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ORLEN Group 2016 Integrated Report

II nagroda specjalna w kategorii Raport Zintegrowany | Najlepszy raport on-line

Downstream

Capitals:  
  units ORLEN Group Poland Czech Republic Lithuania
Maximum processing capacity million t 35.2 16.3 8.7 10.2
Utilization of processing capacity % 86 93 62 91
White products yield % 78 80 79 73
Utilization of Olefin installation capacity % 47 70 18 -
Utilization of PTA installation capacity % 87 87 - -

 

  units ORLEN Group Poland Czech Republic Lithuania
  TOTAL thousand t 30 708 15 173 6 421 9 114
Refinery, including: thousand t 26 440 12 070 5 256 9 114

fuels

thousand t 18 225 6 808 4 451 6 966

heavy fractions

thousand t 4 334 1 961 453 1 920

other refinery products

thousand t 3 881 3 301 352 228
Petrochemicals, including: thousand t 4 268 3 103 1 165 -

olefins

thousand t 681 661 20 -

polyolefins

thousand t 245 - 245 -

benzene

thousand t 248 212 36 -

plastics

thousand t 351 284 67 -

fertilizers

thousand t 1 089 914 175 -

PTA

thousand t 605 605 - -

other petrochemical products

thousand t 1 049 427 622 -

 

  units ORLEN Group Poland Czech Republic Lithuania
Total length of used pipelines km 3 753 1 888 1 774 91

length of used raw materials pipelines

km 1 695 930 674 91

length of used product pipelines

km 2 058 958 1 100 -

 

  units Poland Czech Republic Lithuania
Heating power installed MWt 2 721.5 1399.1 1 040.4
Electric power installed MWe 446.6 141.5 160.0
Boiler's efficiency % 93.0 89.5 91.7
Boiler's availability % 84.2 76.4 90.1
 

Downstream - Production

 
 

In 2016, we maintained excellent production rates and we successfully dealt with the consequences of unscheduled shut-downs in the Czech Republic, while pursuing key growth projects. In order to strengthen PKN ORLEN’s position on the petrochemical market, we commenced construction of a polyethylene unit in Litvínov, Czech Republic, and of a metathesis unit in Płock, which will significantly increase our output of propylene. The maintenance shutdowns and reconstruction of the Czech petrochemical assets did not affect production continuity and we were able to fully meet the demand for our products in all markets. We are particularly satisfied with the achievements of ORLEN Lietuva, which delivered excellent operating and financial performance.

Krystian Pater
Member of the Management Board, Production

Main production assets of the ORLEN Group

Types of European refineries:


 

Basic operational parameters

Crude oil throughput and fuel yields:

 

 

Downstream - Sales

 
 

The Polish fuel market saw a significant structural change in 2016. The fuel package introduced by the Polish government brought order to the fuel market and restored equal opportunities for all participants. The grey market not only affected budget revenue from taxes, but also significantly upset competition on the Polish fuel market. Thanks to flexibility and quick response, PKN ORLEN managed to effectively grasp the new market opportunity to achieve a strong increase in wholesale and record-high volumes of fuels transported by the logistics segment. A modern structure of the refining and petrochemical sales team and the logistics team, coupled with continued improvement of fuel trading capabilities, are critical to building value both for PKN ORLEN and the Group’s key trading partners.

Zbigniew Leszczyński
Member of the Management Board, Sales

Wholesale of refinery products

In 2016, the ORLEN Group conducted the wholesale of refinery products in Poland, the Czech Republic, Germany, Slovakia, Hungary, Austria, Latvia, Lithuania, Estonia, Finland and Ukraine and by sea to Western Europe transhipment terminals. The ORLEN Group’s domestic markets include: the Polish, Lithuanian and Czech markets. The ORLEN Group has an extensive portfolio of refinery products, among others: gasoline, diesel oil, A-1 jet fuel, light and heavy heating oil, bitumen, engine oils and a wide range of non-fuel products and semi-products.

Market share in Poland:

 

Source: own preparation

 

 Market share in the Czech Republic

Source: own preparation

Market share in the Baltic states

Source: own preparation

Wholesale of petrochemical products

The ORLEN Group is one of the largest petrochemical companies in Central and Eastern Europe and the only producer of monomers and polymers on the Polish market and of most petrochemical products on the Czech market.

Polyethylene producers in Europe

Source: Own preparation based on POLYGLOBE

 

Polypropylene producers in Europe

Source: Own preparation based on POLYGLOBE.

 

PTA producers in Europe

Source: Own preparation based on PCI

 

PVC producers in Europe

Source: Own preparation based on IHS Markit

Logistics assets of the ORLEN Group

Efficient logistics infrastructure is the key element of the competitive advantage of the ORLEN Group in the marketplace.

The ORLEN Group uses a network of mutually complementary infrastructure elements: fuel terminals, onshore and offshore handling facilities, networks of raw material pipelines. In 2016, product logistics in the ORLEN Group was based on pipeline use, on railway transport, as well as on tank truck carriage.

In 2016 pipeline transport was the primary form of transport of raw materials and products. The total length of used product and raw material pipeline networks, belonging to external entities and own facilities in Poland, the Czech Republic and in Lithuania was nearly 3.8 thousand km (2.1 thousand km are product pipelines, and 1.7 thousand km are raw material pipelines).

On the Polish market PKN ORLEN uses 620 kilometers of pipelines owned by Przedsiębiorstwo Eksploatacji Rurociągów Naftowych "Przyjaźń" and its own transportation infrastructure with a length of 338 km consisting of two sections: Płock - Ostrów Wielkopolski - Wrocław with a length of 319 km and Wielowieś – Góra (IKS Solino) with a length of 19 km. Crude oil transport is performed primarily with the use of a network of pipelines belonging to PERN “Przyjaźń”, of a total length of 887 km, as well as using own pipeline of 43 km, linking Góra (IKS Solino) to Żółwiniec (connection to the PERN “Przyjaźń” pipeline).

For operational purposes of receipt, dispatch and loading of fuel in 2016, the ORLEN Group used in aggregate 24 facilities (own fuel terminals, terminals owned by entities from the ORLEN Group and third parties’ centres). The total storage capacity within own infrastructure and based on agreements concluded at the end of 2016 amounted to 7 million m3.

In 2016 on the Czech market, the ORLEN Group used 1 774 km of pipelines (1 110 km of product pipelines owned by CEPRO and 674 km of raw material pipelines owned by MERO) and 12 storage and distribution stations belonging to the state-owned operator CEPRO and 2 storage facilities leased from third parties.

The main component of the logistics infrastructure, currently used on the Lithuanian market, is the raw material pipeline with a length of 91 km, linking the Butinge terminal with the Mazeikiai refinery. Both the terminal and the pipeline are owned by ORLEN Lietuva.

On the German market, ORLEN Deutschland has taken advantage of the warehouse-distribution capacities in five facilities located in the northern part of Germany, belonging to external entities. Fuel transport in this market is performed entirely with the use of road transport.

 

Logistics infrastructure used by the ORLEN Group in Europe:

Power industry

The ORLEN Group is a significant producer of electricity and heat energy, which is used in large part for their own production needs. It is also one of the largest consumers of gas in Poland and an active participant in the process of the liberalisation of the gas market.

According to the assumptions of the ORLEN Group Strategy, current production sources are undergoing upgrading projects and new investments in the form of gas-steam blocks are being implemented.
The ORLEN Group currently owns energy blocks in three countries. In Poland, they are located in Płock, Włocławek, Jedlicze and Trzebinia. In the Czech Republic in Litvinov, Spolana, Kolin and Pardubice and in Lithuania in Mazeikiai.

Energy assets and their technical parameters in the ORLEN Group:

In 2016 the ORLEN Group led a construction of industrial heat and power plants in Włocławek and Płock.

The gas-steam power plant constructed in Włocławek of 463 MWe in total power will be strictly technologically linked to the Anwil Group Production Plant. The launch of power plants is scheduled for the second quarter of 2017 after the contractor completes diagnosed repairs, guarantee measurements and a test run. After commissioning, the newly built power plant will serve as the main source of technological heat and electricity for the Anwil Group, and the surplus of electricity manufactured will be allocated by PSE (Polskie Sieci Elektroenergetyczne S.A) on the domestic market.

In 2015, implementation of an investment started consisting in the erection of a GTCC unit in Płock with a capacity of 596 MWe. In April 2015, the construction site was handed over to the General Contractor, a consortium of Siemens AG and Siemens Polska Sp. z o.o. By the end of 2015, all the earthworks related to the technological structures as well as to the auxiliary structures had been carried out. In 2016, key elements of the CCGT unit arrived at the construction site, including the gas turbine, the steam turbine and the generator, and intense mechanical installation of the unit started. In 2016, all the administrative, planning and easement-related aspects had also been handled concerning the 400 kV line for the unit. The investment is planned to be completed by the end of 2017.

The activity on wholesale electrical energy market has been expanded from the Polish market to the Lithuanian and the Czech markets. Additionally in PKN ORLEN, the sale of the electrical energy to final users has started.

Volume sales of Downstream Sector

In 2016 ORLEN Group achieved a record sales volume in the Downstream Sector. Total sales volume amounted to 30 708 thousand tonnes and was higher by 1.1% (y/y) mainly as a result of higher refinery volumes by 4.9% (y/y) and lower by (17.5)% (y/y) petrochemical volumes on the Czech and Polish markets.

Light and medium distillates had the biggest impact on the level of sales.

A reduction in sales in the petrochemical industry in the field of monomers, polymers and PVC was the result of supply constraints related to the unavailability (until November 2016) of installations for production of ethylene in the Unipetrol Group after a breakdown of August 2015 and a periodic maintenance overhaul of the Olefin installation in PKN ORLEN.

Higher PTA sales was a result of the intensification of production in the first half of 2016 and consistent sales policy on European markets, namely Polish and German.

The decrease in fertiliser sales was due to maintenance overhauls of production installations in June and July of 2016 in Anwil.

 

The ORLEN Group sales in the Downstream sector (PLN million/thousand tonnes):

Sales 2016 2015    
  value volume value volume change %
1 2 3 4 5 6=(2-4)/4 7=(3-5)/5
Light distillates1 10 513 5 766 11 528 5 437 (8.8%) 6.1%
Medium distillates2 22 714 12 459 25 062 11 995 (9.4%) 3.9%
Heavy fractions3 3 786 4 334 4 610 4 544 (17.9%) (4.6%)
Monomers4 2 025 681 2 978 878 (32.0%) (22.4%)
Polymers5 1 135 245 2 341 482 (51.5%) (49.2%)
Aromas6 625 248 930 358 (32.8%) (30.7%)
Fertilizers7 821 1 089 1 057 1 146 (22.3%) (5.0%)
Plastics8 1 218 351 1 492 445 (18.4%) (21.1%)
PTA 1 571 605 1 532 587 2.5% 3.1%
Others9 4 794 4 930 5 457 4 508 (12.1%) 9.4%
Total 49 202 30 708 56 987 30 380 (13.7%) 1.1%

1) Gasoline, LPG
2) Diesel oil, light heating oil, jet fuel
3) Heavy heating oil, bitumen, oils
4) Ethylene, propylene
5) Polyethylene, polypropylene
6) Benzene, toluene, paraxylene, ortoxylene
7) Canwil, ammonium sulphate, ammonium nitrate, other fertilizers
8) PVC, PVC granulate
9) Other:
- in volume terms consists mainly of brine, salt base, vacuum distillates, acetone, ammonia, butadiene, phenol, technical gases, glycols, caprolactam, caustic soda and sulphur
- in value, the item includes sales of other products, goods and materials of the segment, and segment sales

Sales revenue structure of the ORLEN Group Downstream sector:

In 2016, 2015 and 2014, the ORLEN Group did not have any customers whose share in total sales would individually exceed 10%.

Markets

Basic domestic markets of the ORLEN Group companies in the Downstream sector:

Sales volume of the ORLEN Group in the Downstream sector on domestic markets (in thousands of tonnes)

Sales 2016 2015 change change %
1 2 3 4=(2-3) 5=(2-3)/3
Poland 15 173 15 192 (19) (0.1%)
Lithuania 9 114 8 462 652 7.7%
Chech Republic 6 421 6 726 (305) (4.5%)
Total 30 708 30 380 328 1.1%

1) by country of headquarter of company carrying out the sales

 

Structure of sales volume of the ORLEN Group in the Downstream sector on domestic markets:

 

a) Polish market

High growth of the Polish economy in comparison to other European economies and a good situation on the labour market had
a significant impact on fuel consumption in the Polish market.

Low fuel prices and the introduction of the so-called fuel package i.e. solutions which significantly reduce the impact of the shadow economy, had an additional effect on domestic demand, particularly noticeable in the fourth quarter of 2016.

According to the Energy Market Agency, domestic consumption of gasoline and diesel oil in 2016 increased respectively by 6.1% and 12.5% (y/y).

Sales volume of the ORLEN Group in the Downstream sector of the Polish market (in thousands of tonnes):

Sales 2016 2015 change change %
1 2 3 4=(2-3) 5=(2-3)/3
Light distillates 1 704 1 634 70 4.3%
Medium distillates 5 104 4 980 124 2.5%
heavy fractions 1 961 2 309 (348) (15.1%)
Monomers 661 784 (123) (15.7%)
Aromas 212 213 (1) (0.5%)
fertilizers 914 951 (37) (3.9%)
plastics 284 339 (55) (16.2%)
PTA 605 587 18 3.1%
Others 3 728 3 395 333 9.8%
Total 15 173 15 192 (19) (0.1%)
 

Structure of sales volumes of the ORLEN Group in the Downstream sector of the Polish market:

 

Sales of the ORLEN Group in the entire Downstream sector
of the Polish market in 2016 reached a level similar to last year’s and amounted to 15 173 thousand tonnes. Realised refining volumes were higher by 2.2% (y/y) and petrochemical volumes dropped by (8.1)% (y/y) due to maintenance overhauls
of the Olefin installation in PKN ORLEN.

In the area of refinery products, the sales of light and middle distillates increased. The intensification of activities related to services provided to the final users brought positive results in sales both to international groups and to the SME sector.

In 2016, an increase in the sale of jet fuel was observed, making it possible to consolidate a leading position among its suppliers. The jet fuel market continues to be a significant component of the Group’s selling strategy in relation to the dynamic increase in air transport in Poland.

b) Operating markets of ORLEN Lietuva

According to IMF estimates, the GDP growth rate of Lithuania amounted to 2.6% (y/y), in Estonia 1.5% (y/y), and in Latvia 2.5% (y/y). Positive macroeconomic indicators had a positive impact on the increased demand for fuels, which in total for the three Baltic markets increased in the gasoline sector by 3.2% (y/y) and diesel fuel by 4.9% (y/y). The largest increases in consumption took place in Lithuania, where the demand for gasoline increased by 9.0% (y/y) and for diesel by 12.8% (y/y).

A negative factor influencing consumption in the Estonian market was the increase in excise duty, which is to be continued in subsequent years. Low entry barriers for Baltic markets meant that ORLEN Lietuva operated in an environment of growing competition, mainly from importers from Finland and Belarus.

Despite the market pressure, the total volume of sales increased in 2016 by 7.7% (y/y).

 

ORLEN Group volume sales in the Downstream sector markets serviced by the ORLEN Lietuva Group (thousand tonnes):

Sales 2016 2015 change change %
1 2 3 4=(2-3) 5=(2-3)/3
Light distillates 2 753 2 480 273 11.0%
Medium distillates 4 213 4 179 34 0.8%
heavy fractions 1 920 1 635 285 17.4%
Others 228 168 60 35.7%
Total 9 114 8 462 652 7.7%

Structure of sales volume of the ORLEN Group in the Downstream sector of the markets serviced by the ORLEN Lietuva Group:

 

The economic situation in Ukraine, which has been very tough in the last several years, has now improved. In 2016 estimates point to an increase in GDP by around 1.5% (y/y) in comparison to a fall by 9.9% the year before. Despite the improved economic ratios, the situation of households remains difficult, and the lack of stability in the financial market and the high inflation rate translate into a state of uncertainty and high market risk. An aggressive pricing policy was also seen to be pursued in the Ukrainian market by Belarusian refineries, as well as an intensified supply of fuels from Russia. In spite of the above restrictions, the ORLEN Lietuva Group increased sales in the Ukrainian market by 1.1% (y/y).

c) The Czech Republic market

In 2016, the Czech economy grew at a rate of 2.5% (y/y). Favourable market conditions led to an increase in the consumption of gasolines by 1.7% (y/y) and diesel oil by 4.0% (y/y).

In April 2015, Unipetrol acquired the remaining shares in Ceska Rafinerska a.s. from ENI. The Unipetrol Group became the sole owner of the Litvinov and Kralupy refineries and has become the sole producer of fuels in the Czech Republic.

Total sales of light and middle distillates increased by 7.0% (y/y), despite the production restrictions caused by the emergency shutdown, starting in mid-May 2016, of the Fluid Catalytic Crac installation at the refinery in Kralupy.

Lower petrochemical volumes by (4.5)% (y/y), were mainly caused by the failure of the ethylene production plant in August 2015, which was relaunched in November 2016. The restricted selling possibilities were balanced by the coordination of product flows within the ORLEN Group, and also thanks to the purchases of semi-finished and finished products from third parties.

 

Sales volume of the ORLEN Group in the Downstream sector of the Czech market (in thousands of tonnes):

Sales 2016 2015 change change %
1 2 3 4=(2-3) 5=(2-3)/3
Light distillates 1 309 1 323 (14) (1.1%)
Medium distillates 3 142 2 836 306 10.8%
heavy fractions 453 600 (147) (24.5%)
Monomers 20 94 (74) (78.7%)
Polymers 245 482 (237) (49.2%)
Aromas 36 145 (109) (75.2%)
fertilizers 175 195 (20) (10.3%)
plastics 67 106 (39) (36.8%)
Others 974 945 29 3.1%
Total 6 421 6 726 (305) (4.5%)
 

Structure of sales volume of the ORLEN Group in the Downstream sector of the Czech market:

 

In 2016, Unipetrol Group continued to sell to a wide portfolio of clients, including large fuel companies and supermarket chains.

The Unipetrol Group has been selling its products on the Slovakian, Hungarian, German and Austrian markets through Unipetrol Slovakia and Unipetrol Deutschland.

Sources of supply

a) Crude oil

Crude oil deliveries to PKN ORLEN are realised through the “Przyjaźń" pipeline and by sea using the Gdańsk-Płock pipeline.

ORLEN Lietuva Group is supplied with raw material by the terminal in Butinge.

The supply of raw material for the production
of the Unipetrol Group takes place through the southern section of the pipeline "Przyjaźń" for the refinery in Litvinov and the TAL and IKL pipelines to the refinery in Kralupy. The Litvinov refinery can also be supplied using the TAL and IKL pipeline.

In 2016 two long-term contracts for the supply of crude oil by pipeline to a refinery in Płock was signed with the Rosneft Oil Company and Tatneft Europe AG and a long-term agreement on the supply of oil by sea with the Saudi Arabian Oil Company came into effect. The contracts provided PKN ORLEN with more than 70% of its crude oil supplies.

In addition, pursuant to separate agreements, PKN ORLEN provides crude oil to the 3 ORLEN Group refineries located respectively in Litvinov and Kralupy in the Czech Republic and in Mazeikiai in Lithuania.

In 2016 the crude oil supplies in all directions proceeded according to plan.

The raw material suppliers to all of the refineries of the ORLEN Group were both manufacturers and companies operating in the international crude oil market. Raw material delivered to Płock came primarily from Russia and Saudi Arabia, but deliveries from Kazakhstan, Iran and Azerbaijan were also realised. Crude oil for refineries in the Czech Republic was supplied from Russia, Algeria, Azerbaijan, Saudi Arabia, and Kazakhstan. The supply of raw material to the Mazeikiai refinery came primarily from Russia, but also from Saudi Arabia and Kazakhstan.

In 2016, the share of the Rosneft Oil Company in crude oil supplies exceeded 10% of the overall revenues of the ORLEN Group.

b) Natural gas

Natural gas purchases in 2016 were based on a long-term contract between PKN ORLEN and PGNiG dating from 1997 and on agreements with alternative suppliers.

On 29 September 2016, PKN ORLEN and PGNiG S.A. signed a new five-year contract which will remain in force until 30 September 2021, its value may exceed PLN 7 billion.

Under the agreement concluded, PGNiG became a strategic supplier of natural gas to the ORLEN Group companies in Poland.

The ORLEN Group carries out activities aimed at securing stable supplies and at reducing the overall cost of natural gas purchases, for instance by diversifying supply sources, centralizing natural gas trading, and building trader expertise. The new gas contract portfolio established in 2016 provides for a series of optimization measures, both at the level of individual suppliers and of the various gas indices and also in several delivery points.

The ORLEN Group has also implements a number of exploration
and extraction projects in order to obtain their own sources of gas and crude oil.

In 2016 the ORLEN Group did not have any suppliers whose share in the total natural gas supply would exceed 10% of ORLEN Group’s revenues.


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