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Highlights

Targeting increased output of petchems

Integrating Croatian refining assets

Processing around 25-30% of non-Russian crude

Still using contaminated Urals, heavy dilution needed

London — Hungary's MOL is planning to expand its petrochemical business as it looks to position itself for the energy transition, the company's executive vice president of downstream, Ferenc Horvath, told S&P Global Platts.

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"We do not see the double-digit increase every year in the fossil fuel demand like we have seen in the last 25-30 years and we are going into petrochemicals and chemicals where we were and we are in a very competitive position because besides our refineries we also have two petrochemical complexes," he said in an interview in London late-Monday.

Horvath said MOL is focused on expanding its petrochemical and chemical feedstock output and reducing its exposure to fossil fuels.

The global demand outlook for petrochemicals remains strong, with surging demand for plastics in emerging economies offsetting a turn against single-use plastic in developed economies.

Horvath said that MOL is in the midst of creating a road map for its refining strategy for the next decade, which involves increasing its focus on petrochemicals and developing new technologies.

The main priority for MOL's refining businesses is to convert more fossil fuels from its refineries into petrochemical feedstock, and take advantage of it being an integrated oil company.

MOL operates three refineries and two petrochemical crackers and is also involved in the upstream sector. The Hungarian oil and gas firm is targeting average output of 120,000 b/d of oil equivalent in 2020, compared to 111,000 boe/d last year. MOL also boasts a strong fuel retail business with a wholesale network in 11 countries in Central and Eastern Europe.

The future of petrochemicals for MOL lies more in specialty products like butadiene, synthetic rubber and polyolefins, he added.

The road map for the refining and chemical business will unveiled by the third quarter of this year, according to Horvath.

CONSOLIDATION OF REFINING ASSETS

He admitted that MOL's refining business in Croatia had been struggling due to overcapacity but ruled out a divestment of assets in the country, saying the focus will instead be on the "integration or centralization" of its Rijeka and Sisak plants.

The Rijeka plant will be developed into an efficient and complex refinery while in the Sisak plant will concentrate on making specialty industrial products like lube oils, LPG and biofuels.

In December 2019, MOL's Croatian affiliate INA made a final investment decision to carry out a residue upgrade project at the Rijeka refinery.

The project includes building a delayed coker, renovation of existing refinery units, and the construction of a new port for the closed storage of petroleum coke.

Horvath, however, said utilization rates at its 165,000 b/d refinery in Szazhalombatta, Hungary and its 122,000 b/d plant in Bratislava, Slovakia, will continue to be at maximum levels.

Margins were depressed last year but could recover this year, Horvath said.

MOL's group-wide refinery margin was $4.33/b in Q4 2019, down 12% year on year, and a combined $5.63/b at its flagship Danube and Bratislava refineries, down 3.5%, it said in its latest results statement.

Margins shrank despite a wider Brent-Urals price spread. The spread, which benefits MOL as the company mainly processes typically cheaper Urals crude, was up 41% year on year to 91 cents/b in Q4.

Less Russian crude

Hungary's MOL has raised the share of non-Urals crude processed at its refineries in Croatia, Hungary and Slovakia to around 25-30%, according to Horvath.

He said the diversification is more to do with refining yields, optimization and demand needs, rather than security of supply.

Due to the geographical locations of its refineries, especially those in Slovakia and Hungary, it has been 100% reliant on Russian crude imports from the Druzhba pipeline. But it has diversified its crude imports over the past years. In 2016, around a third of the crude processed at its plants was from non-Russian sources.

Azerbaijan's Azeri Light, which is a distillate-rich grade, has emerged as one of the crudes it has started using more of. One of the reasons for this has been because MOL recently acquired a stake in the ACG field in Azerbaijan, which is one of the fields that feeds in to Azeri Light.

DRUZHBA AFTERMATH

MOL was one of the worst affected by the organic chloride contamination of Urals crude coming through the Druzhba pipeline last year but Horvath confirmed that MOL was receiving compensation from Russia.

"We agreed and received compensation from the Russian partner, financially we have not suffered from this episode," said Horvath. "We are [still] using contaminated crude, it needs to diluted," he added.

Horvath admitted that contamination of Urals was a big surprise and was an extraordinary case.

Exports of Urals crude via the 1 million b/d Druzhba pipeline system were suspended mid-April after dangerous levels of corrosive organic chlorides were found in crude transported via the northern route into Belarus.

At the height of the episode, the levels of organic chlorides detected in the Urals stream at Ust-Luga rose to more than 60 ppm in several instances.