No plans to engage in Asian projects at present
PKN Orlen is an established player in the fuel and power markets with annual revenues of around $20 billion. It is the largest company in central and eastern Europe (CEE) and the only Polish company included in the Fortune 500 list. In a chat with Fibre2Fashion, the company reveals details on new discoveries in natural gas and their ongoing sustainability initiatives.
Orlen has an illustrious background and a powerful legacy of several decades. Tell us more about it.
In 1958, a decision to locate the refinery in P?ock was made. In 1999, Polski Koncern Naftowy S.A. was formed by merging the largest refinery in Poland with the largest retail network. Now PKN Orlen is the parent of an international oil and energy group, with assets located in Poland, the Czech Republic, Lithuania and Canada.
In 2016, the company achieved the largest market capitalisation on the Warsaw Stock Exchange. We are also the most valuable Polish brand, worth over $1 billion. PKN Orlen is the only company in its region to be included for the fourth consecutive time in the list of the most ethical companies by the US-based Ethisphere Institute.
How have the petroleum and refining businesses evolved over the years?
About 25 years ago China's GDP was ten times lower than that of the United States. The world had just started looking at climate change. Crude price was under $25 per barrel and China's demand accounted for only 3.5 per cent of global oil consumption. It was widely believed that oil reserves would be exhausted, which should drive oil prices up in the long term.
However, China today is the world's second largest economy, with a GDP 40 per cent lower than that of the United States. It boosts global demand for oil and drives oil prices. Due to US technology to extract hydrocarbons directly from source rock, the world gained access to oil resources on a much larger scale. The Organisation of Petroleum Exporting Countries (OPEC) cartel, which has been controlling oil prices since 1973 - first directly, and then indirectly since the end of the 1980s when oil was first traded at a commodity exchange - finally lost its leadership. The increasing role of climate and environmental protection in strategic decisions concerning the energy sector is steadily pushing oil out of its last outpost - the transport sector. All this show the scale of the changes.
Tell us more about the global operations of Orlen and its product portfolio?
We operate six refineries and the region's largest network of service stations in Poland, the Czech Republic, Germany and Lithuania. The group can annually process more than 30 million tonnes of crude oil and markets its products through over 2,700 service stations. It offers over 50 petrochemical and refining products, including diesel fuels, gasoline, heavy heating oil, liquefied petroleum gas, JET-1 jet fuel, purified terephthalic acid (PTA), ethylene, light heating oil, bitumens, polyvinyl and chloride, in more than 80 countries. The group's Upstream assets in Poland and Canada include 2P (the sum of proved and probable) oil and gas reserves estimated at close to 114 million barrel of oil equivalent (BOE) in 2016.
What is Orlen Upstream? How does it align with the parent company?
Orlen Upstream, a Warsaw-based subsidiary set up in 2006 and a leader in the Polish hydrocarbon market, is responsible for managing the global exploration and production portfolio of the group. It focuses on assets in Poland and Canada. It tries to develop a balanced portfolio of prospecting assets worldwide and its daily output was around 15,000 BOE in the 2017 Q2.
Most of the company's operations are based in Europe and Canada at present. What about your presence in Asia?
Calgary-based Orlen Upstream Canada, a subsidiary of Orlen Upstream, operates assets located in the provinces of Alberta, British Columbia, Saskatchewan, New Brunswick and New Scotia. The company does not operate in Asia and is not planning to engage in Asian projects at present.
In refining, particularly in petrochemicals, we are keeping a watchful eye on Asia, as our products are sold on virtually all key markets in the region. However, we have no plans to make any direct investments in Asia now.
Petroleum and refining businesses have faced major challenges in recent times. How do you view these? What does the road ahead appear like?
We operate in an industry that is marked by strong competition, particularly from the United States and Middle Eastern players. It is becoming more demanding with technological advancements. In the strategy we adopted in late 2016, we felt that crude oil would continue to play a prominent role in the long term, but global economic developments would change the way it is used. Many sectors, including construction, automotive, agriculture and pharmaceuticals, open up entirely new opportunities for the chemical industry and their role is bound to gain prominence in the future. Petrochemicals are being increasingly used by the construction and automotive industries, as cladding, insulation, coatings, structural elements, glazing, adhesives and fillers. Petrochemicals are also key to meeting the needs of light-weight vehicles and electric drives.
The company is aware of those trends and constantly seeks to enhance its operational excellence and integrate its assets. In less than a decade we have invested PLN 21 billion on expansion projects, a big chunk of that in the petrochemical segment. After the hugely successful PX/PTA project, which accounts for 17 per cent of Europe's total PTA production capacity, we are now building the Czech chemical industry's largest polyethylene unit in Litvinov with an installed capacity of 270 kT, a metathesis unit in P?ock with a nominal propylene capacity of 100 kT, and a propane-propylene splitter in Lithuania, designed to produce 50 kT of propylene annually.
At the same time, we bear in mind that the chemical industry has strong innovation potential. To lead change in the market, the company is working on a host of projects designed to consolidate and expand its R&D capabilities. It also seeks to strengthen partnerships with research institutions with joint innovation projects.
What are the new discoveries related to natural gas and other projects at Orlen in pipeline?
In Canada, the ratio of our reserves is 60 per cent gas to 40 per cent liquid hydrocarbons. We are focussing on developing new wells. In Poland, we are focused primarily on recognizing gas deposits. Since our first acquisition in Canada in the end of 2013, we have already launched production from 63 gross wells and one gross well in Poland with total average output of 15 000 BOE/d in 2017 Q2.
In the area of sustainability and corporate social responsibility (CSR), what are the specific initiatives the company has taken?
The company is currently implementing its CSR strategy for 2015-2017, which seeks to motivate employees to look for new ideas and innovative solutions. While supporting businesses, it builds a sense of shared responsibility for implementing CSR objectives within the organisation and promotes the idea of responsibility and stakeholder engagement.
Sixteen coordinators are overseeing 55 projects. In all 488 CSR activities have been announced. In 2016, some 3,500 volunteers were engaged in our flagship CSR projects devoted to help the environment, local communities and people in need. The company also directly supports local communities through grant schemes, scientific research projects and other initiatives. For a number of years, we have hosted the Warsaw Orlen Marathon and the biggest motor show in this part of Europe.(HO)