Macroeconomic environment

The primary indicator used to gauge the health of an economy is GDP indicator, which, driven by consumption, investment and exports, helps to assess the state of the economy.

Changes in GDP are typically correlated with fluctuations in fuel consumption and unemployment rates.

Among external factors typically bearing on the refinery and petrochemical industry, the following macroeconomic parameters are of key importance: electric energy quotations, property rights, CO₂ emission allowances oraz coal (which is the main production fuel in polish electric power system), oil prices, Urals-Brent differential and spreads for refinery and petrochemical products offered by the ORLEN Group.

The primary feedstock used by the ORLEN Group is crude oil, whose prices fluctuate in response to changes in global demand and supply as well as changing geopolitical factors. As the sour crude accounts for some 74% of the ORLEN Group’s crude slate, the Urals-Brent differential has a significant impact on its operating results.

The ORLEN Group’s operating performance strongly depends on differences between the market prices of petroleum products and the prices of oil and other necessary feedstocks (called crack spreads). The cost of feedstock and the selling prices of refined products for the ORLEN Group are dictated by many factors outside its control. These include:

• movements in the supply of and demand for refined and petrochemical products;
• expansion of global refining capacities;
• changes in process-related operating costs (energy, utilities, maintenance);
• changes in environmental and other legislation that could require the ORLEN Group to incur significant expenditure.

For general estimation of the impact of macro factors on the Group’s performance, the Model Downstream Margin is used, reflecting the structure of key inputs and key refinery and petrochemical products obtained from the inputs, calculated by reference to market prices.

Model Downstream Margin [USD/bbl]

Source: In-house analysis.

A Model Refining Margin  and a  Model Petrochemical Margin are also calculated for the Refining and Petrochemicals segments. .

Energy’s performance is strongly correlated with electricity prices and costs of natural gas, hard coal and emission allowances (EUAs).

Performance in the Upstream segment is largely driven by the current Canadian Light Sweet (CLS) crude and AECO gas prices.

• Estimated effect of changes in the model downstream margin and model refining margin with the ORLEN Group’s processing capacity utilisation assumed at approximately 221 million barrels.
• Estimated effect of changes in the Urals-Brent differential with the ORLEN Group’s Urals crude processing capacity utilisation assumed at approximately 120 million barrels.
• Estimated effect of changes in the model petrochemical margin with the ORLEN Group’s sales of polymers assumed at 885 thousand tonnes (Unipetrol / 603 thousand tonnes and BOP (50%) / 282 thousand tonnes).
• Estimated effect of changes in the wholesale margin with the sales volumes of gasoline and diesel oil in Poland assumed at approximately 11.8 million tonnes, and effect of changes in retail margin with fuel sales in Poland estimated at around 7.1 billion litres.
• Estimated effect of oil price movements is calculated based on the product and feedstock portfolio using the model downstream margin and mainly includes the effect of higher costs of consumption of raw materials for own energy needs.
• Estimated effect of changes in hydrocarbon prices in Canada assuming hydrocarbon production of approximately 5.7 million boe per annum.

^* The effect of changes in the above factors has been estimated on the assumption that there is no correlation between them and between other factors which have bearing on the ORLEN Group’s performance. Changes in macroeconomic factors may also have an additional impact on, for instance, optimisation of the product portfolio, sales markets or degree of processing capacity utilisation, which may additionally affect the results of PKN ORLEN’s operations.