The outbreak of war in Ukraine has an enormous impact on the socio-economic situation in Central and Eastern Europe and the world. Due to the hostilities taking place in Ukraine, it is very difficult or outright impossible to conduct business activities in the country. At the same time, Russia’s aggression, actively supported by Belarus, has contributed to the isolation of these countries by limiting or completely breaking off trade relations with their partners – not only in the form of top-down sanctions imposed by the governments of many countries, but also through widespread social ostracism and voluntary decisions made by market participants. At this point, it is very difficult to predict the mediumand long-term effects of the war.
The high uncertainty as to further developments is reflected in financial and commodity markets, including highly volatile prices of crude oil and natural gas – in the case of Brent crude oil, prices momentarily approached 140 USD/bbl (vs 77 USD/bbl at year-end 2021), while natural gas on the Dutch TTF exchange set new all-time highs in March, momentarily exceeding 300 EUR/MWh (compared with 60 EUR/MWh at year-end 2021). Due to the very low interest Russian oil among potential buyers, the Brent/Urals differential is very high, at around USD 30/bbl.
The Group continuously monitors the situation, including on the market of energy commodities and petroleum products, in preparation for possible discontinuation of processing of Urals crude oil. Production at the Gdansk refinery is currently on schedule, with product distribution to the market uninterrupted.
The Group does not conduct any direct operations in Ukraine, Belarus or Russia. Sales to areas affected by the hostilities do not represent a material share in the volume of the LOTOS Group’s export sales.
Fuel stations are currently experiencing increased demand for fuel products. This, combined with a very high logistical load, translates into incidental disruptions and limited fuel availability at individual locations. To ease queues at stations, the Company has introduced a temporary restriction on refuelling, with fuel sales to jerry cans prohibited. However, it should be emphasized that the situation is under control and Poland has adequate reserves of both feedstock and petroleum products. The Company has its own mandatory stocks and reserves held at the Government Strategic Reserves Agency, which may be released with the consent of the state authorities in order to secure supplies and thus ensure the country’s energy security.
As of the date of issue of these financial statements, the risk of disruption of supply chains has not materialised, and the flow of crude oil remains uninterrupted. The Group prepares for various scenarios, mainly through diversification of supplies from various directions, and these diversification efforts are an ongoing process. Operationally, the Group is prepared to pursue a variety of alternatives.
Na dzień publikacji niniejszego Raportu Rocznego Spółka nie obserwuje materializacji ryzyka w przerwaniu łańcuchów dostaw, a przepływ surowca pozostaje niezakłócony. Grupa przygotowuje się na różne scenariusze, głównie poprzez dywersyfikacje dostaw z różnych kierunków, a działania dywersyfikacyjne w Grupie są procesem stałym. Operacyjnie Grupa jest gotowa na realizację różnych alternatywnych schematów działania.
The refinery’s technological configuration, combined with its location advantages (coastal location), allows the selection of crude oil types from various global directions, ensuring high flexibility of the Group’s operations and the ability to quickly adapt to rapid changes in external conditions. In the past, the Group has already had an incident of disrupted pipeline deliveries of crude oil from Russia during the so-called „chloride crisis”, when deliveries had to be made by sea. The disruption did not affect the continuity of production processes and performance of sales contracts.
The Group has planned to have a lower demand for crude in March and April 2022 due to the maintenance shutdown at the refinery. Supplies contracted for this purpose are secured and are being delivered.
Credit exposure of the LOTOS Group to Ukrainian, Belarusian and Russian entities is immaterial. Large-scale operational disruptions that could potentially entail liquidity constraints for certain entities may also have an adverse impact on the credit quality of various actors along the supply chain. As part of its credit risk management process, the Group monitors market conditions and information regarding its counterparties that may indicate deterioration in their financial condition and adjusts the structure of credit limits to the current situation. Based on its analyses, the Group has not identified any need to update the assumptions underlying the assessment of expected credit loss.
In addition, following the introduction of the Charlie-CRP state of cyber alert in Poland by the government, the Group also carefully analyses the risk of cyber attacks through constant monitoring of its ICT infrastructure.