Germany's conundrum: Energy transition goals increase chemical sector's challenges

MOSCOW (MRC) -- Europe's largest economy is also one of the region's most aggressive advocates for shifting energy systems away from fossil fuels, and leads the continent in emissions reduction targets and investments in renewable energy supplies, said Reuters.

However, Germany is also home to Europe's largest chemicals sector which churns out plastics, paints, acids and other key inputs that are critical to manufacturers and heavy industries that form the backbone of the German economy.

And as most chemical plants run off natural gas or coal, and use crude oil as a major feedstock, Germany's plans to phase out use of fossil fuels over the coming decades represent a potential existential threat to the entire chemical sector.

Ensuring the continuing viability of such an important segment of the German economy even as the country's energy system is retooled will be a key test for policymakers and business planners over the coming years.

An ill-managed collapse of the chemicals supply chain could deal a heavy blow to the rest of Germany's manufacturing economy, which relies on an abundant array of affordable inputs to generate its own products.

The sector is also a major employer that sustains large raw material and end-product supply chains, so any downturn could pose significant unemployment risks across Europe.

That said, a successful shepherding of the chemicals industry through the country's energy transition, including enabling chemical producers to decarbonize their own energy supplies and outputs, would sustain a vital competitive advantage for Germany's overall economy.

In addition, an updated and low-emitting chemicals sector that generates suites of critical products for other industries could become a vital export earner for Germany, which has ambitions to develop global leaders across the energy transition spectrum, including in the recycling of plastic waste.

We remind, Germany's chemicals sector must first recover from a torrid 2022, when surging power costs caused chemicals output to drop by 10%, petrochemical production to fall 15.5%, and for one in every four firms in the sector to incur losses, according to the German Chemicals Association (VCI). Sharply lower business activity also caused a drop in chemicals consumption last year, but as economic activity recovered in 2023 a lingering shortage of key chemical products has pushed German chemicals prices to near record premiums over those supplied by other producers.

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MOSCOW (MRC) -- Russia's seaborne diesel and gasoil exports were 21% lower in May from a month earlier at about 3.1 million tons as seasonal refinery maintenance cut supply and domestic demand rose, data from traders and Refinitiv Eikon showed, said Reuters.

Idle primary oil refining capacity for May has been revised up by 500,000 tons from the previous plan to 5.0 million tons as several refineries extended maintenance. Since the full EU embargo on Russian oil products took effect on Feb. 5, traders have diverted diesel exports from Russian ports to countries in Africa, Asia and the Middle East. Previously Europe was the main buyer.

According to Refinitiv data, Russian origin diesel sent to Turkey slipped to 0.9 million tons in May from 1.2 million tons in April. The port of discharge had yet to be confirmed for around half the cargoes. One trader said some Russian diesel would be involved in ship-to-ship transfer near the Turkish port of Mersin.

Last month, nearly 0.43 million tons of the diesel that loaded in Russian Baltic ports was heading to Brazil, Refinitiv data showed. Together, Turkey and Brazil have been the main destinations for diesel exported from Russian ports this year. From January-to-May, Turkey received 5.2 million tons and Brazil 1.6 million tons, compared with respectively 5 million tons and 74,000 tons for the whole 2022, the Refinitiv data showed.

Russian diesel exports to African countries totaled about 0.5 million tons in May after 0.9 million tons in April, with Togo, Libya and Tunisia the top importers, according to the data. Another 325,000 tons of diesel from Russia were in May destined for STS loadings near the Greek port of Kalamata, Refinitiv data shows. The final destinations were mostly unknown, but traders said they expected them to be in Asia or the Middle East.

In March, Russia sent diesel via STS near Kalamata to Saudi Arabia in addition to direct supplies. According to Refinitiv shipping data, diesel loadings from Russian ports to Saudi Arabia totaled about 95,000 tons in May after 383,400 tons the previous month, with another 170,000 tons heading to Fujairah, the major transit and blending hub for oil products in the United Arab Emirates.

All the shipping data above are based on the date of cargo departure. About 200,000 tons of diesel loaded in Russian ports in May do not yet have a confirmed destination.

We remind, Russia's Lukoil has increased oil production at Iraq's southern West Qurna 2 oilfield by 80,000 barrels per day (bpd) to a total of 480,000 bpd, an oil official told Reuters on Thursday. Production rose after the completion of the connection of 47 new oil wells which boosted production, an Iraqi oilfield official said, adding that output could reach 500,000 bpd in a short period of time if required. The increase in Iraq's production comes as Turkey continues to halt Iraq's 450,000 bpd of northern exports through the Iraq-Turkey pipeline.

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MOSCOW (MRC) -- Oil prices rose about 2% on Friday after the U.S. Congress passed a debt ceiling deal that averted a government default in the world's biggest oil consumer and jobs data fed hopes for a possible pause in interest rate hikes ahead of a meeting of OPEC and its allies this weekend, said Reuters.

Brent futures rose USD1.36, or 1.8%, to USD75.64 a barrel by 11:46 a.m. EDT (1546 GMT). U.S. West Texas Intermediate (WTI) crude rose USD1.28, or 1.85, to USD71.38.

WTI was headed for its highest close since May 26 and Brent on track for its highest close since May 29. For the week, both contracts were down about 2%, headed for their first weekly losses in three weeks. Open interest in futures contracts rose on Thursday to the highest since July 2021 for Brent and March 2022 for WTI.

The U.S. Senate approved a bipartisan deal to suspend the limit on the U.S. government's USD31.4 billion debt ceiling, staving off a sovereign default that would have rocked financial markets. U.S. employment increased more than expected in May, but a moderation in wages could allow the U.S. Federal Reserve to skip an interest rate hike this month for the first time in more than a year. Higher interest rates can slow the economy and reduce oil demand.

Oil traders have turned their attention to the June 4 meeting of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia. The group in April announced a surprise cut of 1.16 million barrels per day, but price gains from that move have been erased with crude trading below pre-cut levels. Sources told Reuters OPEC+ was unlikely to announce fresh output cuts.

"While there seems to be a widely held view that (OPEC+) won't announce any further cuts, it's worth noting that the same was true at the last meeting and then the group announced cuts of roughly another million barrels," said Craig Erlam, senior market analyst at OANDA.

"It's hard to ignore the warnings from the Saudi energy minister to 'watch out', threatening more "ouching" for short speculators," Erlam noted. "This may be playing into the mind of traders fearing another surge on the open next week."

Saudi Arabia is the biggest producer in OPEC. On the demand side, manufacturing data out of China, the world's second biggest oil consumer, painted a mixed picture.

China is suffering from early heatwaves, expected to persist through June, putting power grids under strain as consumers in mega-cities like Shanghai and Shenzhen crank up air conditioners.

We remind, Europe's largest economy is also one of the region's most aggressive advocates for shifting energy systems away from fossil fuels, and leads the continent in emissions reduction targets and investments in renewable energy supplies.

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MOSCOW (MRC) -- Technip Energies, LyondellBasell and Chevron Phillips Chemical announced the signing of a Memorandum of Understanding for the design, construction and operation of a demonstration unit for Technip Energies’ electric steam cracking furnace technology to produce olefins, said Hydrocarbonprocessing.

The demonstration unit will be located at LyondellBasell’s site in Channelview, Texas, USA, and is designed to prove the technology at industrial scale. Steam cracking furnaces play a significant role in the production of basic chemicals by breaking down hydrocarbons into olefins and aromatics. This cracking process requires a temperature of more than 1,500°F (850°C).

Technip Energies, a leader in the ethylene market, developed the concept and design for the e.Furnace by T.EN technology, which could achieve this temperature using electricity as the heat source. The use of renewable electricity in this process would contribute to significantly reducing GHG emissions associated with olefins production.

Arnaud Pieton, CEO of Technip Energies, stated: “We are delighted to team up with LyondellBasell and CPChem to bring the eFurnace by T.EN to fruition. Consistent with our purpose to engineer a much-needed sustainable future Technip Energies is making huge strides toward reducing the CO2 emissions resulting from the production of ethylene and this design will enable olefins producers to take advantage of the growing supply of available renewable energy to operate the most energy-intensive part of the plant."

Peter Vanacker, CEO of LyondellBasell, said: “We are taking decisive steps toward reducing our absolute scope 1 and 2 greenhouse gas emissions, while creating solutions for everyday sustainable living. Deployment of an industrial-scale electric cracking furnace is one option we are considering in this space because of its ability to reduce furnace GHG emissions by up to 90% compared to a conventional furnace. Our Channelview site has the infrastructure, and our people have the expertise to test this advanced furnace technology and help our industry accelerate climate action.”

Bruce Chinn, President and CEO of Chevron Phillips Chemical, said: “Climate change is a global issue that will take action from all segments of society, and we want to be part of the solution by reducing the intensity of our carbon footprint. This project supports our efforts toward lowering the carbon intensity of our operations and demonstrates our continued focus on accelerating change for a sustainable future.”

We remind, Technip Energies is pleased to announce that a joint venture, led by Technip Energies in partnership with Consolidated Contractors Company, has won a major Engineering, Procurement, Construction and Commissioning contract by QatarEnergy for the onshore facilities of the North Field South Project.

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MOSCOW (MRC) -- Chin's Sinopec has begun construction of an ethylene plant and a green advanced materials base in the city of Luoyang in central China's Henan province, the state-owned refiner said, as per Reuters.

The project, which is expected to be put into operation in December 2025, is expected to produce around 3 million tonnes of refined chemicals annually, with the ethylene plant expected to produce 1 million tonnes per year, it said.

Sinopec's total planned investment in the project is 27.8 billion yuan (USD4.02 billion).

The project is aimed at reducing China's dependence on imports of high-end refined products, the statement said.

We remind, Sinopec has completed trial runs at a one million tonnes-per-year ethylene plant in the southern Chinese province of Hainan that will boost exports. The facility is part of a 28.6 billion-yuan (USD4.15 billion) complex built at the site and is the second major petrochemical plant starting this year after a similar-sized facility was announced last week by PetroChina in Guangdong province.

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