US refiners, awash in diesel inventory, unlikely to boost output soon

MOSCOW (MRC) -- US refiners are stuck between meeting rising gasoline demand and the glut of supply in the lackluster diesel and jet fuel markets, reported Reuters.

Refiners cannot produce gasoline without making other products like diesel, commonly known as distillates. The coronavirus pandemic slashed demand by one-third worldwide, and so far the gasoline use has rebounded faster than that of distillates. Refiners still have big stockpiles of diesel and other fuels, and do not want to make more of those products due to poor margins.

Refiners have been running at around 80% utilization since the end of July, up from the spring, when the pandemic broke out, but still below usual levels. With summer driving season coming to a close, they are reluctant to boost output for the winter season, when gasoline demand declines.

“Once Labor Day wraps up, and especially this year where few parents are dropping off their kids (at school), gasoline and distillate demand will likely see more erosion than usual,” said Patrick De Haan with GasBuddy.

Refiners cannot bet on profit margins improving soon. The refining crack spread, a proxy for margins, fell last week to USD7.93, lowest since April 2020, because demand for product is not strong enough to draw down inventories, nor keep up with rising crude prices.

Several refiners shut during Hurricane Laura, reducing overall refining capacity use to less than 77%, but refiners have indicated that they will not ramp up much more due to concern of oversupply of distillates.

“Refineries are in no rush to reopen, because they’re making no money,” said Bob Yawger, director of energy futures at Mizuho.

One refining executive who requested to remain anonymous said they are constrained by distillate inventories and would continue to run plants between 80% to 82%.

US demand for gasoline has recovered by about 70% since early April, US Energy Information Administration data shows. Gasoline stockpiles have dropped over the last two months during the summer driving season.

Consumption for distillate fuel, which includes diesel widely used in trucks for construction and transporting goods, increased by only around 40% since April.

Distillate inventories are higher than usual, currently at 177.5 million barrels, or about 20% above the five-year average for this time of year, according to EIA data.

Jet fuel demand, meanwhile, is expected to drop by 40% this year to 3.1 million barrels per day, the International Energy Agency said earlier this month.

“I’m not convinced that we could get to full utilization in this industry if jet demand is where it is today,” PBF Energy Chief Executive Thomas Nimbley said on an earnings call in late July.

Refiners hope export demand will offset the weak domestic consumption, but there, too, distillates are lagging gasoline.

Finished gasoline exports in August were down just 4% from a year ago, compared to a 35% drop in middle distillate exports, said Matt Smith, director of commodity research at ClipperData.

We remind, as MRC wrote before, most chemical production facilities in the region between Beaumont-Port Arthur, Texas, and Lake Charles, Louisiana, have shut down in preparation for Hurricane Laura, which was forecast to make landfall near the Texas-Louisiana border Wednesday night or early Thursday. Several olefin crackers and associated derivative polymer units have been shut down, as has about 2.5 million b/d of refining capacity.

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

According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.

Huntsman says polyurethanes much stronger than expected

MOSCOW (MRC) -- Huntsman says its polyurethanes segment is performing well above expectations owing to continued strength in construction-related markets, faster improvement in automotive demand, and higher overall margins, reported Chemweek.

The company says third-quarter results in its other segments are still roughly in line with previous guidance.

During its second-quarter earnings call on 28 July, Huntsman forecast a 30% year-over-year (YOY) decline in the segment’s third-quarter adjusted EBITDA, but the company now expects a figure close to the year-ago value of USD146 million.

During the second quarter of 2020, the polyurethanes segment turned in adjusted EBITDA of USD31 million, down 80% YOY, and revenue of USD730 million, down 28% YOY, both reflecting lower average selling prices for methylene di-para-phenylene isocyanate (MDI) and lower overall polyurethanes sales volumes.

As MRC informed before, in January 2020, Indorama Ventures Public Company Limited (IVL), a global chemical producer, completed its acquisition of Huntsman’s world-class integrated oxides and derivative businesses, including a large flagship site on the US Gulf Coast (USGC) at Port Neches, as well as Chocolate Bayou and Dayton in Texas, Ankleshwar in India, and Botany in Australia.

The acquisition is a profitable and growing end applications business along with unique products and geographical profile among the crowded olefins space. It has a well-integrated assets base with an extensive infrastructure and future expansion possibilities. The area is adjacent to many USGC feedstock suppliers. The cash value of USD2.0 billion makes it the largest acquisition by Indorama Ventures ever and now our capital employed is nicely spread over plastic, chemicals and fibers. The transaction value translates to an EV/EBITDA of ~5.7x and is expected to add substantial synergies to Indorama’s existing 450kta Ethane/Propane Cracker and our 550kta EO/EG. IVL will now be integrated from Ethane to PET as well as the high-margin EO and PO derivative businesses.

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.

Huntsman Corporation is a publicly traded global manufacturer and marketer of differentiated and specialty chemicals with 2019 revenues of more than USD7 billion. Its chemical products number in the thousands and are sold worldwide to manufacturers serving a broad and diverse range of consumer and industrial end markets. The company operate more than 75 manufacturing, R&D and operations facilities in approximately 30 countries and employ approximately 10,000 associates within its four distinct business divisions.

PetroChina refinery in Daqing expands capacity to 200,000 bpd

MOSCOW (MRC) -- PetroChina’s Daqing refinery has expanded its crude oil processing capacity to 10 million tons per year, or 200,000 barrels per day, from 6.5 million, after completing a two-year upgrade, reported Reuters.

The refinery in China’s northeastern province of Heilongjiang also revamped its 1.2 million tons hydrocracker and 1.2 million gasoline and diesel hydrotreating units.

With total investment of 4.45 billion yuan (USD651 million), Daqing also added a series of facilities, such as a 2 million tons per year fluid catalytic cracker, a 600,000 tons per year gas fractionation unit and two 20,000 tons per year sulfur recovery units.

The upgrade allows the refinery to process 3.5 million tons of Russian ESPO Blend crude oil annually, on top of its current refining capacity of 6.5 million tons of local Daqing crude.

“(The upgrade project) will help Daqing refinery to break the bottleneck of development, to adjust structure of units and products, and to improve risk resistance capacity as well as improve profitability,” parent China National Petroleum Corp (CNPC) said in a statement.

The city of Daqing, home to the refinery and China’s largest oilfield by production, said this year it planned to embark on a five-year plan to expand oil refining and high-value added petrochemical production.

The refinery is expected to produce 180,000 tons of propylene, 260,000 tons of liquid hydrocarbon, 220,000 tons of toluene and 280,000 of xylene to supply chemical plants in the region.

As MRC wrote previously, PetroChina Ningxia PC, part of PetroChina, brought on-stream its polypropylene (PP) plant following a turnaround. The company resumed operations at the plant on August 18, 2020. The plant was shut for maintenance on July 1, 2020. Located at Yinchuan, China, the PP plant has a production capacity of 110,000 mt/year.

Propylene is the main feedstock for the production of PP.

According to MRC's ScanPlast report, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.

PetroChina Company Limited, is a Chinese oil and gas company and is the listed arm of state-owned China National Petroleum Corporation, headquartered in Dongcheng District, Beijing. It is China's biggest oil producer.

IHS Markit PEPP 2020: COVID-19 reveals complexity of plastic waste issue

MOSCOW (MRC) -- Although the COVID-19 pandemic has highlighted the unique value of plastics, plastic waste remains an increasingly urgent problem whose solution will require extensive collaboration throughout the value chain, reported Chemweek with reference to industry representatives' statement last Thursday during the IHS Markit PEPP 2020 Online: Annual Polyethylene-Polypropylene Chain Global Technology & Business Forum.

"The value proposition for plastic materials has been reemphasized in the consumer base," said Venetia Spencer, secretary general of the Polyolefin Circular Economy Platform (PCEP). "I think that people recognize the value of the product. They recognize the importance of food safety, of the application of plastics in personal protective equipment (PPE) and hygiene and medical applications. At the same time, the issue on end-of-use is still there."

Indeed, the pandemic has exacerbated the problem, said Justin Wood, vice president/strategic partnerships at The Alliance to End Plastic Waste. "Coronavirus is a major health crisis, and clearly it's also a major economic crisis, but it's also very much an environmental crisis, and particularly in the context of plastic," he observed. "If you look at the consumption of plastic globally, it is increasing the use of single-use plastic in many, many cases."

These include not only PPE for healthcare workers, but also home delivery of food and other products that consumers historically purchased in stores.

"So we've seen dramatic increase in many uses of plastic. But we've also at the same time seen collapsing management of the waste that is produced from all of that. In many cases, the materials recovery facilities and so on that process this waste plastic have been shuttered temporarily in name of social distancing. Equally, people have been much more reluctant to handle plastic waste from other people given scares around the virus, so this situation is really a double whammy, in the sense that you see soaring use of single-use plastic and, at the same time, falling collection and management of the plastic waste."

The pandemic has thus not only renewed appreciation for plastics, but also heightened awareness of the disposal problem.

"This is clearly a situation that companies need to get ahead of," said Wood. "Many companies are doing that, but … many of them are still thinking about how do they individually improve their performance, and how do they individually try to put in place measures to manage plastic waste."

Spencer agreed. "We have this great opportunity right now to shape policy, but to do that, we have to kind of stop (focusing on) competing, and really think about collaboration. So you have to share the expertise and start to understand everyone else's business. That's really what a value chain approach is, right? It's not just thinking about my business as a brand or my business as a waste management company. It's understanding how what I do impacts everyone else," she said. "I think that is really critical, and we need to do it right now so that we can properly have a value chain and position on what we want to see. Because once we do that, once we have a common viewpoint, we're going to be able to shape investment, policy, goals, and tools that help us deliver. But until we have that clear alignment within the polyolefin industry, we lose too much time fighting with each other and there just isn't time for that."

"The challenge… is very complex," said Bob Maughon, executive vice president/sustainability, technology and innovation as well as CTO and CSO at SABIC. " I think that you therefore need a suite of solutions." He noted that SABIC's new product platform, Trucircle, tackles the problem from four different directions: certified renewable products made from biobased feedstocks; certified circular products based on chemical, or feedstock, recycling; mechanically recycled solutions, which are compounds engineered for high recycled content; and designing for recyclability, whereby resins are tailored to make products easier to recycle.

"There's a need to think about …designing appropriately for the application, not overdesigning benefits and complexity into the structure of the package, which then makes recycling more complex," he continued. "There's definitely innovation [to do] on the material side, but it has to be done in concert with the machine manufacturers, the converters, and the brands to make sure that it meets the end requirements (without being) overdesigned."

Ultimately the problem is not plastics as such, but the efficient use of resources, the participants suggested.

"People are talking about the reduction of plastics, but I prefer talking about the smarter use of plastics and making sure that you try, when you can, to design for recycling," said Marco Jansen, circular economy leader at Braskem Europe. "It's not always possible -- sometimes it's more important to preserve food [than to] design for recycling specifically, but I think it's a very strong focus that we need to have."

Similarly, there is only so much resin producers can do to deliver economically viable circular solutions before end users may have to reconsider their assumptions about the aesthetics of packaging.

"I think that the brand owners and retailers maybe need to have a new view on recycled plastics and have a different perception of quality," said Jansen. "I'm thinking mainly for optical reasons. Sometimes we say, jokingly, that grey is the new white. People need to accept that grey isn't necessarily worse than white or natural packaging, and that in fact (there is) value in showing that something has been recycled."

As MRC informed earlier, Magnum's pint tubs are made using certified circular polypropylene (PP) from SABIC's TruCircle portfolio. When it comes to food and drink applications, recycled plastic has limited uses. Regulations forbid the use of post-consumer resin (PCR) in food & drink contact, as well as in hygiene and medical applications. However, brand owner Unilever and its partner SABIC have developed a solution and introduced it to some European markets. Their goal: prove that PCR can be transformed for use in food-contact applications safely.

According to MRC's ScanPlast report, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.

Chevron in talks with Eni to sell stake in Indonesia Deepwater Development: officials

MOSCOW (MRC) -- Oil major Chevron is in talks with Italy's Eni over the possibility of selling its stake in the Indonesia Deepwater Development project in offshore East Kalimantan in Southeast Asia, reported S&P Global with reference to two senior government officials' statement in August.

The talks are happening against the backdrop of Chevron's recent acquisition of upstream company Noble Energy for USD5 billion and a global slump in oil and gas prices that has upended valuations of hydrocarbon reserves and forced energy conglomerates to reconfigure their portfolios.

If the sale goes through it could provide some certainty to the development of the gas fields under IDD that has been in limbo due to disagreements with the government. It would also mean the exit of yet another oil major from a flagship Indonesian upstream project amid resource nationalization concerns.

"Now (Chevron's stake) is being offered to Eni. What I know is Chevron is offering. We will wait," acting oil and gas director general at the Energy and Mines Ministry Ego Syahrial said.

A second senior government official confirmed that Chevron was in talks with Eni over the IDD project, and a third unnamed upstream investor was also involved in discussions.

A Chevron spokesman said it does not comment on commercial discussions as a matter of long-standing policy, and Eni acknowledged the query but didn't provide an immediate confirmation.

The IDD project includes the production sharing contracts for the Ganal and Rapak blocks in offshore Indonesia, and the gas fields of Bangka and Gehem-Gendalo.

Chevron has a 62% interest in the Bangka field and a 63% stake in Gendalo-Gehem, according to its website. The other partners in the gas fields are Eni, Tiptop Energy and Sinopec.

In January, Chevron said it had opened a data room to facilitate discussions about th potential sale of its interest in IDD but no final decision had been made to sell its interest. It said Bangka, which began production in August 2016 as the first phase of IDD, was not able to compete for capital in Chevron's global portfolio.

Indonesian energy ministry's Syahrial said the IDD development and Rokan block were actually "one package."

The Indonesian government had appointed Pertamina to take over the Rokan block in central Sumatra from Chevron when the contract expires in August 2021, citing a more attractive development proposal from the national oil company. The Rokan issue had only served to exacerbate concerns of resource nationalism.

The IDD project is expected to contain of 2.3 Tcf of gas. Upstream regulator SKK Migas expects the second phase of IDD to be on stream in the fourth quarter of 2026; and peak production is expected to reach 844 million cu ft/d of natural gas and 27,000 b/d of crude oil.

As MRC wrote before, low commodity prices and deep spending cuts in the first half of 2020 could lead US supermajors ExxonMobil and Chevron to write down huge chunks of their proved oil and natural gas reserves if prices remain depressed in the second half.

We remind that Chevron Phillips Chemical, part of Chevron Corporation, declared force majeure Sept. 1 on its polyethylene (PE) products after assessing the impact of Hurricane Laura to its Gulf Coast PE operations.

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.

Headquartered in San Ramon, California, Chevron Corporation is the the second-largest integrated energy company in the United States and among the largest corporations in the world. Chevron is involved in upstream activities including exploration and production, downstream activities including refining, marketing and transportation, and advanced energy technology. Chevron is also invested in power generation and gasification processes.