PKN Orlen signs agreement to shape deal for control of Grupa Lotos

MOSCOW (MRC) -- Poland’s PKN Orlen said late on Tuesday it has signed a non-binding agreement with the state treasury and Grupa Lotos to shape a deal to take direct or indirect capital control of fellow state company Lotos.

“The State Treasury and the Company [Orlen] confirmed the intention to conduct the Transaction and indicate that, on the day of signing the Agreement, the scope and structure of the Transaction has not been defined yet,” Orlen said in a statement. “Thus the State Treasury and the Company declared their will to cooperate and continue talks to work them out."

In mid-July, the European Commission approved Plock-based Orlen’s planned acquisition of Gdansk-based Grupa Lotos, subject to conditions and extensive commitments to ensure Poland’s fuels markets remains open and competitive. The EU approval came after the Commission conducted an in-depth investigation during which it raised a number of concerns about impacts of the proposed Orlen-Lotos combination on the wholesale and retail supply of fuels in Poland.

To address those concerns, Orlen offered remedies and commitments, including: - To divest a 30% stake in Lotos' refinery accompanied by strong governance rights, with the purchaser having the right to about half of the refinery's diesel and gasoline production, while also giving the purchaser access to important storage and logistics infrastructure.

- To divest nine fuel storage depots to an independent logistics operator, and to build a new jet fuel import terminal in the Polish city of Szczecin, which would be transferred to the independent logistics operator on completion.

- To release most of the capacity booked by Lotos at independent storage depots, including the capacity booked at Poland's biggest terminal for the import of fuels by sea.

- To divest 389 retail stations in Poland, amounting to about 80% of the Lotos network, and to supply these with motor fuels.

- To divest two bitumen production plants in Poland, and to supply the purchaser with up to 500,000 tonnes/year of bitumen/heavy residues. In late April, Orlen closed the acquisition of power utility Energa.

Also, in line with the Polish government policy of creating large “national champion” industrial groups capable of competing in global markets, Orlen in July launched a process to acquire oil and gas exploration and production company PGNiG, another group contolled by the Polish state.

As MRC informed earlier, in H1 September 2019, Honeywell announced that PKN ORLEN had licensed the UOP MaxEne process, which can increase production of ethylene and aromatics and improve the flexibility of gasoline production. The project, for the PKN Orlen facility in Plock, Poland, currently is in the basic engineering stage. Honeywell UOP, a leading provider of technologies for the oil and gas industry, first commercialized the UOP MaxEne process in 2013. The process enables refiners and petrochemical producers to direct molecules within the naphtha feed to the processes that deliver the greatest value and improve yields of fuels and petrochemicals.

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.

PKN Orlen would be the first refining and petrochemicals company in Europe to use the Honeywell UOP MaxEne technology for molecule management of a naphtha stream to produce high-quality products including olefins, aromatics and gasoline.
MRC

MOSCOW (MRC) -- OPEC oil producers and allies such as Russia, a grouping dubbed OPEC+, meets to review compliance with oil cuts meant to support oil prices amid the coronavirus pandemic, said Hydrocarbonprocessing.

OPEC+ is unlikely to change its output policy, which currently calls for reducing output by 7.7 million barrels per day (bpd) versus a record high 9.7 million bpd up until this month, OPEC+ sources said. “The meeting will be mostly a focus on conformity and compensation,” said an OPEC source, rather than any major tweaks to the OPEC+ supply cut deal.

Other sources said the virtual meeting, scheduled to start at 1400 GMT, would look in particular at compliance by countries such as Iraq, Nigeria and Kazakhstan. They have made a smaller share of their reduction than members such as Saudi Arabia.

Another OPEC source was upbeat, saying the producers could deal with challenges like rising U.S. or Libyan production. “Everything will go well within OPEC+ because everyone needs stability and visibility in the market,” the source said.

Overall compliance reached 95% to 97% in July, according to OPEC+ sources and a draft report seen by Reuters. That is high by OPEC standards. In July, Saudi Arabia was pumping below its target and Iraq and Nigeria, while lagging the Gulf OPEC members on compliance, were pumping less than in previous months, according to a Reuters survey and other assessments.

Saudi Arabia’s King Salman bin Abdulaziz spoke to Nigerian President Muhammadu Buhari on Wednesday and stressed the importance of compliance by all. Russian Energy Minister Alexander Novak, who has tested positive for coronavirus, will join the meeting from home. Brent crude is trading near a 5-month high above USD45 a barrel and has more than doubled since hitting a 21-year low below USD16 in April, helped by the OPEC+ deal.

And 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 DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- IMCD says it has acquired VitaQualy Comercio de Ingredientes LTDA, a supplier of specialty ingredients for the food market in Brazil. Terms of the deal, including purchase price, were not disclosed, said Chemweek.

VitaQualy generated 26 million Brazilian reals ($4.69 million) in revenue in 2019. “The acquisition of VitaQualy aligns with our company’s global food & nutrition strategy to offer trend-based solutions and the distribution of specialty ingredients around four main pillars—taste, texture, nutrition, and function,” says Nicolas Kaufmann, managing director/Brazil at IMCD. “As a reputable distributor of flavors and ingredients, VitaQualy strengthens IMCD Brasil’s expertise and product portfolio in the taste category of our business."

VitaQualy adds eight employees to IMCD’s team in Brazil, who will be fully integrated into the organization in 2021.

As MRC informed earlier, Eastman Chemical B.V. has announced that, beginning 1 August 2020, it is expanding and reinforcing its strategic partnership with IMCD Group for the distribution of its specialty plastics.

As MRC informed earlier, Russia's output of chemical products rose by 4.4% year on year in May 2020 . Thus, production of basic chemicals increased year on year by 5.4% in the first five months of 2020. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the output in January-May. Production of benzene was 110,000 tonnes in May 2020, which equalled the figure a month earlier. Overall output of this product reached 615,000 tonnes over the stated period, up by 1.7% year on year.
MRC

MOSCOW (MRC) -- Expectations of a seasonal increase in heating demand have prompted Asian petrochemical makers to buy LPG as cracker feedstock to capitalize on positive olefin margins, though any further purchases could be limited by a rebound in the LPG market led by renewed Chinese and possibly Indian imports, trade sources said S&P Global this week.

In winter, LPG is used for power generation and companies traditionally begin stockpiling from October. But North Asian traders said LPG demand from Japan and South Korea might be muted by current healthy inventory, despite the prevailing front month contango market structure, which would normally encourage stockpiling.

Yet, demand from China's propane dehydrogenation plants have been recovering since the pause, following moves to control the COVID-19 pandemic, while Indian demand could further recover in Q4 due to the Diwali festivities in November.

The market is also monitoring the fluctuating propane discount to naphtha before committing to further purchases of LPG as a substitute cracker feedstock to naphtha.

While the LPG discount threshold to naphtha is normally around USD40-USD50/mt before crackers start to make the switch, the level has been flexible in recent months.

"FEI (The Argus Far East Index) (propane)-MOPJ naphtha is in the USD20s/mt versus USD40s/mt (discount), it has gone up and down. There is also the spot discount as (Taiwan's) Formosa bought H2 September propane at minus USD40s/mt," a naphtha end-user said.

"The LPG market is in a weak situation, which is a good sign for end-users. We are going to use LPG in September, but now it is time to look forward to see if it still works for October, as there will be seasonal stockpiling of LPG prior to winter then -- that is the key factor if end-users can still get a last burst of LPG in that last window," the source added.

A Singapore-based naphtha trader said: "In terms of the number on paper, it does not make sense to put LPG in for cracking now, but some have already committed and have LPG in their cracking feedstock pool... they will not sell the LPG to put in more naphtha, but going forward, they will have to evaluate if its worthwhile to still use LPG."

Despite the lower ethylene margin, market participants said there was still interest from petrochemical makers to use LPG as an alternative feedstock to naphtha.

The Argus FEI propane swap discount to the Mean of Platts Japan naphtha assessments narrowed by USD4.75/mt day on day to USD23.75/mt on Aug. 19, Platts data showed.

"If the difference is more than USD25/mt (lower for LPG versus naphtha), people will still crack LPG because the ethylene and propylene margins are still fantastic, and they can get more ethylene and propylene yield than naphtha," a South Korean naphtha end-user said.

Sentiment for the Asian naphtha complex has been soft in the past two weeks, weighed down by lengthy supply, with cash differentials for spot paraffinic naphtha parcels falling into negative territory against benchmark Mean of Platts Japan naphtha physical, on a CFR Japan basis. The cash differential was assessed at a near four-month low of minus USD5/mt on Aug. 18, and had edged up 25 cents/mt to minus USD4.75/mt at the Aug. 19 close, Platts data showed.

Naphtha traders said the length in naphtha was from a rollover of late-September arrival cargoes of minimum 70% paraffin content naphtha into the H1 October delivery cycle, in addition to more heavy and heavy full-range naphtha grades entering the cracking pool as splitters maximized condensate or light crude on better price economics.

However, availability of high paraffin naphtha - which would produce more olefins - was reduced due to maintenance at Saudi Aramco's Ras Tanura facility, which may prompt petrochemical makers to turn to LPG to maximize olefins production, market sources said.

Ethylene production yield from naphtha is 0.23, while LPG cracking increases it to 0.36-0.40, according to market sources. Propylene production yield from naphtha is at 0.13 compared with 0.18-0.20 from cracking LPG.

A source familiar with the matter said Formosa Petrochemical's import tender for 22,000 mt propane for H2 September delivery, that had attracted around 10 offers, had earlier driven expectations that the discount could sharpen further. But the source said the propane cargo they bought was for use in their refinery system rather than for cracking.

The source added that even after Formosa's No. 3 steam cracker return from maintenance around end-September, it will continue to use naphtha as the main feedstock, or rely on term LPG cargoes.

As MRC reported before, Formosa Petrochemical Corporation (FPCC) has undertaken a planned shutdown at its No.3 cracker in Mailiao. A Polymerupdate source in Taiwan informed that, the company started maintenance at the cracker on August 11, 2020. Located at Mailiao in Taiwan, the No. 3 cracker has an ethylene production capacity of 1.2 million mt/year and propylene production capacity of 600,000 mt/year.

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

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- Sasol reports a net loss for the full financial year ended 30 June of 91.3 billion South African rand (USD5.3 billion), compared with earnings of R6.1 billion in the prior year, saying the loss is due largely to an impairment of R111.6 billion and the plunge in oil and chemical prices in the last two financial quarters due to COVID-19. Base chemicals, primarily in the US, account for R72.6 billion of the R111.6-billion rand impairment, according to Chemweek.

The last of the seven units at the company’s troubled Lake Charles Chemicals Project (LCCP) has also suffered a further start-up delay, but Sasol says the negotiations process with potential partners for its base chemicals assets in the US, including LCCP, “has seen strong global interest and is now at an advanced stage” with a closing of the transaction “probable” by December. The company warned of the expected full-year financial loss in a trading statement earlier this month.

Full-year sales were down 6.5% year on year (YOY) to R190.4 billion, despite the company’s base chemicals and performance chemicals sales volumes rising 19% and 8% YOY, respectively, it says. There were “softer commodity chemical prices across most of our sales regions due to weaker global demand and increased global capacity,” it says. An 18% decrease in the rand per barrel price of Brent crude oil, coupled with softer global chemical and refining margins, negatively impacted Sasol’s realized gross margins, particularly during the second half of the year, it says.

The LCCP delivered improved EBITDA earnings in the second half of the financial year of approximately R100 million, compared with an EBITDA loss of R1.1 billion in the first six months of the year. After the LCCP’s ethoxylates (ETO) expansion achieved beneficial operation in January this year, the alcohol expansion and the alumina expansion, as well as the new Guerbet unit, achieved beneficial operation in June, Sasol says. All of the LCCP's specialty chemicals units are now online, with 86% of the complex’s total nameplate capacity operational, it says.

The last remaining unit to come online is the low-density polyethylene (LDPE) unit, damaged during a fire in January. The unit is now expected to achieve beneficial operation before the end of October. “Some challenges in restoring the unit” resulted in the date sliding back from its previous market guidance for a start-up at the end of September. Ethylene produced by the LCCP’s steam cracker during this period of delay that was destined for the LDPE unit is being sold to third parties, Sasol says. The ethane-fed cracker produced at an average rate of above 80% of nameplate capacity during the fourth quarter of the fiscal year, it says. “Projected earnings for the LCCP complex in this financial year will be impacted only by the loss in the margin of ethylene to LDPE,” it says. The LCCP’s current forecast cost estimate of USD12.8 billion is still on track, it adds.

The demobilization of the LCCP project is progressing according to plan, with the remainder of the work limited to the removal of scaffolding, according to Sasol. Site demobilization of construction equipment, infrastructure, and services will be completed after the last unit achieves beneficial operation, with the number of people on site now less than 400, it says.

As part of the potential partnering process for its US base chemicals assets, Sasol says the assets and liabilities relating to its US base chemicals portfolio have been classified as disposal groups held for sale, leading to the R72.6-billion impairment and “reducing the carrying value of the disposable asset down to its fair value less cost to sell.” Proceeds from the planned disposal, combined with self-help measures, “should make a meaningful and positive impact on Sasol’s financial prospects, principally as a result of the intended use of disposal proceeds to settle debt with payment obligations within the next 12–24 months,” it states. In its guidance it adds that it has applied a 50% partnering for its base chemicals portfolio adjustment within its US business in 2021. CPChem, ExxonMobil, Hanwha Solutions, Ineos, and LyondellBasell are all reported to have expressed interest in buying a stake in Sasol’s assets, according to previous reports.

It also confirms its recent entry into exclusive discussions with Air Liquide for the sale of 16 air separation units at Secunda is for a total transaction price of R8.5 billion. “A further announcement will be made when terms have been finalized with any transaction expected to be subject to customary conditions precedent,” it says.

Capital expenditure (capex) was reduced by approximately R6.0 billion for the year by deferring certain expenditures, with capex totaling R35 billion. This included R14 billion related to the LCCP project and was in line with Sasol’s internal targets, it says. The company says it exceeded its cash conservation target of USD1 billion for 2020, largely through cash fixed cost reductions, as well as capex and working capital optimization, and adds that it has “committed plans in place to deliver against our USD1 billion target for 2021.”

Sasol’s “liquidity headroom” was over USD2.5 billion, which it says is “well above our outlook to maintain liquidity in excess of USD1 billion." The company has also reiterated its plan to pursue a USD2-billion rights issue, saying it would take place in the second half of the 2021 financial year.

In its guidance for its full financial year 2021, Sasol says it expects an “overall solid operational performance,” with base chemicals overall sales volumes to be 3–5% higher than 2020. Excluding US polymers products, sales volumes are put at 1–2% higher than 2020. Performance chemicals overall sales volumes are forecast at 3–5% higher than in 2020. Excluding LCCP-produced products, sales volumes will be “flat or slightly below the prior year,” it says. Capex for 2021 is put at R21 billion.

As MRC reported earlier, Hanwha Group has lost to US-based chemical company Chevron Phillips in a bid to acquire a 50% stake in global chemical company Sasol’s ethane cracking center (ECC) located in Louisiana, for which the South Korean conglomerate offered more than USD3 billion.

We remind that Sasol's world-scale US ethane cracker with the capacity of 1.5 mln tonnes per year reached beneficial operation on 27 August 2019. SasolпїЅs new cracker, the heart of LCCP, is the third and most significant of the seven LCCP facilities to come online and will provide feedstock to our six new derivative units at the company"s Lake Charles multi-asset site.

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

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Sasol is an international integrated chemicals and energy company that leverages technologies and the expertise of our 31 270 people working in 32 countries. The company develops and commercialises technologies, and builds and operates world-scale facilities to produce a range of high-value product stream, including liquid fuels, petrochemicals and low-carbon electricity.
MRC