- Lotos increased its crude throughput by 4% year on year to 2.75 million mt in Q2, or 222,000 b/d using a conversion rate of 7.33 barrels/mt.
- Its sales of middle distillates, including diesel, light heating oil, and jet fuel, increased 4% to 1.62 million mt, while gasoline sales slipped 7% to 386,000 mt.
- The company increased its processing of Urals in Q2 by 15.8%, to 2.03 million mt, partly by accessing the country’s strategic oil stocks.
According to an article published in Platts, Poland’s second-largest refiner, state-controlled Lotos, increased its refinery throughput and use of Urals crude in the second quarter.
Stable profits
This has resulted in stable downstream profits as access to strategic crude stocks cushioned it from problems in sourcing Russian crude, it said in results published Tuesday.
Lotos, which runs the 210,000 b/d Gdansk refinery, is due to be taken over by Poland’s PKN Orlen, but EU competition regulators have signaled potential objections.
The company increased its crude throughput by 4% year on year to 2.75 million mt in Q2, or 222,000 b/d using a conversion rate of 7.33 barrels/mt. Its sales of middle distillates, including diesel, light heating oil, and jet fuel, increased 4% to 1.62 million mt, while gasoline sales slipped 7% to 386,000 mt.
Model refining margin
Increased volumes helped offset weaker margins. The company’s “model refining margin,” an overall estimate of profitability, fell 21% year on year to $5.76/b.
Lotos said the crack spread for diesel had fallen 10% year on year to $90/mt, although for gasoline it rose 8% to $157/mt.
Poland was hit hard by the cutoff of Russian crude exports via the Druzhba pipeline that started around April 24 and lasted through to the end of June as a result of the contamination of Urals crude.
However, Lotos increased its processing of Urals in Q2 by 15.8%, to 2.03 million mt, partly by accessing the country’s strategic oil stocks, which is obtained at below-market prices, it said.
Cost of crude oil
“The cost of crude oil acquired by the company from emergency stocks partially released in Q2 2019 was lower than its market price, reducing the Refining & Marketing segment’s production costs and improving its operating performance,“ it said.
Beside crude from Russia and Lithuanian and Polish fields in the Baltic, it reduced processing of other crude varieties by 26% year on year, to 557,000 mt. The company has tried to diversify away from using Russian crude.
Lotos said it expects an overall refining margin of $2-$4.50/b following completion of its EFRA upgrade project at the Gdansk facility, taking into account new international rules capping sulfur levels in bunker fuel. It said the coking complex, a key element of the upgrade, was complete and ready for a startup, with some facilities in service and others awaiting testing.
Diesel defies European decline in Poland
Total diesel consumption in Poland was up about 2% year on year at 5.2 million mt in Q2, flying in the face of broader European decline, and far outstripping gasoline consumption, which was flat at 1.6 million mt, Lotos said, citing the country’s oil industry body. It also noted GDP growth had slowed by 0.8 percentage points compared with a year earlier to 4.5% in Q2.
The company’s pretax earnings from refining and marketing rose 3% year on year to Zloty 600 million ($152.7 million), although in dollar terms this represented a 1% decrease.
In its upstream business, mainly comprising minority stakes in the Norwegian oil and natural gas fields, production fell 13% to 18,882 b/d of oil equivalent, leading to a 25% drop in pretax upstream profit, to Zloty 178 million.
Overall net profit fell 6% at Zloty 501 million, or in dollar terms down 12% at $131.5 million.
Formal application filed by Poland
Poland’s PKN Orlen filed a formal application with the European Commission on July 3 for approval of its planned takeover of Lotos, arguing that “a single strong entity would be well placed to successfully compete in a demanding market, lend greater stability to the national economy, also in fuel prices, and ramp up its own growth-oriented investments.”
But the EC said earlier in August it was opening an “in-depth investigation“ as the deal might reduce competition in the fuels market in Poland and neighboring countries.
The deal might raise prices and reduce choice at fuel stations and airports and “would lead to the creation of a quasi-monopoly at an ex-refinery level in Poland,“ the EC said in an August 7 statement.
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Source: Platts
