Model refining margin
The tool by means of which industry players show the refinery’s production capacities is the model refining margin. The indicator represents an approximation of the refinery’s profitability based on publicly available market quotations published by market data providers (for Grupa LOTOS, it is Refinitiv).
The model margin is calculated for a yield structure estimated in the averaged scenario (excluding annual seasonality) of the Grupa LOTOS refinery operation.
In the fourth quarter of 2019, the Company suspended its publication as, in connection with the launch of EFRA Project units and the changing production volumes, the model refining margin published by Grupa LOTOS ceased to reflect the yield structure and accurately present the refinery’s profitability.
The Company updated its model margin calculation method (for details, see → Current Report No. 5/2021 of February 10th 2021) after the operation of the refinery integrated with the EFRA units had stabilised, released a margin calculation model adapted to the new yield structure and commenced → publication of its daily, monthly, quarterly and annual margins. The updated mathematical formula for calculating the model margin of Grupa LOTOS S.A.’s refinery is as follows:
Model refining margin [USD/barrel] = revenue (products from 94% of crude processed = 23% gasoline + 63% diesel oil + 8% heavy fuel oil) – costs (100% of crude processed + cost of natural gas consumption)
The model margin provides an insight into the hypothetical profitability of a refinery operating within a specific technological setup, based on prices from NWE markets published by Refinitiv. As a result, the model margin does not reflect the actual margin generated by the Grupa LOTOS S.A. refinery subject to seasonal variations and optimisation adjustments.
The figure below presents the hypothetical difference between the previous and current margins in the period from January to December 2020 – the corridor between the two curves illustrating the incremental value delivered by the EFRA Project.
Difference (delta) between the Company’s previous refining margin and the current margin following the launch of the EFRA Project units (USD/bbl) – corridor between the values calculated based on the current margin model (upper curve) and those calculated based on the previous margin model (lower curve)
Source: the Company.
Starting from the fourth quarter of 2019 and in 2020 the Company published→ a monthly structure of its refining output to show approximate monthly effects of the EFRA Project and optimisation processes, particularly evident in the context of the extremely challenging situation that emerged on the market of crude oil and petroleum products in the wake of the COVID-19 pandemic.