Oil refining market and competition in the region

The Grupa LOTOS refinery, with the annual processing capacity of approximately 10.5 million tonnes of crude oil, is one of the most advanced and newest refineries in Europe, ranking high relative to competitors in terms of crude oil processing complexity (Nelson Complexity Index), which makes it possible to optimise both the selection of crude grades processed and the energy mix supplied to the refinery, as well as, importantly, flexible management of the stream of petroleum products manufactured. The LOTOS refinery also features a high distillate rate (an 86% share of fuels in the crude oil processed) and focuses on medium distillates, which enables the Company to successfully adjust its output to the structure of domestic demand and to export opportunities.

10.5 mln

crude oil per year - annual processing capacity of the refinery

The refinery’s technological advancement was achieved through the 10+ Programme completed in 2011 and the EFRA Project completed in 2019, followed by its full integration with the refinery’s units, as well as a number of lesser capital projects designed to increase the efficiency of the refining process (e.g. the Hydrogen Recovery Unit). In 2021, the Company launched the Pure H2 project involving the construction of a hydrogen purification unit and a system for supplying hydrogen to tube trailers (vehicles used to haul compressed hydrogen).

The upgrade and extension of the refinery as part of the 10+ Programme resulted in increased yields of high-margin products per barrel of crude processed and an increase in the annual volumes of fuels from 4 million tonnes to 7.8 million tonnes, while enabling the Group to process more technologically demanding crude types. The EFRA Project was a continuation of the refinery’s technological upgrade, naturally complementing its configuration. The main objective of EFRA was to ensure more efficient utilisation of heavy residue, which is the heavy end of crude oil used to make heavy fuel oil or bitumens. The EFRA Project units supplemented the crude oil processing line at the Gdańsk refinery and enabled flexibility in substituting the production of low-margin heavy fuel oil with more engine fuels, thus increasing the margin on each processed barrel of crude oil by approximately USD 2-4.5. The refinery, with its expanded array of tools to optimize production processes, remained competitive, even amidst the volatile macro environment that prevailed for the better part of 2021, and was associated with the gradual recovery from the COVID-19 pandemic and volatile prices of natural gas and process feedstocks.

Instalacje EFRA, zintegrowane z działającym w rafinerii ciągiem technologicznym przerobu ropy naftowej, umożliwiają dostarczenie na rynek dodatkowych około 900 tys. ton frakcji średnich rocznie (olejThe EFRA facilities, integrated with the refinery’s oil processing line, have enabled the Company to increase the output of middle distillates (diesel oil and, optionally, aviation fuel) by approximately 900 thousand tonnes per year, from the same volume of crude oil processed. As for the other product categories, the production capacities of naphtha and LPG have changed, their respective target levels to be reached as part of the optimisation process. The Grupa LOTOS refinery also maintained a capacity to produce bitumens, which fetched relatively high profit margins compared with other petroleum products in 2021. The maximisation of their output, with advantage taken of arising market opportunities, was a strong contributor to the LOTOS Group’s profit on sales in 2021.

The refinery operates a continuous emission monitoring system (CEMS) to continuously monitor the environmental impact of the refinery’s operations. The project was implemented to meet the relevant provisions of the national and EU environmental laws. Anticipating the Industrial Emissions Directive, whereby the European Union requires that emission monitoring be adapted to the best available techniques (BAT).

Seeking to expand its capacity to dispatch fuels from the refinery extended to include EFRA units, in 2021 the Company was completing the project to construct a fourth railway loading facility with an annual capacity of 2.2 million tonnes of fuel products.

The refinery’s configuration combined with its favourable location are factors enabling flexible selection of crude types to maximise margins on their processing and sale of products.

The LOTOS refinery operates in the fuel importer market and enjoys the geographical advantage and benefits of a coastal location close to the liquid Amsterdam-Rotterdam-Antwerp oil market. The refinery’s location was a source of major competitive advantage in the region in terms of logistics (access to feedstock and product sales channels). The location close to the handling terminal provided the LOTOS Group with direct access to international markets, enabling it to export its oil products primarily to Scandinavia, north-western Europe and the Baltic states. It also helps theCompany to optimise sales channels and purchase various types of crude oil and fuels.

The refinery also had a unique combination of feedstock supply channels both by land, from Russia, via the PERN pipeline network, and by sea from many countries and from the Group’s own deposits. Access to two supply channels allowed the Group to diversify feedstock deliveries and to respond flexibly to volatile petroleum product and crude oil prices. As a result, Grupa LOTOS S.A. was able to effectively diversify its crude slate and improve its bargaining power for the purchases of crude oil.

Solomon Associates, which prepares the most recognised global ranking of refining plants, has placed the LOTOS refinery among the best 25% of plants, based on key competitiveness indicators, such as the refining margin, energy efficiency, maintenance team efficiency and plant availability, while classifying it as the most advanced refinery in Central and Eastern Europe.

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