Orlen Bolsters Energy Security in Poland and in the Region

Even before that, throughout 2021, Russia was hiking gas prices. The post-pandemic recovery, low temperatures in the winter of 2020‒2021, empty gas storage facilities in Europe and strong demand for gas in Asia meant that demand for this fuel rose sharply. Although Gazprom fulfilled long-term contracts, it reduced spot sales, which pushed up fuel prices. Once again, it was confirmed that Moscow treats raw materials as a tool in its political battles.

Energy carriers have hit price maximums

2022 brought further drastic deterioration, as a result of the outbreak of war in Ukraine. Panic in the markets drove up the prices of oil, gas and coal. In March, the price of oil exceeded USD 130 per barrel, coal $460 per ton and gas EUR 345 per MWh. Nervousness intensified again in the summer, when companies were preparing for the winter season. Individual countries tried, at all costs, to stockpile fuels in anticipation of colder days.

The world condemned Russia and tried to hit it with sanctions. As of 5 December, an embargo on Russian oil imported to Europe by sea took effect. The crude still flows via the Druzhba oil pipeline to the south, to Hungary, Slovakia and Czechia, and via the northern line to Poland. Orlen has repeatedly stressed that it is ready to discontinue deliveries via the Druzhba if sanctions are introduced.

Diversification Brought Results

The company cancelled the import of Russian oil by sea right after the start of the war. This was possible thanks to the diversification policy that the company had been pursuing for a long time. The share of Russian crude in domestic refining has been declining for years. While in 2015 it accounted for almost 100 percent of imports, last year Orlen reported that as much as 70 percent of oil imports came from a source other than Russia.

The company announced that with the expiration of another long-term Russian contract in January this year, the share of non-Russian oil would come to 90 percent. And so it did. At the end of January, the contract with Rosneft, under which 3.6 million tonnes of oil per year had been delivered to Poland, expired. At this time, Russian oil already accounts for only 10 percent of Poland’s imports.

Orlen now imports raw materials from alternative sources, including the North Sea, West Africa, the Mediterranean, Persian Gulf, and Mexican Gulf. The company is also bolstering its cooperation with Saudi Aramco. Aramco bought 30 percent of the Gdansk refinery previously owned by Lotos ‒ this was one of the conditions for the merger of Polish fuel companies. The merger also included a contract with the Saudis for the supply of crude oil.

Orlen Has Not Imported Diesel from Russia Since February

Recently, on 5 February, further sanctions took effect ‒ targeting imports of Russian fuels, including diesel. Domestic refineries satisfy 70 percent of demand for diesel. The remaining 30 percent is supplemented by imports from foreign countries. In 2021, the largest amount of diesel was imported from Russia, with more than 66 percent of all Polish imports coming from this direction. Germany was second with a share of over 20 percent, and Slovakia third, with a share of 4 percent.

As with oil, Orlen was one of the first companies in Europe to cancel diesel imports from Russia. Since then, the company has been buying diesel primarily from the ARA (Amsterdam-Rotterdam-Antwerp) market, which receives the product from various directions, including the Middle East and the United States.

Moreover, on 7 February, i.e. already after the introduction of the embargo on Russian fuels, Orlen ‒ taking advantage of the positive macroeconomic environment ‒ reduced the price of diesel by 20 gr per litre. This was possible thanks to the already visible synergies stemming from formation of a large multi-energy concern as a result of the merger.

There Was No Shortage of Fuel at the Gas Stations

Thanks to the long-standing diversification of supply in Poland, there was no shortage of fuel at the gas stations. Nor is there any threat of a shortage of diesel, which is largely imported. Introduction of the embargo on fuels from Russia was announced over six months ago, so there was time to prepare for it.

A slump in demand should also be taken into account, as it will translate positively into better market balance. In 2022, there was an increase in demand from the power industry, which in many areas had switched from the very expensive and unavailable gas to diesel. Now, due to a warmer winter and cheaper gas, the power sector will use less diesel, so demand will be easier to meet. This may be compounded by a cooling of the economy resulting from the turmoil of war and high inflation.

Uninterrupted Gas Supply

The war has also caused huge tensions in the gas markets. Last April, Russian President Vladimir Putin, in response to the West's actions, adopted a decree stipulating that importers of Russian gas were to pay for the raw material in roubles. Supply was denied to those who refused to agree to the unilaterally changed terms of purchase.

Thus, Poland, as many others, was cut off from Russian fuel overnight. PGNiG, which is part of the Orlen group, was still importing gas under the long-standing Yamal contract at the time. The contract was due to expire at the end of 2022. For years, Poland had announced that it did not intend to extend the agreement or enter into another long-term contract. The Baltic Pipe pipeline was under construction to ensure gas supply from an alternative source ‒ the Norwegian deposits. It was commissioned in the autumn, but until then, the gap had to be filled by bringing the gas in by sea. It was possible thanks to the gas terminal in Świnoujście. Poland imported LNG from various sources, ensuring continuity of supply. Thanks to the interconnector between Poland and Lithuania, we were also able to import gas through the Lithuanian terminal in Klaipeda. Other gas connections with neighbouring countries are also a safeguard.

Orlen takes care to stabilise prices of energy carriers as well. The Group will contribute almost PLN 14 billion this year to freeze gas prices for 7 million households and 35,000 vulnerable entities, including hospitals, schools and nurseries, among others.

The Crisis Accelerates the Transformation

In the first moments, the war caused panic in the energy carriers market. There were fears that after being cut off from Russian gas, Europe would run out of fuel in winter. Authorities of various countries warned of possible shortages of the raw materials and recommended economising on gas and energy. A shift back to coal ensued, which in turn called into question the hitherto pursued climate-protection and transition-oriented policies.

Ultimately, Europe decided that it needed to become independent of fossil fuels as soon as possible. As a result, the transition is destined to gain momentum. The REPowerEU plan, which aims to accelerate achievement of goals set out in the Fit for 55 strategy, has been announced. Energy efficiency targets have been upped, plans to import LNG from non-Russian suppliers have been ramped up, and the market for green hydrogen is expected to grow aggressively. The heat pump market is to grow threefold, and natural gas is to be gradually replaced by increased biomethane production. The European target for renewable energy sources share by 2030 is to be raised to 45 percent.

Orlen is also carrying out intensive works related to transition. The group is developing RES, building offshore wind farms, but also prioritising photovoltaics and onshore wind power, intends to invest in small nuclear reactors (SMRs), while meticulously calculating its carbon footprint and reducing emissions. Orlen will soon announce a new strategy that will outline the multi-energy group’s specific plans for the next few years.

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