LyondellBasell Cuts $500 Million from Capex, Concedes 2020 Market Likely to Remain Rough

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chemicals producer and petroleum refiner LyondellBasell Industries NV (NYSE:LYB) (Houston, Texas) is the latest energy giant to take a hit from the COVID-19 pandemic--a $500 million hit, to be precise, which is how much the company is slashing from its 2020 capital-spending budget. The company saw its first-quarter earnings plunge 82% from the same period last year, as weak transportation-fuel demand pummeled its refining and oxyfuels businesses. Industrial Info is tracking more than $6.6 billion in projects involving LyondellBasell worldwide, including about $3 billion worth that have been delayed or otherwise affected by COVID-19.

The company already had been preparing for a drop in capital spending for the full year. In early February, LyondellBasell announced $2.4 billion in capital expenditures for 2020, roughly $300 million less than what it spent last year, reflecting the completion of its 1.1 billion-pound-per-year Hyperzone 1 polyethylene project in La Porte, Texas.

But another major project on the Texas Gulf Coast is hitting the brakes: LyondellBasell had completed about 30% of its estimated $1.9 billion propylene oxide and tertiary butyl alcohol unit addition at its olefins facility in Channelview, Texas, before it decided to slow the pace of construction toward the end of March. The facility, which began construction in September 2017, is designed to produce 1 billion pounds per year of propylene oxide (PO) and about 2.2 billion pounds per year of tertiary butyl alcohol (TBA), which will be used to produce oxyfuels. LyondellBasell says that upon completion, it will be the world's largest PO/TBA plant.

Click on the image at right for a map of the PO/TBA plant along the Texas Gulf Coast.

Completion on the PO/TBA unit had been expected toward the end of first-quarter 2021, but now is slated for third-quarter 2021. LyondellBasell told engineering and construction contractors in late March it would limit nonessential activities related to the unit's development. Existing operations at the Channelview complex have not been affected, however, as the U.S. Department of Homeland Security has designated its output to be critical for U.S. infrastructure. For more information, see Industrial Info's project report.

"During March, global initiatives to limit the spread of COVID-19 resulted in falling demand for transportation fuels that sharply reduced margins for our oxyfuels and gasoline produced in the Intermediates & Derivatives and Refining segments," said Bob Patel, the chief executive officer of LyondellBasell, a quarterly earnings-related press release. "Automotive manufacturing shutdowns diminished typical seasonal improvements for our Advanced Polymer Solutions segment where more than one third of the segment's product volumes are utilized in the automotive sector."

Projects not owned by, but involving, LyondellBasell also are facing setbacks. Sonatrach's (Algiers, Algeria) polypropylene unit addition at its chemical complex in Arzew, Algeria, has seen its kickoff date delayed one year to November 2021, with its scheduled completion pushed back from April to December 2024. LyondellBasell is contracted to supply the unit with its Spheripol technology, which aids in the production of homopolymers, and random and heterophasic copolymers. The unit is designed to produce 550,000 tons of polypropylene per year. For more information, see Industrial Info's project report.

Not all of LyondellBasell's outlook was gloomy. The company says demand for its polyolefins--often used in consumer packaging and medical applications--has remained strong, as have its integrated polyethylene margins. Accordingly the Hyperzone 1 polyethylene project, which wrapped up in February, is supporting the company's long-term profitability outlook. For more information, see Industrial Info's project report.

But the company is not donning rose-tinted glasses. "Weak demand from markets for industrial and durable products is expected to persist" through the remainder of 2020, Patel said. "Our Refining and Oxyfuels & Related Products businesses will be impacted by significantly lower demand for transportation fuels."

LyondellBasell is deferring a slew of planned maintenance projects to manage cash outflow, including several units in Texas and Louisiana for the production of polymers and polypropylene. Click here for a list.

Click on the image at right for a map of the maintenance-related projects from LyondellBasell along the Texas and Louisiana Gulf coasts.

"While our major facilities are all operating, we have appropriately reduced rates across our system to match decreased customer demand," Patel said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.