) -- Indian Oil Corporation posted a consolidated net loss of Rs 7,782 crore for the quarter ended March 31 on a one-time loss of Rs 11,304.64 crore. It is the refiner's first quarterly loss in more than four years, said Economictimes.

The company had posted a net profit of Rs 6,004.88 crore in the corresponding quarter last year. On the other hand, the revenue of the company declined 3.35 per cent year-on-year (YoY) to Rs 1,42,371.85 crore during the quarter under review.

“The holding company is consistently valuing its inventories at cost or net realizable value (NRV) whichever is lower. For this purpose, NRV is derived based on the actual realisation in the specified subsequent period as per regular practice,” IOCNSE -2.01 % said in a regulatory filing.

It further added that due to the coronavirus pandemic and changes in oil market scenarios there was a significant fall in oil prices which led to write-down in valuation of inventories below cost for the specified period of Rs 6,855.35 crore.

However, on account of the unprecedented situation of lockdown from March 25 in the country precipitated by the outbreak of Covid-19 pandemic and consequent significant decline in demand for petroleum products, as a one-time measure, a longer time period is considered for better estimation of NRV.

As MRC informed earlier, LyondellBasell, the world’s largest licensor of polyolefin technologies, today announced that Indian Oil Corporation Ltd. (IOCL) will use the LyondellBasell Spheripol technology for a new facility. The process technology will be used for a 450 KTA polypropylene plant to be built in Panipat, Haryana State, India.

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.

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