REFINING

ORLEN Group refining assets and key competitors in CEE / processing capacity [million tonnes]

Wholesale of refining products

In 2020, the ORLEN Group was involved in wholesale distribution of refining products in Poland, the Czech Republic, Germany, Slovakia, Hungary, Austria, Latvia, Lithuania, Estonia, and Ukraine, and in Western Europe, where products were delivered to transhipment terminals by sea. The ORLEN Group’s home markets are Poland, Lithuania and the Czech Republic. The ORLEN Group has an extensive portfolio of refining products, including gasolines, diesel oil, aviation fuel, light and heavy heating oil, bitumen, engine oils and a wide range of non-fuel products and intermediates.

In 2020, 2019 none of the ORLEN Group’s leading customers accounted for more than 10% of the Group’s total revenue.

In 2020, the ORLEN Group’s sales in Poland were 12,479 thousand tonnes, down by (1,764) thousand tonnes (y/y). The drop was attributable to lower sales across all product groups, including mainly Medium distillates down by (16.5)% (y/y). The decline was most pronounced in aviation fuels down by as much as (60)% (y/y). However, despite demand constraints, PKN ORLEN continued into-plane fuel sales and supplies to strategic customers, including the Polish Army. PKN ORLEN also continued to produce and sell the JP-8 aviation fuel to the US Army forces stationed in Poland. Large military exercises ‘Defender 2020’ drove demand for battlefield fuels. 2020 saw the launch of PKN ORLEN's branch in the Czech Republic, which helped expand the aviation fuel sales business and, as a result, brought benefits from expanding aviation fuel sales to new customers (including intermediaries and recreational flying providers). The consumption of light fuel oil remained stable in 2019, mainly due to lower prices and the need to work remotely during winter.

Sales of light distillates in the Refining segment alone dropped by (11)% (y/y). LPG and gasoline sales fell, respectively, by (15)% and (10)% (y/y), mainly as a result of mobility restrictions imposed in spring and the need to work from home. Year-on-year consumption of those fuels went down by (36)% during the full lockdown, but grew in the summer holiday period (above the 2019 figure), driven by restrictions on international traffic and increased popularity of holiday trips within Poland.

In 2020, sales of heavy fractions went down by (14.9)% (y/y), including mainly low margin heavy fuel oil down by (24)% (y/y), with bitumen sales up by 7% (y/y).
As of January 1st 2020, the sulfur content cap for bunker fuels (also outside the Emission Control Areas) has been reduced from 3.5% to 0.5%. Following introduction of the IMO 2020 regulations, PKN ORLEN launched a product with lower sulfur content (LSFO), which had a positive effect on the Company’s performance.

Lower fuel consumption made in necessary to optimise the structure of supplies; the volume of diesel oil and gasolines purchased by PKN ORLEN in 2020 fell by (33)% and (9)%, respectively.

Due to a challenging operating environment resulting from the absence of deliveries to seaports caused by production constraints triggered by the negative macro effect, aggressive competitive policies of importers and the adverse effect of COVID-19 pandemic, in 2020 the sales volumes of the ORLEN Lietuva Group’s Refining segment decreased by (14.5)% (y/y), to 7,259 thousand tonnes. Middle distillate sales fell by (10.2)% (y/y) on the back of a significant drop in sales of Jet A-1 aviation fuel, by (60.4)% (y/y). Diesel oil sales went down by (3.6)% (y/y) . Sales of light distillates declined by (13.8)% (y/y), including a (13.9)% (y/y) drop in gasoline sales. In 2020, sales of heavy fractions fell by (26.0)% (y/y), including bitumens down (4.2)% (y/y).

The Ukrainian market is open to suppliers from other countries, which results in increased competition. ORLEN Lietuva has long-term relationships and contracts with all major retail chains operating on the Ukrainian market. A vital element of the ORLEN Group's strategy was to build the image of a stable supplier, independent of the geopolitical situation in the region, who sticks to its commitments even when faced with serious macroeconomic headwinds. As a result, ORLEN is perceived as a modern, reliable and stable European company. ORLEN Lietuva's important advantage on the Ukrainian market consists in its quickness of response, stability of supplies and speed of logistics operations, which allows the company to compete with alternative suppliers. The Ukrainian market is undergoing significant changes, and ORLEN Lietuva keeps adapting its strategy to what the competitors are doing, taking also into account developments at the Mažeikiai refinery (margins, production and stock levels).Data regarding GDP and consumption of fuels in section ‘Macroeconomic Environment’.

In 2020, the Unipetrol Group’s sales volumes fell by (20.6)% (y/y), to 3,822 thousand tonnes. Middle distillate sales fell by (20.4)% (y/y), mainly on the back of a (78.9)% (y/y) decrease in sales of Jet A-1 aviation fuel. Sales of diesel oil declined by (18.7)% (y/y) due to the pandemic. In addition, sales of diesel oil were adversely affected by maintenance shutdowns in Litvínov and Kralupy in the first half of 2020 and in late November and early December in Kralupy, as well as problems with the FCC unit in December 2020. Sales of light distillates went down by (16.5)% (y/y), including mainly a (15.2)% (y/y) drop in gasoline sales. Despite lower demand, the Unipetrol Group maintained a 63.4% market share (down by a mere (0.9) p.p. (y/y)).

In 2020, the Unipetrol Group continued selling its products to a broad customer base, including large fuel companies and hypermarket chains. Unipetrol sold its products on foreign markets: Slovakia, Hungary, Germany, Austria and Poland, as part of the strategy to optimise product flow management within the Group.

PKN ORLEN continued its aircraft refuelling operations at the airport in Prague with fuel supplied by Unipetrol. In 2020 the demand for Jet A-1 fuel declined sharply; airport traffic at the Prague airport was very low for most of the year.

Gasoline and diesel oil consumption in Slovakia decreased; the pandemic led to a decline in sales of both gasoline and diesel oil at Unipetrol SK.

In 2020, fuel consumption in Hungary also fell year on year, although Unipetrol HU's market share in 2020 remained largely unchanged compared with the previous year due to more active and effective operations on the wholesale market and a new sales strategy, which allowed the company to reach a larger number of small and medium-sized customers. Despite the challenging environment, Unipetrol HU managed to slightly increase its gasoline and diesel oil sales.

All the markets on which the Unipetrol Group is present expect to gradually go back to the pre-pandemic normal. It is necessary to rebuild market shares to maintain the required sales levels. Unipetrol will strengthen its presence on the Slovak market as Benzina intends to continue expanding its retail network.