Optimization of oil processing in amid gradual market recovery after the pandemic

The consequences of the pandemic and market destabilisation had a significant impact on the conditions in which Grupa LOTOS operated during the reporting period. The Company operates in the petroleum sector, whose environment is global. In 2021, the market for petroleum products was witnessing dynamic changes driven by the pandemic, its containment, and recovery of the economy at home, in the neighbouring countries and globally.

In 2021, the Company’s market environment was in a phase of gradual economic recovery in individual countries as a result of the lifting of restrictions related to the COVID-19 pandemic, government subsidy programmes and support for many economic sectors. The European market was heavily affected by limited short-term predictability and uncertainty about future quarters due to Russia’s policy of restricting natural gas shipments to Europe, causing a very sharp increase in prices of the commodity. Additionally, as a result of the green transformation taking place in the world in order to tackle the climate crisis, prices of CO2 emission allowances, the so-called EU ETS, significantly increased, which affected the prices of energy carriers used to power refineries. A marked imbalance and shortage of liquidity in international trade continued, as did periodic interruptions in supply chains.

In 2021, Grupa LOTOS applied a number of optimisation initiatives, both in terms of feedstock selection for the refining units, mix of the energy carriers used by the refinery and structure of petroleum products.

The Company’s refinery was subject to intensive optimisation efforts with a view to flexibly adjusting its yields to the fast-changing market conditions.

As the refinery’s complexity had been expanded by the EFRA Project and the Hydrogen Recovery Unit, the Company smoothly managed the stream of petroleum product yields to match the changing demand and the best possible price conditions. These included increased sales of bitumen and base oils, which had unusually high market margins in 2021 due to their limited availability as a result of reduced global refining capacity utilization in 2020. The efforts allowed usto maintain the use of almost full capacity of the Gdańsk refinery. At the same time, Grupa LOTOS decided to postpone some of its planned capital projects, pending an improvement of the business environment. LOTOS Group, through its subsidiary LOTOS Oil, commenced started the Hydrocracking Base Oils (HBO) project in 2021. Its annual production capacity is tens of thousands of tonnes of semi-finished fuel products and, more importantly, over 400,000 tonnes of Group 2 base oils – a product valued higher than diesel oil and sought after both on the European and global markets.

In addition, the seaside location of the Grupa LOTOS refinery allowed the Company to swifly capture market opportunities, e.g. through export sales of attractively priced naphtha for delivery by sea, which helped it maintain a high level of crude throughput and enhance the refining margin during the toughest period for the industry.

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