Chinese demand recovery hopes fade for Atlantic Basin crude sellers

MOSCOW (MRC) -- With barrels of crude oil that will arrive in China in May now changing hands, hopes that demand from its refiners for African and European crude would tick higher following spring maintenance may have been premature, reported S&P Global.

After a bumper 2020 for sales to China, 2021 has got off to a slow start with demand for long-haul crude hit by higher flat prices, refinery maintenance season and fresh restrictions on mobility on the back of an uptick in coronavirus levels which coincided with Lunar New Year celebrations.

About 50 million mt/year of refining capacity at six state-owned refineries - five Sinopec and one CNOOC - was expected to be shut over the March-April period, while May could also witness some maintenance, albeit at a relatively lower level, industry data and information collected by S&P Global Platts showed.

Sellers of Atlantic Basin crudes hoped that once the bulk of refinery works were finished in May, crude arriving in that period would see more demand, but a confluence of factors has dashed expectations.

"Many companies positioned themselves to deliver May cargoes into China, betting on a demand recovery after the holidays ... that is not happening," one trader said.

As Brent futures and benchmarks surge, others have struggled to keep pace, pushing Brent to its highest premium to Dubai futures in over a year, in tune complicating arbitrage economics for Atlantic Basin crudes.

The front-month Brent/Dubai exchange of futures for swaps has traded above USD2.50/b through the past week, with the May contract last trading at USD2.61/b.

The EFS, a key indicator of the relative strength of Brent-linked crudes against Dubai-linked grades, was last wider in January 2020 and traded in negative territory through much of last year.

Brent-linked Angolan crude, beloved by Chinese refiners, has seen slow trading of March- and April-loading barrels as a result.

"With the current (Brent/Dubai) EFS, it is difficult to see Angolan barrels heading east," a trader said. "Though, I do not think they have a home in the Med ... so I think sellers will load barrels and send them east waiting for economics to improve."

The situation was similar for another Brent-linked crude, Russia's Urals, which has seen demand from the east fade on the back of strength in Brent, according to traders.

Despite low freight rates, North Sea barrels have also been struggling to find buying interest from Asia, with VLCC fixtures failing and some vessels having withdrawn on the route heading East.

Dubai-priced alternatives such as Russian ESPO or Persian Gulf grades looked increasingly attractive to Chinese refiners, other traders said.

Alongside strength in Brent flat prices, the market has shifted into a steep backwardation – a structure in which the forward price of oil is below the prompt price.

With a relatively long distance for Atlantic Basin arbitrage flows into China, the structure penalizes crude loading earlier, with shorter-haul barrels such as ESPO or Persian Gulf grades losing less money while on the water, traders said.

As well as discouraging long-haul flows, backwardation motivates refiners to draw from storage, and with healthy crude inventories in China, it does not make sense to buy fresh oil, according to traders.

Commodity data company Kpler estimates that inventory levels in China are around 936 million barrels, or 67% of the total capacity, a touch under a peak of 70% in September.

Additionally, product markets were well-supplied in China, sources said, with inventories rising.

"Refinery margins in China are not that good ... gasoil demand is not good and (China) is now exporting more diesel as a result," a trader said.

As MRC informed before, in early December 2020, Sinopec’s board approved plans to build a 1.2-million metric tons per annum ethylene plant and downstream units in the Nangang area of the port of Tianjin, China. Sinopec estimates the cost of the project at 28.8 billion renminbi (USD4.4 billion).

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Neste announced that it would acquire Bunge Loders Croklaan's refinery plant in Rotterdam, the Netherlands, said Hydrocarbonprocessing.

The refinery plant is located next to Neste’s existing biorefinery and it consists of a pretreatment facility, tank farm, jetties and has a pipeline connection to Neste’s site. The acquisition has been approved by regulatory authorities, and the transaction has been completed on 1 March 2021. The transition of operations and employees will be implemented in phases with the refinery plant’s full and modified pretreatment capacity available for processing Neste’s feedstock by the end of 2024.

"The completion of this acquisition is an important step forward in delivering on Neste’s global growth strategy in renewables. It allows us to accelerate the scaling up of our renewable raw material pretreatment capacity, which is an important driver for expanding the use of waste and residue feedstocks and increasing our feedstock flexibility. We are committed to increasing the share of waste and residues to 100% of Neste’s total renewable raw material inputs at the latest by 2025, and growing our production platform to help customers reduce greenhouse gas emissions by 20 million tons annually by 2030,” says Neste’s President and CEO Peter Vanacker.

To meet the growing demand of renewable diesel, sustainable aviation fuel and feedstock for polymers and chemicals, Neste focuses on building a global feedstock and production platform for renewables. The company will expand its renewables annual nameplate production capacity from the current 3.2 to 4.5 million tons in the first quarter of 2023, of which the Singapore facility expansion will provide 1.3 million tons. The now acquired refinery offers further pretreatment capacity and terminal infrastructure to handle the increasingly complex waste and residue feedstocks, and supports further growth in production capacity beyond 2023.

Neste has been active in the Netherlands since 2011 when the Rotterdam facility for renewable products started its operations. The Rotterdam facility, together with the company’s Singapore refinery, are the world’s biggest and most advanced renewable fuels refineries. Neste’s Sluiskil plant is responsible for the storage and pretreatment of renewable raw materials, and Neste Demeter B.V. delivers raw materials to the company's renewable products facility. In 2020, Neste also acquired a terminal in Rotterdam for storing, pretreating and blending renewable waste and residue-based raw materials. In 2019, Neste opened a new office in Hoofddorp, in greater Amsterdam which serves as the global hub for the growing Renewable Aviation business. Neste MY Renewable Diesel™, produced from renewable raw materials is currently available at more than 100 sales points throughout the country.

As MRC informed earlier, Neste, a leading producer of renewable diesel and sustainable aviation fuel and a forerunner as a provider of renewable and circular solutions for the petrochemical industry, and LG Chem, South Korea’s largest diversified petrochemicals company and a leading manufacturer of lithium-ion batteries for energy solutions, have announced their aim to build a strategic long-term partnership to develop and grow the biopolymers and biochemicals market globally, and more specifically, in the LG Chem’s home market Korea.

As MRC reported earlier, LG Chem, a South Korean petrochemical major, has shut down its naphtha cracker in Yeosu following a fire. The company said a fire broke out at its central control room at the Yosu cracker complex at around midnight local time (15:00 GMT) on 5 November. The country's largest chemical company said it was in the process of figuring out the cause of the fire. The facility can process about 1.2 million tonnes of ethylene per year (tpy).The cracker shutdown is expected to last at least three weeks.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- PPG Industries has named John Stephenson to the post of director/acquisition integration, according to Chemweek with reference to the company's statement.

In this new role, Stephenson will oversee the integration of PPG acquisitions, including the recently-announced deal for Tikkurila. He will report to PPG chairman and CEO Michael McGarry.

Stephenson was most recently business controller/industrial coatings at PPG. He joined the company in 1985 and has served in a variety of finance functions across its operating segments.

As MRC wrote before, Finnish paints maker Tikkurila said in early February, 2021, that Pittsburgh-based PPG had raised its all-shares offer for the company to 34.00 euros per share, topping a rival bid from Akzo Nobel.

We remind that in February 2020, PPG completed its acquisition of Industria Chimica Reggiana (ICR, Reggio Emilia, Italy), a maker of automotive refinish products. Financial terms of the deal, including purchase price, were not disclosed. The deal was announced on 8 January. ICR was founded in 1961 and employs about 180 people. ICR manufactures automotive refinish products, including putties, primers, basecoats and clear coats. It also makes a range of coatings, enamels and primers for light commercial vehicles and other light industrial coatings applications. ICR employs about 180 people and sells its products in more than 70 countries in Europe, Africa, the Middle East, the US and Latin America.

We also remind that Russia's output of chemical products rose in November 2020 by 9.5% year on year. At the same time, production of basic chemicals increased in the first eleven months of 2020 by 6.6% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-November 2020 output. November production of polymers in primary form rose to 896,000 tonnes from 852,000 tonnes in October. Overall output of polymers in primary form totalled 9,240,000 tonnes over the stated period, up by 17.1% year on year.
MRC

MOSCOW (MRC) -- Beginning February 13, 2021, a major winter weather system characterized by extreme cold spread across much of the central United States, disrupting energy systems and causing serious health and safety issues Hydrocarbonprocessing.

The extreme weather particularly affected Texas, where utility customers experienced widespread outages and rolling blackouts. The severe weather persisted through much of the week, putting significant pressure on the petroleum complex along the U.S. Gulf Coast, where the infrastructure has rarely needed to accommodate sub-zero temperatures, as well as some states in the Midcontinent. Several Texas refineries accounting for a significant share of total U.S. refining capacity fully or partially shut down, numerous inland crude oil wells closed, and oil pipeline infrastructure was disrupted. The extreme cold also affected petroleum product pipelines; production and refinery operations in the Midwest and inland regions of Texas; and briefly disrupted maritime traffic along the Houston Ship Channel, a crucial waterway for crude oil and petroleum product trade flows.

Although most of the extreme weather appears to have passed, ongoing low temperatures are expected to continue through the week of February 22, according to updates from the U.S. Department of Energy’s Office of Cybersecurity, Energy Security, and Emergency Response. The recovery timeline for affected market participants remains unclear. Reported infrastructure damages potentially indicate that operations could take multiple weeks before returning to normal in several instances.

The Gulf Coast, which EIA tracks as the Petroleum Administration for Defense District (PADD) 3, accounts for more than half of total U.S. refinery capacity, and Texas alone accounts for 5.9 million barrels per day (b/d) of capacity, or about 32% of total U.S. capacity. Weather-related disruptions occurred primarily at several refineries in the Texas Gulf Coast refining region within PADD 3. By the peak of the weather’s impact on February 17, several refineries had announced either substantial or complete shutdowns as a result of external power outages, constrained natural gas supplies, logistical disruptions, or damage to process units because of the week’s cold temperatures and extreme weather. Other refineries in the area that were not forced to shut down capacity still faced similar complications and reduced run rates. In total, according to trade press and company announcements, an estimated 3.7 million b/d, or 20% of total U.S. refining capacity, was shut in as a result of the weather. As much as 5.7 million b/d (31% of total U.S. refining capacity) was affected by the weather to some degree, either as shutdowns or continued operations, but with reduced utilization. Most of the disruptions and shutdowns were announced on or about February 15 among refiners in the Beaumont/Port Arthur, Houston, and Corpus Christi regions of Texas, although refinery issues extend across several states.

Based on the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report (WPSR), gross inputs of crude oil and other feedstock to U.S. refineries declined 2.7 million b/d (17.5%) to 12.6 million b/d for the week ending February 19, 2021. The shutdowns resulted in a weekly decline in the gross inputs to Gulf Coast refineries of 2.4 million b/d (27.5%) to 6.3 million b/d, the largest weekly decline since the impact of Hurricane Harvey in September 2017 (Figure 1). The closures will likely continue to affect petroleum markets in the coming weeks, reducing demand for crude oil and production of refined products such as motor gasoline and distillate fuel oil.

We remind that the COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, according to GlobalData, a leading data and analytics company. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19.

We also remind that in December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on potential investments in Uzbekistan including a major expansion of Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed construction of a new gas chemicals facility. The signed cooperation agreement for the projects includes “the creation of a gas chemical complex using methanol-to-olefins (MTO) technology, and the expansion of the production capacity of the Shurtan Gas Chemical Complex”.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Japanese trading house Mitsui & Co Ltd said it would invest in the development of a carbon capture and storage (CCS) project in Britain, reported Reuters.

The Japanese company will take a 15.4% share in Storegga Geotechnologies which is developing the Acorn CCS project to store carbon dioxide emissions in depleted North Sea oil and gas reservoirs.

CCS traps emissions and buries them underground but is not yet at the commercialisation stage.

The project is being led by a wholly-owned subsidiary of Storegga Geotechnologies, Pale Blue Dot Energy, with support from Macquarie Group with a 21.5% shareholding and Singapore sovereign wealth fund GIC with a 15.4% shareholding.

The project is expected to be operational by the mid-2020s and will capture some of the 340,000 tonnes of CO2 emissions at the St Fergus gas terminal.

There will also be a project there to convert North Sea natural gas into hydrogen and the CO2 emissions will be captured by CCS. The hydrogen will be used in transport applications, and in gas grids to decarbonise heating in homes and industries.

As MRC informed earlier, Mitsui Chemicals operated its naphtha cracker normally following a maintenance turnaround. The company resumed operations at the cracker on July 19, 2020. The cracker was shut for maintenance on June 11, 2020. Located in Osaka, Japan, the cracker has an ethylene capacity of 500,000 mt/year and a propylene capacity of 280,000 mt/year.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.

Mitsui Chemicals is a leading manufacturer and supplier of value added specialty chemicals, plastics and materials for the automotive, healthcare, packaging, agricultural, building, and semiconductor and electronics markets. Mitsui Chemicals is a Japanese Chemicals company, a part of the Mitsui conglomerate. The company has a turnover of around 15 billion USD and has business interests in Japan, Europe, China, Southeast Asia and the USA. The company mainly deals in performance materials, petro and basic chemicals and functional polymeric materials.
MRC