PKN Orlen investment outline for 2023

The Orlen Group has set a target of allocating zl 36 billion (€6.786 billion) for investments in 2023 compared to zl 15.2 billion (€3.247 billion) in the whole of 2022.  Higher investment capability and requirements have been facilitated from the acquisitions of Lotos and PGNiG made in 2023.  More detail of Orlen’s planned projects and strategy should be known sometime in the first quarter.  The Orlen Group plans to present a programme to achieve synergies resulting from the acquisition of Lotos and PGNiG in the coming years.   One of the main projects could also include the construction of a petrochemical complex at Gdansk in cooperation with the Saudi Aramco group. For now, however, the project is at the stage of talks between the partners.  In January 2023 the EU approved the acquisition of some of the refinery assets sold by Lotos to Saudi Aramco and also MOL.   

PKN Orlen-operational activity

Regarding operational activity the group faces a significant increase in costs in line with the rise in profits.  Despite a fall in the refining margin in December to $14.6 per barrel from $19.9 in November and $31.4 in October the fourth quarter average margin of $22 is almost five times higher than in the same period in 2021.  Petrochemical margins ended the year at €1138 per ton having peaked at €1469 earlier in 2022.   Fourth quarter profits are expected to be positive, particularly as crude prices were lower than in the previous two quarters.

Polish petrochemical production Jan-Nov 2022

Ethylene production in Poland increased in the first eleven months to 426,300 tons from 307,500 tons in the same period in 2021, whilst propylene production rose from 307,800 tons to 384,900 tons.  Butadiene production at Plock rose from 38,200 tons to 58,300 tons.  In the plastics sector polyethylene production rose from 209,700 tons to 298,700 tons in January to November 2022 and polypropylene increased from 268,400 tons in the same period in 2021. 

Lukoil looking to offload assets in Romania

Due to the difficulties of Russian companies operating refineries in Europe Lukoil is considering the sale of its assets in Romania, including the Petrotel refinery at Ploiesti, which is located around 60 km north of Bucharest.  The Kazakh group KazMunayGaz, which operates Romania’s largest refinery Petromidia, is among the prospective bidders for Lukoil’s assets.  A similar scenario applies to the Bourgas refinery in Bulgaria which is owned by Lukoil.

EU price cap on Russian crude & further restrictions

In December 2022, EU countries agreed to set an price cap on Russian oil at $60 per barrel. The price cap applies to seaborne crude oil, petroleum oils and oils obtained from bituminous minerals which originate in or are exported from Russia.  The cap comes on top of the EU import ban on Russian seaborne crude oil and petroleum products, and the corresponding bans of other G7 partners.

The EU has prohibited EU vessels from transporting Russian crude oil (from 5 December 2022) and petroleum products (from 5 February 2023) to third countries. It has also prohibited the related provision of technical assistance, brokering services or financing or financial assistance. This ban doesn't apply if the crude oil or petroleum products are purchased at or below the oil price cap.

Slovnaft aims to cut the share of Russian oil in its processing activities in 2024 to about 60% from about 95% at present and use other blends to comply with sanctions on Russia.  Slovnaft processes around 124,000 barrels per day and has been using Russian oil supplied by the Druzhba pipeline but is accelerating modifications to use other blends. 

Polish crude supplies

PKN Orlen’s contract with Rosneft for oil supplies to Plock is expiring in January 2023 and has not been renewed for around about 3 million tpa.  A smaller contract with Tatneft, valid until 2024, will remain in force and can only be invalidated if sanctions are applied to pipeline supplies.  Around 70% of Orlen’s crude supplies were estimated to come from non-Russian sources in the fourth quarter, and this figure is expected to rise significantly in 2023. 

Regarding the Lotos refinery already 100% of oil supplies are being delivered from non-Russian sources.   The construction of a maritime transhipment terminal at the Gdansk will not only increase the capability to diversify imports of crude to the refinery but also help imports of non-Russian raw material to the Schwedt Refinery in eastern Germany.

Schwedt refinery east Germany

 The Schwedt refinery in eastern Germany may have resolved the dependency problem on Russian oil after Poland committed to provide enough supply for the refinery to run at least at a capacity of 70% from January onwards.  Both sides want to ensure Polish refineries in Gdansk and Plock as well as German refineries in Schwedt and Leuna are adequately supplied with crude oil.  Germany in September took control of the Schwedt refinery, which was majority owned by Russia's Rosneft, as part of efforts to shore up the country's energy supply.  Orlen is also ready to increase supplies from other directions primarily from Saudi Arabia.

Besides deliveries from the Baltic coast Kazakhstan’s KazTransOil has been given permission from Russia to send 1.2 million tons of crude to Germany in 2023 using the Druzhba pipeline, including 300,000 tons in the first quarter.   The Polish supply proposal assumes that two to three ships with 100,000 tons each a month of non-Russian oil would be unloading for Schwedt at Gdansk.  That would amount to some 3.5 million tpa, and the rest could come via Rostock on the Baltic.  Schwedt then could meet the needs of the Berlin region, supplying the nearly 600 German gas stations owned by PKN Orlen and provide some fuels for the western Poland region. 

Orlen Unipetrol-TAL pipeline

Whilst the Litvinov refinery is still processing Russian oil, changes are expected in the near future.  The Czech government has concluded an agreement to increase the capacity of the TAL oil pipeline, giving the Czech Republic a real opportunity to cut off Russian supplies in the next two years.   The TAL oil pipeline is 753 km long and runs from the port of Trieste in Italy through the Alps to Austria and Germany.  The Czech Republic is at the end of this route.

The aim of the TAL+ project is to increase the capacity of the TAL gas pipeline by the end of 2024 at the latest.  Orlen Unipetrol is ready to undertake the necessary cooperation in the field of developing a solution allowing the Czech Republic to move away from purchases of Russian oil.   

The pipeline capacity will be increased to 7-8 million tpa which would make the Czech Republic completely independent of supplies via the Druzhba by 2025.   Of the 6.8 million tons of crude oil imported into the Czech Republic in 2022 more than half of all imports (exactly 51.2%) were delivered via the Ingolstadt-Kralupy-Litvinov (IKL), which is part of the Transalpine oil pipeline.  This is mainly oil transported by tankers to the port of Trieste from Azerbaijan, Kazakhstan and the USA.

This pipeline supplies crude oil that does not come from Russia to the Orlen Group's Kralupy and Litvinov refineries in the Czech Republic.  The Kralupy refinery processes only crude oil from outside Russia, while the Litvinov refinery currently uses some of the non-Russian crude oil for processing.  The ban on importing Russian oil by sea to the EU came into force on 5 December.  From 5 February 2023, a similar embargo will apply to petroleum products and fuels from Russia. 

NIS-Business Plan 2023

 In addition to Lukoil in Romania and Bulgaria, Gazprom Neft and the Serbia government both find itself in a difficult ownership position in Serbia through the refining group NIS.   Serbia may eventually need to renationalise NIS in order to maintain relations with the EU and to ensure feedstock continuity.  At present NIS is focused on the preparation of the third phase of modernisation of the Pancevo refinery which includes the reconstruction of the catalytic cracking plant (FCC) and the construction of a new ETBE plant. 

In the petrochemical industry the priority remains on the further synergy with HIP Petrohemija, the implementation of projects to strengthen energy efficiency, as well as on further digitalization of the company at all levels.  

Hungarian propylene exports Jan-Oct 2022

Exports of propylene from Hungary dropped in the first ten months from 86,387 tons in January to October 2022 to 66,148 tons in the same period last year.  Exports to Slovakia from MOL to Slovnaft dropped from 77,628 tons to 57,947 tons which was due to lower production at Tiszaujvaros.

MOL propylene expansion

Although MOL currently produces more propylene than it consumes it is currently building a new propylene plant with a capacity of 100,000 tpa. This is part of the programme to create sufficient propylene feedstock for the new polyol project at Tiszaujvaros.  The propylene plant is being constructed by the engineering company Merkbau on an area of about three hectares at the site of MOL Petrochemicals at Tiszaújváros.  The new plant will fit into the existing production infrastructure, providing raw materials for the polyol plant, thus expanding the company's chemical production capacity.

Polish propylene & butadiene imports, Jan-Nov 22

Poland imported 120,138 tons of propylene in the first eleven months in 2022 against 220,795 tons in the same period in 2021.   Imports fell last year due mainly to higher production at Plock.  At the same time the market sources of imports changed significantly in 2022 due to effects of the Russian attacks on Ukraine. 

Karpatneftekhim at Kalush in western Ukraine suspended petrochemical production on 25 February following the Russian invasion.  Thus propylene imports from Ukraine dropped from 67,828 tons in the first eleven months in 2021 to 17,018 tons in 2022, which were delivered in January and February.  Russia also reduced shipments to Poland in 2022 to 21,625 tons with no volumes sent after June.  This compared against 46,680 tons in January to November 2021.  Due to availability imports from Germany fell to 56,275 tons in the first eleven months in 2022 versus 98,135 tons in the same period in 2021.  Supplies from Bulgaria, Croatia and Hungary all were present in 2022.    

Average prices for propylene imports into Poland rose from €892 per ton in January to November 2021 to €1265 in the same period in 2022.  Prices started falling in the latter part of the third quarter and into the fourth quarter following feedstock trends.   

Butadiene imports into Poland totalled 85,687 tons in the first eleven months in 2022 against 119,264 tons in the same period in 2021. The three largest suppliers comprised Hungary, Germany and Austria.   The lower volumes last year were due mainly to increased production at Plock, rising to 58,300 tons from 38,200 tons in January to November 2021.  Butadiene import prices averaged €1199 in the first eleven months in 2022 against €925 per ton in the same period in 2021.  The market picture came under pressure in the fourth quarter due to a mixture of weak demand and lower crude prices.  

Hungary supplied 32,398 tons in the first eleven months to Poland versus 42,075 tons in the same period in 2021.  Hungary also supplied Germany and the Czech Republic with butadiene monomer from its plant at Tiszaujvaros. 

Central European styrene trade Jan-Nov 2022

Prices for styrene imports into Central Europe for imports rose significantly in 2022, increasing by 48% for the Czech Republic in the first eleven months, followed by Poland with a 40% rise and Hungary 30%.   Although prices started to soften towards the end of 2022 the higher costs have been hard to push through to finished products. 

Poland imported 92,218 tons of styrene in January to November 2022 versus 97,736 tons in 2021.  The Netherlands is the largest supplier of styrene to the Polish market, having shipped 53,389 tons in the first eleven months in 2022 versus 77,576 tons in the same period in 2021.  Germany increased supplies to Poland from 7,673 tons in January to November 2021 to 18,817 tons in 2022.  

Due to increased production at Kralupy this year imports of styrene from the Czech Republic into Poland increased from 1,442 tons to 8,870 tons.  Increased production meant that Czech imports dropped from 57,679 tons in January to November 2021 to 13,848 tons.

Italy is the dominant source of styrene imports into Hungary, supplied by Versalis to its polystyrene plant at Szazhalombatta.  Imports of styrene into Hungary totalled 77,748 tons in January to November 2022, down from 84,950 tons in 2021, with supplies from Italy declining from 95% to 92%.

Czech petrochemical trade, Jan-Nov 2022

Ethylene exports from the Czech Republic dropped from 21,342 tons in the first eleven months in 2021 to 12,114 tons in the same period in 2022.  This included deliveries of 2,236 tons of ethylene sent to India, 3,827 tons to Germany and 3,266 tons to Slovakia. 

Czech imports of ethylene rose from 3,193 tons in the first eleven months last year against 16,037 tons in January to November 2022.  Germany supplied 15,902 tons to the Czech Republic this year for €18.784 million, averaging €1.181 per ton. 

 Propylene imports into the Czech Republic dropped from 41,280 tons in the first eleven months in 2021 to 32,846 tons in the same period in 2022, with main suppliers including Germany, Romania and Poland.  Czech imports of butadiene dropped from 69,949 tons in January-November 2021 to 59,611 tons in the same period in 2022.  Germany was the largest supplier, shipping 50,001 tons in January to November. 

Czech exports of ethylbenzene amounted to 102,915 tons in the first eleven months against 118,700 tons in the same period in 2021.  All the ethylbenzene was shipped from Kralupy to Oswiecim, all within the structures of the Synthos Group.  Benzene exports from the Czech Republic rose in the first eleven months this year to 30,256 tons against 44,460 tons in the same period in 2021.  Germany was the primary market for Czech benzene exports, accounting for 30,536 tons for €34.488 million. 

Imports of benzene into the Czech Republic dropped from 73,630 tons in 2021 to 65,706 tons in January to November 2022.  Benzene imports were sourced in the first eleven months this year from Poland (46,247 tons for €49.100 million), Serbia (10,475 tons for €10.657 million) and Hungary (7,960 tons for €8.124 million).

Polish polyethylene trade Jan-Nov 2022