Key challenges for the future

PKN ORLEN’s key goal for the coming years is to reinforce its position as the regional leader of the fuel and energy sector.

Integration of assets and expansion of the company’s modern petrochemical segment play a particularly important role in this process. However, the Group does not exist in a vacuum and is influenced by global megatrends. One of them is the development of alternative fuels, another one, of equal importance, is the tightening of environmental regulations. All of these factors will affect business. And while any talk of the looming oil sector collapse is definitely premature, the Group must brace itself for a transformation of the industry in the coming decades. In the face of the changing demand for petroleum-based fuels, demand for petroleum-based plastics, especially recyclable plastics, will be growing. Electric mobility ca serve as an example here; in order to reduce the weight of electric vehicles, manufacturers will have to use lighter, technically-advanced materials delivered by the petrochemical and chemical sectors. According to long-term forecasts, global sales of chemicals should nearly double by 2030. Implementation of the programme for development of the petrochemical business with capital expenditure at the level of PLN 8.3 billion will allow the company’s annual EBITDA to increase by up to PLN 1.5 billion after project completion. This means a return on the investment in a 5- to 6-year horizon. From the perspective of the Polish economy, investments in petrochemicals will significantly improve Poland’s balance of trade in petrochemical products. Poland will go from being an importer to being an exporter of those products. Hence, the programme will bring considerable, measurable benefits both for the company and for the domestic chemical industry.

Strategic merger

Merger with the Lotos Group is yet another key project of the company. Most European countries have already consolidated their oil industries, which gave rise to such giants as BP or Shell, whose shares in the Community market are much higher than those of PKN ORLEN and LOTOS Group combined. It is obvious that an integrated entity will be able to optimise its efforts in many areas, enhancing its competitive advantage for the benefit for the customers and for the Polish economy as a whole. Examples include the procurement function; negotiating a contract for 40 million tonnes of crude is very different from negotiating a contract for just 10 million. Please note that PKN ORLEN is the biggest company in the CEE region, responsible for the economic and energy security not only in Poland, but also in the Czech Republic or the Baltic states. In this context, strengthening of its leading position is advantagous for the entire region.
The commenced acquisition process of LOTOS Group by PKN ORLEN, in line with the interests of the companies and their environments as well as of the Polish economy, has a genuine chance at reinforcing their leading position on the European market while ensuring Poland’s energy stability.
On completion, the acquisition will naturally determine the strategic decisions of the ORLEN Group in the coming years. The fact that the ORLEN Group has already carried out a vast number of M&A transactions of various size, each strengthening its market position, will considerably contribute to the success of the process.
In the coming period, the Group will be taking major steps to evaluate, model, and schedule the planned transaction, as well as to lay down the details of its execution. It is very much in the interest of the national economy that a strong and integrated corporate group, well-positioned to compete in international markets and resilient to market fluctuations, is created, also by exploiting the operational and cost synergies between PKN ORLEN and LOTOS Group.
Not only will it give an edge to the business itself in its extremely demanding environment, but it will also considerably enhance Poland’s energy security.

Energy for business

The European downstream sector struggled with overcapacity last year. With demand expected to decline in the coming periods, only the most competitive producers will manage to survive on the market. The investment projects continued within the ORLEN Group last year aimed at maintaining the company’s competitive advantage by further enhancing the efficiency of its production assets and extending its value chain.
The Group was also actively engaged in developing its power generation capacity, which reached 1.9 GWe with the completion of the CCGT unit in Płock.

Diversification of supplies and contracts

The ORLEN Group’s crude oil supply policy for the refineries remains unchanged. Currently, as in the previous year, crude is supplied under forward contracts with producers from the CIS region and the Persian Gulf.
The other stocks are topped up on the basis of spot transactions, such as the first-ever delivery of Nigerian crude to the Płock refinery in October 2018. All decisions on crude oil supplies to the Group are considered from an economic perspective, so as to combine secure deliveries with commercial flexibility.
The Group is seeking and exploring new opportunities in this regard offered by the significant bargaining power it can gain through potential consolidation of the Polish oil sector.
Foreign markets underwent significant changes that will determine the business activities of ORLEN Group companies in the coming years. In Lithuania, with the support of both governments, the long-standing dispute between ORLEN Lietuva and the Lithuanian Railways was finally settled. As a result, the Group has decided to go forward with major investments in Lithuania.
On the Czech market, a bid was launched in December 2017 to buy up shares in Unipetrol, which was finally closed in October 2018, giving PKN ORLEN full ownership of the Czech company.

E-mobility on the rise

The ORLEN Group is also actively engaged in the development of e-mobility, including the sale of alternative fuels. As part of its investments in electric vehicle charging points, the company has selected 150 service stations located both in towns, cities and along transport routes to deploy EV chargers. The first stage of the pilot programme provides for the roll-out of around 50 fast charging points by the end of 2019. As result of the project, EV drivers should be able to cross the entire territory of Poland using the main traffic routes, both transport and urban roads, by 2019. Similar solutions are also planned for the Czech market. As regards alternative fuel sales, the company is currently testing hydrogen filling stations in Germany and CNG filling stands in the Czech Republic.