Poland's integrated PKN Orlen expects demand and margins for refined products to weaken this year, following strong utilisation of its refining capacity in last quarter of 2022.
The company sees its refining margins falling to around $11/bl later in 2023 from the current level of around $19/bl because of a slowing economy and new refining capacity coming online in the US, the Mideast Gulf, Asia-Pacific and Africa. This will lead to a supply surplus, PKN said today in its outlook for the year released with its financial report for the fourth quarter of 2022.
Demand for refined products in PKN's key markets of Poland, the Czech Republic, Germany and Lithuania was already falling in the fourth quarter. In its main market of Poland, demand fell by 2pc year on year in the period. It also sees declining demand for petrochemical products, which PKN officials said is usually a good indicator of demand trends for other products.
Even as demand weakened PKN's refinery utilisation was very strong at 98pc of capacity in the October-December 2022 period, when it refined more than 11.2mn t (895,000 b/d) of crude. This 31pc year on year increase was driven mainly by the acquisition of the 210,000 b/d Gdansk refinery in the intervening period.
PKN did not rule out that its refinery utilisation would fall this year, although this will be because of weakening demand rather than any crude supply constraints caused by restrictions on imports from Russia.
PKN said it is committed to all its key refining expansion projects, including a visbreaker at the 373,000 b/d Plock plant, a hydrocracker at the 190,000 b/d Mazeikiai refinery in Lithuania and a new base oils unit at Gdansk.
Officials also said they are monitoring developments at the 226,000 b/d Schwedt refinery in Germany, and did not rule out an interest in becoming a shareholder there should Berlin decide to sell Russian state-controlled Rosneft's stake that is has controlled under a trusteeship since September 2022.
PKN officials said the company plans to sign more term deals for crude in near future, without elaborating. It has term deals with Saudi Arabia and, for a smaller amount, with US producers. But they voiced scepticism over the possibility of importing Kazakh crude to Poland through the Druzhba pipeline, which has been mooted by Germany, saying they are concerned such supply may be Russian crude provided by Kazakh producers through swap deals.
Also today PKN downplayed this week's decision by Norway's sovereign wealth fund to put its stake in the company under review because of its investment in Polish media. PKN said it does not expect this to affect its operations in Norway, a key location for its upstream oil and gas operations.
PKN Orlen's fourth quarter results were the first to include figures from gas supplier PGNiG, which it acquired in 2022. PKN made a profit of nearly 8.1bn zlotys ($1.8bn), excluding a one-off profit from the PGNiG deal, nearly double that of a year earlier. Profits were mainly generated by the refining and upstream businesses; profits declined at the petrochemical division and the natural gas supply operations were loss making.
