$30m grant awarded for Ohio cracker, US oil production to outperform demand, Downstream's Golden Age
Our pick of the downstream industry news you need to know.
Potential Ohio cracker gets $30m grant
PTT Global Chemical America (PTTGCA) and Daelim Industrial have been approved for a $30 million economic-development grant for a proposed petrochemical project in Ohio.
The grant from JobsOhio will allow the two to do site preparation work as they continue to work towards a final investment decision (FID). An FID has not yet been reached.
The site preparation work should begin later this month, JobsOhio said.
Bechtel, along with its partner Samsung, recently won the engineering, procurement and construction (EPC) contract for the multi-billion-dollar petrochemical complex in western Ohio.
The petrochemical project, estimated at $7bn-$10bn, comprises a world-scale ethane cracker with capacity of 1.5m tonnes/year of ethylene, plus 1.6m tonnes/year in various polyethylene units, including high density polyethylene and linear low density PE (HDPE and LLDPE ) and metallocene LLDPE (mLLDPE).
If built, the project would receive ethane from the shale-gas reserves in the Marcellus and Utica in the northeastern US.
CP Chem and Qatar Petroleum to build USGC petrochemical project
Chevron Phillips Chemical (CP Chem) and Qatar Petroleum announced that they have signed an agreement to jointly pursue the development of a new petrochemical complex on the U.S. Gulf Coast.
CP Chem would be the majority owner with a 51% share, and Qatar Petroleum would own the remaining 49% of the project.
The proposed US project is part of a trend of Middle Eastern oil companies looking to diversify across regions and expand their footprint in the growing chemicals industry, said John Maselli, senior research analyst at Wood Mackenzie.
Meanwhile, the Qatar project provides CP Chem an opportunity to further diversify assets internationally, while still maintaining advantaged production economics based on ethane.
“Ethylene production from ethane has grown almost 70% globally since 2010, as ethane production skyrockets from the continuing U.S. shale gas revolution," Maselli said.
US downstream industry is in a golden age but will it last?—Deloitte
The U.S. downstream business is in a golden age, driven by a heady combination of low feedstock prices and healthy demand for both transportation fuels and chemical products. This recent period of healthy growth and profitable margins, however, may not necessarily signal brighter days ahead, according to an analysis by Deloitte.
Risks that have been on the horizon but were perhaps masked by near-term margins have started to strengthen, the analysis said.
“And while these risks—feedstock changes, long-term sustainability, the state of globalization, end-market disruption, and large-scale technology transformation—are already converging margins among the refining and chemical sectors individually, an emerging confluence of these risks may challenge the current arms-length transfer pricing integration and siloed segmentation in the entire downstream value chain,” writes Deloitte executive Andrew Slaughter said.
For the downstream sector, this decade has been one of the most promising periods in its history. A lengthy period of lower feedstock prices and strong end-user demand for both petroleum and chemical products improved the financial health of the entire sector.
More and more, big oil is finding value in the downstream sector.
The downstream sector, with operating margins of 8% in 2017, made more money than the service-oriented oilfield businesses, with operating margins of 3.8% in 2017.
The recent past, however, may not be an indicator of future prosperity, Slaughter said.
Signs of softness are growing. In early 2019, the ethane crack spread was 40–50% below its 2018 levels although the start of many polyethylene projects will balance out ethylene oversupply to some extent in the future.
Market forces that have positively supported the sector (e.g., lower feedstock prices) or posed only minimal obstacles until now (e.g., sustainability goals) may not hold true in the next decade.
Deloitte’s analysis highlights five rising risks (or forces) for the sector: feedstock changes and choices, the state of globalization, end-market disruption, a circular economy and long-term sustainability, as well as lrge-scale operational technology transformation.
US oil production to outpace demand, OPEC extends production cuts 9 months
OPEC has extended production cuts for another nine months to bolster oil prices amid a weakening outlook for global demand. The extension of production cuts runs from July 1, 2019 to March 31, 2020, OPEC said in a statement.
Crude oil prices rose following OPEC's decision. However, prices are not expected to rise dramatically, as countries that don't cooperate with OPEC — like the U.S. — have enough capacity to meet projected growth in demand.
Some of OPEC's production cuts are outside the cartel's control including Russia. Iran, a founding member of OPEC, is under pressure from U.S. sanctions after President Trump withdrew from the Iran nuclear deal. As a result, Iran has struggled to export its crude oil. Venezuela, another OPEC member, has also been hit by U.S. oil sanctions, further contributing to reductions in OPEC production.
Goldman Sachs said growth in U.S. shale production is likely to outpace that of global demand at least through 2020 and limit gains in oil prices despite the OPEC cuts.
The Wall Street bank forecast U.S. oil output growth at 1.3 million barrels per day (bpd) and 1.2 million bpd in 2019 and 2020 respectively, which compared with its global demand growth expectations of 0.8 million bpd and 1.6 million bpd respectively for the same periods.
The 2020 price outlook for oil is around $60 per barrel for Brent and $55.50 for West Texas Intermediate (WTI). On July 8, Brent crude futures were at $64.31, while U.S. WTI was up 6 cents at $57.57 a barrel.