Downstream

MOL Group’s Downstream division is made up of different business activities that are part of an integrated value chain. This value chain turns crude oil into a range of refined products, which are moved and marketed for household, industrial and transport use. The products include, among others, gasoline, diesel, heating oil, aviation fuel, lubricants, bitumen, sulphur and liquefied petroleum gas (LPG). In addition, it produces and sells petrochemicals worldwide and holds a leading position in the petrochemical sector in the Central Eastern Europe region.

OVERVIEW OF 2016

2016 Highlights

  • The new long-term strategy “MOL Group 2030 Enter Tomorrow” set clear strategic directions for Downstream to ensure the long-term competitiveness and growth of the segment
  • In 2016 Downstream generated HUF 408 bn (USD 1.45bn) Clean CCS EBITDA, somewhat behind last year’s record financial performance despite a deteriorating macro environment
  • Petrochemicals and Retail (Consumer Services) contributed nearly 60% to Downstream Clean CCS EBITDA, serving as a further testimony to the benefit of the integrated Downstream value chain
  • The Next Downstream Program continued to support the overall Downstream performance.
    • The initiatives under this program contributed USD ~130mn to EBITDA primarily through internal efficiency improvement in 2016
    • Internal efforts were, however, offset in 2016 by a some unplanned events in key production units and by delays in the operation of the new petrochemical plants (Butadiene and LDPE4)
  • Refining saw another significant increase of seaborne crude intake, following the strategy to diversify crude basket and exploit crude differentials.
  • Danube refinery achieved the best Operational Availability in the last 6 years with 96.5%, rewarded by DS Production SVP Reliability Award for the best Production asset team.

WHAT HAVE BEEN THE MOST IMPORTANT TASKS FOR MOL GROUP DOWNSTREAM RECENTLY

In 2016 we continued to improve Downstream efficiency and competitiveness which helped to achieve USD 1.45bn Clean CCS EBITDA despite a deteriorating macro environment. The strength of our integrated refining and petrochemicals asset base together with high market captivity is well reflected by the fact that Petchem and Retail contributed nearly 60% to these results in 2016. I am also very pleased to report that a very clear vision of MOL Group Downstream was defined in the MOL Group 2030 strategy, with an ambition to sustain our regional leadership in core businesses, become a leading chemical group and be the customer’s first choice. This also means that we shall continue to do what we are the best at - efficiently run our core assets, supply the market with high quality products while further extending our Petchem value chain and focusing on customer experience. We are also in the process of developing our corporate culture in order to prepare ourselves for the future and to be able to achieve what we set for ourselves in the MOL Group 2030 strategy. By improving our everyday work processes and cooperation, we will be more successful in increasing customer satisfaction while at the same time having more engaged employees.

KEY FACTS

Refinery yield (2016)

 
 
Refinery processing (kt) 2015 2016 Change (%)
Own produced crude oil 1,116 1,254 12
Imported crude oil 14,046 14,194 1
Condensates 188 188 0
Other feedstock 3,689 3,593 -3
Total refinery throughput 19,039 19,229 1
Purchased and sold products 2016 1674 -17
External refined and petrochemicals product sales by product (kt) 2015 2016 Change (%)
Total refined products 17,234 17,811 3
o/w Motor gasoline 3,826 3,816 0
o/w Diesel 9,402 9,724 3
o/w Fuel oil 470 508 8
o/w Bitumen 553 541 -2
o/w Retail segment sales 3,856 4,246 10
o/w Motor gasoline 1,143 1,237 8
o/w Gas and heating oils 2,615 2 ,909 11
Total Petrochemicals product sales 1,298 1,245 -4
o/w Olefin products 197 190 -4
o/w Polymer products 1,089 1,001 -8
o/w Butadiene products 12 54 350
Total refined and petrochemicals product sales 18,532 19,056 3
Total retail sales (kt) FY 2015 FY 2016 CH. %
Hungary 934 1,059 13
Slovakia 536 617 15
Croatia 1,075 1,060 -1
Romania 586 662 13
Czech Republic 359 468 30
Other 368 380 3
Total retail sales 3,856 4,246 10

COMPETITIVE ADVANTAGE

MOL Group Downstream operates 6 production units: 4 refineries and 2 petrochemical sites, with different business activities that are part of an integrated value chain. This value chain turns crude oil into a range of refined products, which are moved and marketed for household, industrial and transport use. The products include, among others, gasoline, diesel, heating oil, aviation fuel, lubricants, bitumen, sulphur and liquefied petroleum gas (LPG). In addition, MOL produces and sells petrochemicals worldwide and holds a leading position in the petrochemical sector in the Central Eastern Europe region.

MOL Group is operating complex, high quality assets with a total of 20.9 mtpa refining and 2.2 mtpa petrochemicals capacity. The high net cash margin-producing refineries in Hungary and Slovakia benefit from their geographical locations as well as their well-balanced product and customer portfolios. MOL Group Petrochemicals (MPC) bring distinct advantages to MOL Group’s refineries whilst delivering high quality products to our customers. MPC is already present in the butadiene market and forward integration into derivatives is in progress, in line with the new long term strategy, MOL Group is aiming to further expand in chemicals and petrochemicals to become a regional leader.

MOL Group retail network is composed of almost 2000 stations in 10 countries predominantly located in the supply radius of our refineries, which enables us to maximize synergies between refining & marketing and retail.

Feedstock optimisation ensures the selection of the most appropriate raw materials for all of our refineries from a wide slate of crude oil types. Crude and raw materials supplies and low-cost product distribution are achieved thanks our extensive pipeline system and increased storage depot coverage. In 2016, for the first time ever, Bratislava refinery processed seaborne crude received through the Friendship I pipeline.

OUTLOOK

  • Macro conditions may remain supportive, above mid-cycle levels, however, 2015 conditions are unlikely to be matched.
  • The key strategic directions for Downstream: to focus on efficiency and flexibility in Refining, and to pursue organic and inorganic growth in both Petrochemicals and Retail businesses.
  • The Next Downstream Program aims to further mitigate the volatility of external macro by adding a total of USD 500mn to Downstream EBITDA in 2014-17 (of which USD 160mn is to be delivered in 2017), including:
  • USD 350mn asset and market efficiency improvements
  • USD 150mn contribution from strategic growth projects
  • Downstream shall generate USD 1.4-1.5bn Clean CCS EBITDA in 2017 based on the Group’s 2017-21 macro assumptions
  • The Downstream business’ normalized CAPEX in 2017 should be around USD 400–500mn, which would again allow for an excellent sustained free cash-flow generation
  • The new MOL Group 2030 Enter Tomorrow strategy targets MOL becoming the customers’ first choice in refining, petrochemicals, mobility products and services in the wider CEE region
  • Ongoing culture development program will be the basis for the success of MOL Group business strategy by 2030
  • HSE remains a primary focus:
  • Following a successful roll-out in 2016, the HSE Leadership Engagement program will be continued and extended also to contractors
  • Process Safety measures’ implementation will continue concentrating on mechanical integrity to reduce spills to environment and fire cases
  • As 2017 will be the “Year of Climate” in EU regulations, MOL Group is preparing for responding adequately