Sinopec expects 2020 throughput to fall on weak demand amid COVID-19

Singapore — Sinopec, the world's biggest refiner by capacity, expects its 2020 throughput to fall from last year due to weak demand amid the global spread of COVID-19, and should this happen, it would be the first year-on-year decline in Sinopec's crude processing volume since 2016, a company executive said on Monday during a conference call following the release of its 2019 earnings results.

This possible decline could lead to a reduction in the company's import of feedstock crude as over 80% of its feedstock demand relies on imports.

"Sinopec's refining utilization for the whole year will be affected year on year by [the drop in domestic consumption in] the first-quarter and [limited overseas outlets for] product exports in Q2 due to the epidemic situation around the globe," Sinopec's senior vice president Ling Yiqun said during the call.

The company expects domestic oil product consumption to have a negative growth rate in 2020, despite demand more or less recovering in the second-half, Ling said.

China's oil product demand had been growing for decades, although the pace of growth had slowed to 1.4% year on year in 2019, government data showed.

"Impact from the coronavirus outbreak in China is relatively huge. Our utilization rate fell to 66% in February from a normal level in January, a significant decline," he said.

S&P Global Platts' survey showed that Sinopec's operating rate in February dropped to a historical low of 64% from 89% in January, and is recovering to 72% in March.

Ling said the company's refining utilization rate was 91.3% in 2019.

It processed 248.52 million mt (5 million b/d) of crude last year, up 1.8% from 2018, thanks to higher oil product exports, according to Sinopec's financial director Shou Donghua.

Even in 2003 during the SARS outbreak, the company registered a year-on-year throughput growth of 11.1% to 2.35 million b/d, the company's financial results showed.

Among the oil products, Sinopec was likely to have suffered most from its jet fuel production as a majority of domestic flights were halted when China was first hit by the coronavirus earlier this year, followed by the cancellations of many flights globally as countries went into lockdown to prevent the further spread of COVID-19.

Sinopec lifted its jet fuel output by 7.8% year on year to produce 31.16 million mt in 2019, accounting for 59.1% of China's total production of the fuel, according to the company's earnings results and data from the National Bureau of Statistics.

Several Sinopec refiners told Platts that their jet fuel inventory filled their storage to tank top due to slow domestic demand, while exports declined. They had to keep their jet fuel production units idle and to use kerosene to blend gasoil or as feedstock to produce petrochemical products.

"The company will put more effort to restructure its product slate, increasing products tailored for market demand and changes," financial director Shou said.

2020 OUTPUT TARGET NOT READY

However, "due to the outbreak, the company is adjusting the production plan for 2020 dynamically in line with market movement. We will announce the production plan for the whole year according to market trends later," she added.

This is the first time, at least since 2007, that Sinopec did not disclose its target output for the ongoing year during its annual financial results briefing, suggesting that the company preferred more operational flexibility amid an unexpected volatile market environment with low oil prices and dampened demand.

Without a fixed target, Sinopec emphasized that its plan is to accelerate low sulfur bunker fuel production projects and the revamp of storage and transportation facilities to expand market share rapidly for the fuel, Shou said.

Last year, Sinopec announced its target to have a total 10 million mt capacity for the production of very low sulfur fuel oil in 10 of its selected refineries in 2020. Its listed Shanghai Petrochemical, which is also the first VLSFO refining producer in China, announced on March 26 plans to produce 400,000 mt of the fuel in 2020.

CAPEX CUTS

Sinopec has set its capex target at Yuan 143.4 billion ($20.22 billion) in 2020, which is the second highest level since 2015, and only 2.5% lower than the actual Yuan 147.1 billion spent in 2019.

However, "the company is studying capex cuts and will share in late April during the Q1 results," Sinopec's chairman Zhang Yuzhuo said, adding that the company will focus more on profitable and sustainable projects amid the low oil price environment.

According to the current target, Sinopec planned to spend 43% of its budget, or Yuan 61.1 billion, on upstream exploration and production in 2020, despite the segment contributing only Yuan 6.29 billion to 2019's operating profit, contrasted with Yuan 30.04 billion from the refining segment and Yuan 29.78 billion from the marketing and distribution segment, according to its financial results.

This was the state-owned company's effort at ensuring the nation's energy security.

Sinopec's executives said the company will continue to boost natural gas production domestically in 2020, which rose 7.2% year on year to 1,047.78 Bcf in 2019.

The company's oil and gas lifting cost was $16.1/b in 2019, down 4.7% year on year.

Sinopec's capital expenditure

(Unit: Bil Yuan)

Source: Company report

Sinopec's 2019 operation result

*Oil, gas outputs from both domestic and overseas

Source: Company report

Sinopec's domestic production:

Unit: million mt

* conversion factor: 1 cubic meter = 35.31 cubic feet

** conversion factor: 1 mt = 7.10 barrels

^ Divide Sinopec's output by China's total production

^^ conversion factor: 1 mt = 7.35 barrels

Source: Company report, the National Bureau of Statistics

Sinopec's oil product sales

Unit: million mt

Source: Company report

* Unit: mt/station

^ On Dec 31, 2019