|ORLEN GROUP||POLAND||CZECH REPUBLIC||LITHUANIA|
|Maximum throughput capacity||million tonnes||35.2||16.3||8.7||10.2|
|Processing capacity utilisation||%||90||96||84||83|
|White product yield||%||79||80||82||74|
|Olferins production capacity utilisation||%||74||84||59||-|
|PTA production capacity utilisation||%||88||88||-||-|
|ORLEN GROUP||POLAND||CZECH REPUBLIC||LITHUANIA|
|TOTAL||‘000 tonnes||30, 380||15 192||6 726||8 462|
|REFINERY, in it:||‘000 tonnes||25 075||11 682||4 931||8 462|
|fuels||‘000 tonnes||17 432||6 614||4 159||6 659|
|heavy fractions||‘000 tonnes||4 544||2 309||600||1 635|
|other refining products||‘000 tonnes||3 099||2 759||172||168|
|PETROCHEMICALS, in it:||‘000 tonnes||5 305||3 510||1 795||-|
|fertilizers||‘000 tonnes||1 146||951||195||-|
|other petrochemicals||‘000 tonnesn||1 410||637||773||-|
|ORLEN GROUP||POLAND||CZECH REPUBLIC||LITHUANIA|
|Total length of pipeline network used||km||3, 753||1 888||1 774||91|
|Length of raw material pipeline network used||km||1 695||930||674||91|
|Length of product pipeline network used||km||2 058||958||1 100||-|
|PŁOCK CHP PLANT||LITVINOV CHP PLANT||
Mažeikiai CHP Plant
|Installed thermal capacity||MWt||2, 149||768||694|
|Installed electrical capacity||MWe||345||112||160|
A. Downstream – Production
Our plant in Płock has once again registered record-high crude oil throughput, which reached PLN 15.7m million tonnes last year, exceeding by half a million our previous best from 2012–2013. The higher processing volumes were made possible by better utilisation of the facility’s potential through improving yields at key process units, implementing cutting-edge Advanced Process Control solutions, and increasing uptime between maintenance shutdowns. We also carry out regular research to identify new technologies for a more complete and efficient use of the Group’s production assets across all home markets.
In 2015, the petroleum product market in Europe performed very well, chiefly as a result of declining crude oil prices, which were mainly driven by crude oversupply amid relatively stable demand. The falling price of oil translated into higher product margins thanks to the lag between changes in crude oil prices and the resulting adjustments of fuel prices. The increase in margins improved the profitability of refining operations and encouraged higher utilisation of refining capacities. However, placing a larger volume of products on the market made a reduction in prices inevitable.
The key impulse for fuel demand growth in Europe will be provided by the declining crude price as lower fuel prices encourage consumption. It is symptomatic that the growth in demand for petrol is forecast to outpace diesel fuel. Yet another indication that petrol sales are set to rise is the introduction of new, more restrictive emission standards in the EU and the increasingly better quality of petrol engines. On the other hand, the demand for diesel fuel should remain in a slight growth trend until 2030 according to IHS forecasts (CAGR of 0.8%).
Types of refineries in Europe:
The ORLEN Group’s total refining capacity is 35.2 million tonnes. PKN ORLEN’s refinery in Płock is ranked among the most advanced integrated production facilities in Central and Eastern Europe, with a capacity of the conversion units at 16.3 million tonnes per annum. According to the Wood Mackenzie ranking, the plant is a super-site, i.e. a deep conversion refinery of strategic importance, generating high margins and integrated with petrochemical operations.
The maximum capacity of the olefins unit, which is of key importance to ORLEN’s petrochemical operations, is approximately 700 thousand tonnes of ethylene and approximately 380 thousand tonnes of propylene. PKN ORLEN-produced monomers are a feedstock for the polymer units at Basell Orlen Polyolefins and the PVC unit at the ANWIL Group. PKN ORLEN also operates a state-of the- art PX/PTA unit, with a capacity of 400 thousand tonnes of paraxylene, an amount sufficient to produce 600 thousand tonnes of terephthalic acid.
The other PKN ORLEN’s Polish refineries, located in the south of Poland (Trzebinia and Jedlicze), specialise chiefly in fuel storage and distribution services, production of biocomponents, base oils and fuel oils, as well as regeneration of spent oils. In early 2015, those refineries were merged into a single company trading under the name ORLEN Południe.
The AB ORLEN Lietuva’s refinery is the second largest ORLEN Group refinery in terms of throughput and the only refinery in the Baltic States (Lithuania, Latvia and Estonia). The annual production capacity of the Lithuanian refinery is 10.2 million tonnes, which is substantially higher than the local demand, therefore a part of its output is transported to foreign markets by sea.
The Unipetrol Group processes crude oil in the Kralupy and Litvinov refineries. In 2013, the Unipetrol Group signed an agreement to acquire 16.4% of shares in Česka Rafinérská from Shell. Moving forward with its plan to consolidate the refining assets, in 2014 Unipetrol acquired a 32.4% interest in Česka Rafinérská from ENI of Italy. In May 2015, as the Unipetrol Group closed the acquisition of shares from ENI, it became the sole owner of Česka Rafinérská’s plants, which ensures high availability of production capacities and security of feedstock supplies for its Petrochemical segment. As a result, the Unipetrol Group’s total annual production capacity rose to 8.7million tonnes. The Unipetrol Group also has petrochemical assets with a production capacity of approximately 600 thousand tonnes per annum, including 320 thousand tonnes of polyethylene and some 280 thousand tonnes of polypropylene. A new Polyethylene 3 unit, with an annual capacity of 270 thousand tonnes, is also being constructed, which will help increase the utilisation of the ethylene unit and facilitate stronger integration of petrochemical and refining production at the Unipetrol Group.
The ANWIL Group, ranking among the largest chemical companies in Central Europe, is the only producer of polyvinyl chloride (PVC) in Poland and the Czech Republic, and one of the leading producers of sodium hydroxide and fertilizers in Poland. The ANWIL Group’s annual production capacity totals 1 160 thousand tonnes of nitrogen fertilizers, approximately 560 thousand tonnes of PVC and granulates, approximately 360 thousand tonnes of sodium hydroxide, and approximately 50 thousand tonnes of caprolactam.
The Basell Orlen Polyolefins Group operates process units with a total annual production capacity of 820 thousand tonnes, including 320 thousand tonnes of high-density polyethylene (HDPE), 100 thousand tonnes of low-density polyethylene (LDPE) and 400 thousand tonnes of polypropylene. BOP products are marketed in Poland and abroad.
B. Downstream – Sales
The European petrochemical producers’ largest challenge is posed by the expansion of new production capacities in the US, Middle East and Asia. As a result of low natural gas prices and the North American shale revolution, the cost of petrochemical products in the US has fallen close to their production cost in the Middle East. In addition, given their robust economic growth, Asian markets are the largest markets for petrochemical products, and it is in these regions that the strongest increase in production capacities is expected to occur in the coming years.
Low gas prices in North America over the last eight years have translated into higher supply of ethylene, which can be manufactured there at a lower cost than in Europe, where its production is based on crude oil. The access of production facilities in the US and the Middle East to cheap raw materials gives them a lasting competitive advantage. In the global petrochemical industry, raw material and energy costs determine producers’ competitiveness as they account for as much as 70% of production costs. There is a high degree of diversity among Europe-based manufacturers in terms of their potential for economic success, with the key factors including the scale of operations, integrated petrochemical and refining assets, location, technologies, and age of process units. Those operating gasoline-fed units are taking steps to switch part of their production process to light LPG blends, which will lead to an increased share of ethane and propane in ethylene production feed. European manufacturers can improve their situation by reducing costs, improving margins and restructuring their production plants. Further technological progress and innovations in the production process will also play an important part. Other possible optimisation efforts include improvement of pricing policy and the portfolio of high-margin specialist products. Launching production of more advanced products requires not only changes in the technological regime of production facilities, but also strong R&D capabilities, capital expenditure, changes in the sales channels, and building relations with customers. The enduring gap between polyolefins consumption in Western Europe and Poland and Central and Eastern Europe confirms a large development potential for the ORLEN Group.
Wholesale of refining products
In 2015, the ORLEN Group conducted wholesale of refining products in Poland, the Czech Republic, Germany, Slovakia, Hungary, Lithuania, Latvia, Estonia, Finland and Ukraine, as well as (by sea) to West-European cargo-handling terminals. The Group’s home markets are Poland, Lithuania and the Czech Republic. ORLEN offers a wide variety of refining products, including petrol, diesel fuel, jet fuel, heavy and light fuel oil, as well as an extensive range of non-fuel products and semi-finished products.
The increase in sales of petrol and diesel fuel on the Polish market enabled the ORLEN Group to maintain its high market share of 59.5%. Regulatory measures implemented to counteract illegal trade in fuels (the so-called ‘grey market’) may increase officially reported fuel consumption figures to a certain extent, thus obscuring actual changes in the ORLEN Group’s market share.
The substantial increase in the Unipetrol Group’s production capacities translated into much higher sales and strengthened its position as the Czech market leader.
Despite aggressive competition from Scandinavian and Belarusian suppliers, the ORLEN Lietuva Group remained a leader of the fuel sales market in the Baltic States, bringing its total market share up by 7pp in 2015.
Share of the Polish wholesale fuel market
Wholesale of petrochemical products in Europe
ORLEN is one of the largest petrochemical companies in Central and Eastern Europe, the only monomer and polymer producer in Poland, and the manufacturer of most petroleum products on the Czech market. Its competitors on the European market are companies which manufacture and offer the same petrochemical products.
C. Downstream – Logistics
Logistics infrastructure used by the ORLEN Group in Europe
A well-functioning logistics infrastructure is a key element of the ORLEN Group’s competitive edge.
The Group uses a network of complementary infrastructure components: fuel terminals, on-shore and off-shore handling terminals, and networks of raw material transmission pipelines. In 2015, the ORLEN Group products were transported by pipelines, railway and road tankers.
In 2015, pipelines were the key mode of transport for the ORLEN Group’s feedstock and products. The total length of the network used, including own and leased pipelines in Poland, the Czech Republic, and Lithuania, was nearly 3.8 thousand kilometres (including 2.1 thousand kilometres of product pipelines and 1.7 thousand kilometres of feedstock pipelines).
D. Downstream – Power generation
In our strategy, cogeneration is identified as one of the core pillars building the value of PKN ORLEN in the long term through enhancing the operational excellence of our Downstream segment. Based on forecast growth in electricity demand in Poland, accompanied by a decrease in domestic generation capacities, PKN ORLEN has planned significant expenditure in this area by 2017, which will allow us to diversify our revenue sources and complement our refining and petrochemical business.
While coal still remains the cheapest source of energy, it will be gradually replaced with natural gas and renewable energy in the long term, given current fuel prices and the need to decarbonise industry. Gas will become the main source of energy shortly after 2035. Without a doubt, falling crude prices will drive the prices of gas down. On top of that, shale gas, which has evolved into a cheap source of energy in the US and Canada, is an alternative to coal – all the more so in that it offers a substantial reduction of carbon emissions.
Poland is the key market for the power generation business of the ORLEN Group’s Downstream segment, offering good growth prospects due to lower energy consumption compared with most of other European countries. In Poland, electricity consumption per capita is significantly below the EU average – approximately 4.1 MWh in 2015 compared with the EU average of 5.4 MWh. In 2010–2015, demand for energy in Poland rose at an average rate of 1.3% per annum, which is expected to increase in 2015–2020 (according to CERA, to approximately 1.8%). Electricity demand in Poland is projected to grow in 2015–2030, driven by the country’s economic growth.
Given their age and emission intensity, a significant portion of existing generation assets in Poland is in need of upgrades and/or replacement. It is estimated that some 5 GW in generation capacities should be phased out from the market by 2020.
The ORLEN Group is a major producer of electricity and heat, largely used by the Group to meet its own needs. It is also one of the biggest consumers of natural gas in Poland and an active participant in the natural gas deregulation process.
Under the ORLEN Group’s Strategy, the Company has been upgrading existing power generation infrastructure and implementing new investment projects (CCGT units).
The ORLEN Group currently operates power generation units in three countries: in Poland (Płock, Włocławek, Jedlicze and Trzebinia), the Czech Republic (Litvínov, Spolana, Kolín and Pardubice), and Lithuania (Mažeikiai).
Generating heat and power in a high-efficiency cogeneration process, PKN ORLEN’s unit in Płock is Poland’s largest industrial CHP plant in terms of installed capacity, and one of the largest in Europe. The on-site CHP plant is a key supplier of heat in the form of steam and heat water, as well as electricity, to the Company’s production units and external customers, including the city of Płock. In 2015, the installation of flue gas denitrification and dust removal units at the Płock plant was in progress. At the same time, the Company built a wet lime and gypsum flue gas desulfurisation unit for all boilers, which was placed in service in December 2015. Following launch of the units, the CHP plant in Płock satisfies the environmental requirements effective as of 2016.
The 463 MWe CCGT plant being built in Włocławek will be technologically closely linked to the ANWIL production plant. Originally scheduled for completion at the end of 2015, the project’s delivery has been postponed until late Q2 or early Q3 2016 due to delays in the performance of construction and assembly work. After it is placed in service, the new plant will become the main supplier of process heat and electricity for the ANWIL Group. Surplus electricity output will be sold on the domestic market through PSE.
In 2015, the Company launched a project to construct a 596 MWe CCGT unit in Płock. In April 2015, the construction site was handed over to a consortium comprising Siemens AG and Siemens Polska Sp. z o.o., which is the project’s General Contractor. All earthworks connected with the process units and auxiliary facilities had been completed by the end of the year. The CCGT unit in Płock is scheduled for completion at the end of 2017.
In Poland, renewable energy is sourced primarily from wind turbines. In 2015, work on the draft law on renewable energy sources was under way: the law will enable further sustainable development of RES. Once the legislative process is completed, the ORLEN Group will decide on the viability of RES projects. In 2015, PKN ORLEN launched a pilot project to install photovoltaic cells at selected service stations.
E. Downstream – Sales volume
The sound condition of Poland’s economy has translated into higher fuel consumption. According to the Energy Market Agency, the years-long downward trend in petrol and diesel fuel consumption has reversed. In 2015, the consumption of the two fuels increased by 2.6% and 5.8% year on year, respectively. The demand was strongly driven by low fuel prices as well as the better market conditions. Fuel prices declined on the back of record-high oil price drops on international markets, which further encouraged motorists to use their vehicles even more frequently.
The grey market for fuels is a serious problem which the Polish market still has to face. The volume of diesel fuel sold illegally is estimated at as much as several percent of the fuel’s overall consumption.
Diesel oil and petrol consumption is expected to continue growing in 2016, provided that the Polish economy’s growth rate remains unchanged and depending on whether steps to combat unfair competition prove successful.
In 2015, sales of the ORLEN Group’s Downstream segment on the Polish market rose by 3.6% (yoy) and reached 15,192 thousand tonnes. Thanks to a consistently implemented sales strategy fuel wholesale increased by 9.8% in 2015 (yoy). Middle distillate sales grew on the back of high volumes of diesel fuel and aviation fuel, whose sales were up by 14.0% and 14.6% year on year, respectively. 2015 was yet another year to see substantial growth in aviation fuel sales and a consistent strengthening of PKN ORLEN’s leading position as a supplier of this product. Light distillate sales were up by 0.6% year on year. Low prices of petrol drove up sales (by 4.2% year on year), while causing a decrease in LPG sales (by 13.8% year on year).
PKN ORLEN’s wholesale companies saw significant structural changes – ORLEN Paliwa was merged with ORLEN PetroTank and, subsequently, with ORLEN Gaz. ORLEN Paliwa is currently one of Poland’s largest sales organisations, offering a full range of fuel products. In the petrochemicals segment, the ORLEN Group recorded an increase in sales of its key product groups, including monomers, aromatics, plastics, and PTA, and a slight decrease in fertilizer volumes due to lower availability of production units.
Thanks to its higher sales potential following the acquisition of shares in Česká Rafinérská, the Unipetrol Group significantly increased its market share in the Czech Republic: it expanded by 18pp in the case of petrol and 10pp in the case of diesel fuel. The Unipetrol Group is the current leader of the Czech market, meeting half of the domestic fuel demand.
Sales of the Downstream segment (PLNm /'000 tonnes)
|Light distillates 1)||11, 528||5 437||13 270||4 623||(13.1%)||17.6%|
|Middle distillates 2)||25 062||11 995||28 976||10 092||(13.5%)||18.9%|
|Heavy fractions 3)||4 610||4 544||7 701||4 527||(40.1%)||0.4%|
|Monomers 4)||2 978||878||3 447||837||(13.6%)||4.9%|
|Polimers 5)||2 341||482||2 953||592||(20.7%)||(18.6%)|
|Aromatics 6)||930||358||1 662||413||(44.0%)||(13.3%)|
|Fertilizers 7)||1 057||1 146||1 065||1 143||(0.8%)||0.3%|
|Plastics 8)||1 492||445||1 424||418||4.8%||6.5%|
|PTA||1 532||587||1 767||571||(13.3%)||2.8%|
|Other 9)||5 457||4 508||8 284||4 490||(34.1%)||0.4%|
|total||56 987||30 380||70 549||27 706||(19.2%)||9.7%|
1) Gasoline, LPG.
2) Diesel oil, light fuel oil, jet fuel.
3) Heavy fuel oil, bitumen, oils.
4) Ethylene, propylene.
5) Polyethylene, polypropylene.
6) Benzene, toluene, paraxylene, orthoxylene.
7) Canwil, ammonium sulfate, ammonium nitrate, other fertilizers.
8) PVC, PVC granules.
9) Other, value – includes sales of the segment’s other products, merchandise and materials, as well as revenue from sale of mandatory stocks for a total of PLN 2,236m in 2014, and revenue from the segment’s services; Other, volume – includes chiefly brine, salt separated, vacuum distillation products, acetone, ammonia, butadiene, phenol, technical gases, glycols, caprolactam, soda lye, and sulfur.
Revenue structure of the Downstream segment
Sales volumes of the Downstream segment on the ORLEN Group's home markets ('000 tonnes1)
|Poland||15, 192||14, 660||532||3.6%|
|Lithuania||8, 462||7, 475||987||13.2%|
|Czech Republic||6, 726||5, 571||1, 155||20.7%|
|total||30, 380||27, 706||2, 674||9.7%|
1) By country of the relevant company’s registered office.
Structure of the Downstream segment's sales volumes on the ORLEN Group's home markets
Structure of the Downstream segment's sales volume in the Polish market
Structure of the Downstream segment's sales volume in the ORLEN LIETUVA Group's market
Structure of the Downstream segment's sales volume in the Czech market
In 2015, ORLEN Paliwa was merged with ORLEN PetroTank and ORLEN Gaz to create a single entity with an extensive product portfolio, offering favourable terms of business based on cutting-edge logistics and sales solutions.
F. Supply sources
Crude oil is transported to the PKN ORLEN refinery mainly through the Druzhba pipeline and by sea, through the Pomeranian pipeline.
The ORLEN Lietuva refinery is supplied through the Būtingė Terminal
In the Unipetrol Group, the feedstock is received chiefly through the southern section of the Druzhba pipeline (Litvinov) and TAL and IKL pipelines (Kralupy). The Litvinov refinery may also receive supplies from TAL and IKL pipelines.
In 2015, the Płock refinery received crude oil via a pipeline under two long-term contracts: with Mercuria Energy Trading and Rosneft Oil Company. Each of the contracts provided for an option of annual price renegotiation and termination in case the parties fail to agree on the price. Due to the long-term nature of these contracts, they ensured the security and continuity of over 60% of oil supplies to the refinery and contained clauses to guarantee supplies based on financial guarantees.
PKN ORLEN provides oil to the refinery in Płock, to the ORLEN Group refineries located in Litvínov and Kralupy in the Czech Republic, and to its Lithuanian plant in Mažeikiai.
The feedstock for the refineries was procured from oil producers and other companies operating on the Russian oil market, including international traders. The crude oil for the Płock refinery was sourced primarily from Russia, as well as Saudi Arabia, Kazakhstan, Norway and the United Kingdom. Supplies for the refineries in the Czech Republic originated from Russia, Algeria, Azerbaijan, Kazakhstan and Libya. The Mažeikiai refinery was mainly supplied with oil acquired from Russia, as well as Algeria, Azerbaijan, Iraq, Kazakhstan and Nigeria.
In 2015, Rosneft Oil Company’s share in supplies of crude oil exceeded 10% of the ORLEN Group’s revenue.
Natural gas is supplied under PKN ORLEN’s long-term contract with PGNiG and contracts with alternative suppliers. As a result of the gradual liberalisation of the gas market and development of cross-border infrastructure, in 2015 gas prices in Poland came close to prices on the liquid German market. The ORLEN Group continues to take steps to ensure supply stability and to lower its natural gas procurement costs, including by diversifying supply sources. In 2015, more than 20% of the ORLEN Group’s natural gas was procured from alternative suppliers.
Furthermore, the ORLEN Group is implementing a number of exploration and production projects with a view to securing its own sources of natural gas and crude oil.