COVID-19 - News digest as of 02.11.2020

1. Reliance reports YOY fall in petchem profit, revenue; sequential improvement

MOSCOW (MRC) -- Reliance Industries says that EBDITA dropped 33% year on year (YOY) at its petrochemicals business to 59.64 billion Indian rupees (USD802.79 million) in the fiscal second quarter ended 30 September. Quarterly sales for this sector were Rs296.6 billion, down 23% YOY, said Chemweek. The company says, however, that compared with the preceding quarter, prices of polypropylene (PP), polyethylene (PE), and polyvinyl chloride (PVC) strengthened by 13%, 17%, and 25%, respectively, due to tight supply with regional turnarounds and an improvement in demand. With increased feedstock prices, para-xylene (p-xylene) prices firmed 10% quarter on quarter (QOQ) and purified terephthalic acid (PTA) and ethylene glycol prices increased by 4% and 10%, respectively. Naphtha prices increased by 56% QOQ because of healthy demand. Reliance says that its steam-cracker margins improved QOQ due to the feedstock mix and “favorable economics for ethane cracking.” Its crackers operated at near 100% utilization during the quarter. The company recorded higher QOQ production volume and higher volume placement in the domestic market. "Domestic demand has sharply recovered across our oil-to-chemicals business and is now near pre-COVID levels for most products,” says Mukesh Ambani, chairman and managing director at Reliance.



MRC

MOSCOW (MRC) -- LyondellBasell left aside the financial caution it adhered to since the start of the pandemic to seize an opportunity provided by deteriorated market conditions to buy for two-thirds of the estimated real value a 50% stake in an ethane cracker and two polyethylene (PE) plants in Louisiana from Sasol, according to Hydrocarbonprocessing.

The purchase includes half of Sasol’s 1.5 MM ton/year ethane cracker and 0.9 MM ton/year low density (LDPE) and linear-low density (LLDPE) polyethylene (PE) plants.

The assets were part of a Sasol expansion at Lake Charles marked by delays and cost overruns. LyondellBassel will now run the assets and market all products on behalf of both partners.

LyondellBasell got “full capacity and immediate financial benefits of a new, operational, world-scale integrated cracker complex with minimal exposure to risk of project execution, timing uncertainty and opportunity cost typically incurred during the multi-year construction,” LyondellBasell’s CEO Bhavesh Patel said.

The assets also represented for LyondellBasell “a very attractive valuation” as the transaction timing occurred as the market reached a bottom, Patel added in comments during an Oct. 2 call conference with analysts.

The announcement came six months into the Covid pandemic, which has clouded the demand outlook and impacted the US feedstock cost advantage.

The entire Lake Charles expansion, which included other production assets, suffered cost overruns and ended up having a cost of nearly USD13 billion. Back in 2014 Sasol had estimated construction would take about four years and cost under USD9 billion.

The LDPE startup was delayed by an explosion in January and then by Hurricane Laura after late August.

Sasol will continue to own at Lake Charles 100% of its research and development unit, the East Plant ethane cracker and performance chemicals assets that produce Ziegler alcohols and alumina, ethoxylates, Guerbet alcohols, paraffins, co-monomers, linear alkyl benzene, ethylene oxide and ethylene glycol.

Based not on what Sasol shelled out in a construction plagued with significant cost overruns, but on what the cost would be to build similar assets today in a well-managed construction, Patel estimated LyondellBasell is getting the assets for two-thirds of their value.

“My sense is that a really well executed project that is low cost relatively speaking, including the utility and the infrastructure, would likely be close to USD6 billion for a well-executed project, 100% basis, so half of it would be about USD3 billion,” Patel said.

“I do think that we’re kind of at the bottom of the polyethylene cycle and there have been many public announcements about the delay or cancelation of projects on the supply side and on the demand side,” Patel said.

Looking ahead, Patel believes the PE market will recover and allow LyondellBasell to see cash flow reflected in earnings per share by next year. The companies will complete the transaction by year’s end.

“We think the cycle should turn up here,” Patel said.

“I’m not implying here that we get back to 2014 kind of margins, but I think getting to the past three years 17, 18, 19 over the next three to five years is doable,” he added.

“If you look at how PE demand has developed here during the pandemic, we actually see year-over-year demand growth globally, we see year-over-year demand growth in the US,” he added.

Patel said he recognized the purchase “may come as a surprise after a strategy of limiting financial exposure in the first six months of the pandemic.”

“The key here is that you pay or have valuations at the bottom of the cycle,” he added.

“I’ve been through a lot of cycles over the 30 plus years that I’ve been in the business and this is kind of how cycles work,” Patel said.

Patel said he expects the purchase will result in an “unlevered internal rate of return in the mid-teens.” The company will pay for the assets with debt and cash. It does not have plans engage in asset construction or additional new purchases.

“We don’t see any other assets that are like this, that have the strategic rationale that I laid out, so our focus now is going to be to get to closing as quickly as possible, get the rates to where we want, get a solid marketing plan in place,” he said

The joint venture’s LDPE and LLDPE capacity will complement LyondellBassell existing North American capacity, which is predominantly high density (HDPE), he said.

LyondellBassel production will reach over 17 MM tons of annual olefin capacity and 16 MM tons of polyolefin capacity after the transaction, he said. Assets include 13 ethylene plants and dozens of PE production lines.

“After the start of our hyperzone plant we’re about 500,000 tons long before this deal so if you add another 300,000 we end up in the 800,000 which gets us to under 2 billion” pounds of ethylene in the US, he said.

“We’ve been kind of in the 1 to 2 (billion pounds long) range for a few years now and I don’t think that’s too long,” he said.

“We have a very extensive pipeline network, many longstanding relationships. Sasol is selling some of that ethylene today so I think it’s still modest,” he added.

As for whether LyondellBasell could acquire or build ethylene derivative units to balance ethylene output and requirements, Patel left the possibility open only for the longer term.

“That would be a middle of the decade or second half of the decade sort of decision,” he said.

As for Sasol, “what I hope our partners saw was the value that we brought from an operating standpoint, the ability to plug in to a global network on marketing immediately from day one, and the possibility for them to retain 50% and ride some of the market upside before they make a decision on the second 50%,” Patel said.

As MRC wrote before, the last remaining unit of Sasol to come online at the LCCP complex is the 420,000-metric tons/year LDPE facility, damaged in a fire earlier this year. It was expected to achieve beneficial operations by the end of last month.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

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.

LyondellBasell is one of the largest plastics, chemicals and refining companies in the world. Driven by its 13,000 employees around the globe, LyondellBasell produces materials and products that are key to advancing solutions to modern challenges like enhancing food safety through lightweight and flexible packaging, protecting the purity of water supplies through stronger and more versatile pipes, and improving the safety, comfort and fuel efficiency of many of the cars and trucks on the road. LyondellBasell sells products into approximately 100 countries and is the world's largest licensor of polyolefin technologies.
MRC

MOSCOW (MRC) -- PBF Energy will shut most refining units at its Paulsboro, New Jersey, refinery, the company's chief executive said in a letter to employees that cited the impact of the coronavirus pandemic on fuel demand, said Hydrocarbonprocessing.

The company will cut 250 jobs at the refinery, which will now only produce partially refined feedstocks that will be sent to PBF’s nearby Delaware City, Delaware, refinery, CEO Tom Nimbley said in the letter. “PBF Energy, along with the entire oil industry, has been significantly, unexpectedly, and negatively impacted from the wellhead to the pump by the COVID-19 pandemic, primarily through demand destruction for transportation fuels related to lockdowns that throttled back the economy,” Nimbley said in the letter. It was sent to employees after the market close on Wednesday. PBF was not immediately available for comment.

In a 2019 press release, PBF said it had 489 full-time workers at the refinery. Earlier this year, the Parsippany, N.J.-based company cut spending, laid off employees, sold off hydrogen plants, and suspended its 30-cent a share quarterly dividend to weather the oil downturn caused by the pandemic.

Gasoline refining cracks, or margins, have been weak since the beginning of the pandemic. They are currently $8.46 per barrel, compared with the five-year average of USD13.17 a barrel at this time of year, according to Refinitiv Eikon data. The company was particularly exposed in part due to high levels of debt associated with its USD1.2 billion purchase of Shell’s Martinez, California refinery in February.

The 180,000 barrel-per-day Paulsboro refinery is one of just a handful remaining on the East Coast, where a number of facilities have closed in recent years. Canada’s Come-by-Chance plant in Newfoundland and Labrador has been idled since May in the pandemic. In 2019 the Philadelphia Energy Solutions plant was shut down following an explosion and fire.

Elsewhere, HollyFrontier shut down its Cheyenne, Wyoming refinery, Marathon Petroleum began closing refineries in Martinez, California, and Gallup, New Mexico while Calcasieu Refining idled its Lake Charles refinery in southwest Louisiana. Phillips 66 announced plans to shut down its Santa Maria refining plant in Arroyo Grande, California, in 2023 and plans to reconfigure its San Francisco Refinery in Rodeo, California, to produce renewable fuels.

The remaining operating refineries operating on the U.S. East Coast include PBF’s Delaware City refinery, Delta Airlines’ refinery in Trainer, Pennsylvania and the 258,500 barrel-per-day Bayway refinery in Linden, New Jersey owned by Phillips 66. PBF will report third quarter earnings Thursday morning. Its shares closed down more than 8% to USD4.27 on Wednesday.

As per MRC's ScanPlast, September PE production in Russia was 233,200 tonnes, whereas this figure was 258,700 tonnes a month earlier, in the first month of autumn several producers stopped their capacities for repairs at once. Thus, overall PE output reached 2,204,200 tonnes in January-September 2020, compared to 1,349,000 tonnes a year earlier. Production of all PE grades rose, but LLDPE accounted for the greatest increase, which was provided by ZapSibNeftekhim.
MRC

MOSCOW (MRC) -- Oil prices settled at the lowest level since early June on Oct. 29 as demand outlooks dimmed in the face of rising coronavirus cases that have sparked broad lockdowns in Europe, reported S&P Global.

NYMEX December WTI settled USD1.22 lower at USD36.17/b, and ICE December Brent was down USD1.47 at USD37.65/b.

Energy prices turned sharply lower in overnight trading after France and Germany both announced nationwide lockdowns on Oct. 28 in a bid to stem a rising tide of new infections, stoking concerns that more restrictions could be coming to areas with similar coronavirus trajectories.

In the US, the seven-day moving average of new coronavirus infections climbed to a fresh all-time high 74,096 on Oct. 28, according to data from The COVID Tracking Project.

Front-month WTI settled below the 200-day moving average, a key technical indicator, for the first time since Oct. 2. Implied volatility, a measure of downside risk in the market, for front-month WTI climbed to 57.88% Oct. 29, the highest since late May.

NYMEX November RBOB settled 2.99 cents lower at USD1.0515/gal and November ULSD settled down 2.58 cents at USD1.0884/gal.

But oil prices pulled off session lows in early US trading following more bullish than expected US economic data.

US Commerce department data showed third-quarter GDP surged 33.1%, or USD1.64 trillion, to USD21.16 trillion. The increase exceeded market expectations and nearly erased a USD2.04 trillion GDP slide in the second quarter.

Further buoying market sentiment, US weekly unemployment claims fell 40,000 to 751,000 in the week ended Oct. 24, US Labor Department data showed.

"The US data was just the excuse used to pare losses, but really energy traders wanted to defend the lower boundaries of the trading range that has been in place since June," OANDA senior market analyst Edward Moya said in a note. "Lockdown headlines will continue to dictate how bad the crude demand outlook crumbles."

Front-month WTI and Brent last settled lower on June 1 and May 29, respectively.

US energy prices also saw some support from production shut ins due to Hurricane Zeta, which made landfall on the Louisiana coast Oct. 28.

As of midday Oct. 29, the storm had shut in an estimated 1.57 million b/d of crude production reflecting 84.8% of US Gulf output, according to the US Bureau of Safety and Environmental Enforcement. The Category 2 storm also caused disruptions at Shell's 227,400 b/d Norco Refinery, PBF Energy's 190,000 b/d Chalmette Refinery and potentially others, but damages were limited and the restart processes have begun, the companies said.

Outsized declines for Brent futures narrowed the ICE WTI-Brent spread to around minus USD1.50/b in afternoon trading, testing levels last seen in early April.

As MRC informed earlier, producers took 85% of the US Gulf's crude oil flows ahead of Hurricane Zeta and, now that the storm has passed, some Louisiana refineries are beginning to restart after suffering from the widespread power outages throughout the New Orleans area.

We remind that Royal Dutch Shell plc. said in October, 2020, that its petrochemical complex of several billion dollars in Western Pennsylvania is about 70% complete and in the process to enter service in the early 2020s. Currently under construction, the plant is in Beaver County, about 48 km northwest of Pittsburgh, and will be self-sustained with its natural gas power plant and water treatment facility. The plant’s costs are estimated to be USD6-USD10 billion, where ethane will be transformed into plastic feedstock. The facility is equipped to produce 1.5 million metric tons per year (mmty) of ethylene and 1.6 mmty of polyethylene (PE), two important constituents of plastics.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
MRC

MOSCOW (MRC) -- French oil group Total has no plans to shrink its oil production volumes in the coming years but hopes to maintain its current output levels while prioritizing lower-cost, shorter-cycle upstream projects, reported S&P Global with reference to its chief executive officer Patrick Pouyanne's statement Oct. 26.

"We don't want to decline oil on the production side, we'll continue," Pouyanne told an industry event on Oct 26. "It's a bit difficult to grow when you are selective but maintaining our oil production is part of a strategy...When we have opportunities to grow we'll do it...we are proud to be an oil producer."

Like many of its European rivals, Total has signaled a major boost in spending on renewables energy in the coming years as part of its strategy to shift to cleaner, lower-carbon fuels.

The company, which has said it expects global oil demand to peak in the 2030s, last month announced plans to grow its overall energy production by a third in the next decade, with half the growth coming from LNG and half from electricity, mainly renewables. With a shift in focus to cleaner, low-carbon energy, however, it said it expects its oil product sales will be reduced by almost 30% in the same timeframe.

Last year, Total's oil and gas output averaged 3.01 million boe/d, of which 1.67 million b/d, or 55%, was oil.

By 2030, the company expects its total energy sales mix will be: 50% gases, 30% oil products, 5% biofuels and 15% electrons. That compares with 55% oil products, 40% gas and 5% electrons in 2019.

BP in September became the first global oil major to abandon a long-held strategy of growing oil and gas portfolio, announcing plans to shrink upstream production by at least 1 million b/d of oil equivalent, or 40%, by 2030 as part of an ambitious transformation from an integrated hydrocarbons producer to a global energy major.

Although Total has no plans to follow suit, Pouyanne said Total is being more selective in its upstream investments, avoiding projects with multi-year exploration and development cycles such as deepwater offshore given the uncertainties over the future demand for oil and long-term oil prices.

"In order to be safe, we want to be sure that the oil that we invest (in) today - when it faces lower demand - continues to be competitive at a lower price," Pouyanne told the India Energy Forum.

Total has said its new upstream projects must have a breakeven of less than USD25/b, and are able to produce a return of more than 15% at a USD50/b long-term oil price.

Asked whether growing concerns over the climate and long-term oil demand threaten to create more stranded resources globally, Pouyanne said: "I think it will become an issue for countries that want to offer some exploration licenses...because we have to think, (for example) very deepwater, offshore exploration could take time to develop."

In Suriname, where Total and Apache recently made a third "substantial" offshore oil and condensate find, Pouyanne suggested that Total may not even consider developing the discovery unless it is a "giant" in terms of recoverable resources.

"If it's giant it works, if it's only interesting discoveries maybe they will have to stay where there are...So it might be an issue."

In Canada's oil sands industry, Pouyanne said he sees the potential that climate change and oil demand fears "may leave a lot of resources in the ground."

"There are a huge amount of resources which probably will not be all valorized in the long term in this type of environment," he added.

As MRC reported earlier, within the framework of its net zero strategy, Total will convert its Grandpuits refinery (Seine-et-Marne) into a zero-crude platform and will invest more then EUR500 mln into this project. By 2024 the platform will focus on four new industrial activities: production of renewable diesel primarily intended for the aviation industry, production of bioplastics, plastics recycling and operation of two photovoltaic solar power plants.

We remind that in November 2019, Total disclosed that itis evaluating construction of a new gas cracker at its Deasan, South Korea, joint venture (JV) with Hanwha Chemical.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.

Total S.A. is a French multinational oil and gas company and one of the six "Supermajor" oil companies in the world with business in Europe, the United States, the Middle East and Asia. The company's petrochemical products cover two main groups: base chemicals and the consumer polymers (polyethylene, polypropylene and polystyrene) that are derived from them.
MRC