Repurposing, Redefining, and Reshaping Today’s Refineries with Adam Czyzewski, Chief Economist, ORLEN

In anticipation of the forthcoming IDW - Downstream Conference , we caught up?with with Adam Czyzewski , Chief Economist at ORLEN , to gain valuable insights into the future of refineries. Given the swiftly evolving landscape, we delve into the challenges posed by the energy trilemma and the decarbonisation agenda, and how these factors might impact the survival of refineries and the conventional hydrocarbon downstream sector.

1. The energy trilemma (secure, affordable, and sustainable) has been a prominent concern in the industry. How can we address all three and balance competing pressures from shareholders, stakeholders, customers, and policymakers???

Balancing the energy trilemma within the oil industry is a complex challenge. Addressing all three aspects while managing the varying interests requires a comprehensive approach.

In my opinion, two important questions hold the key to the solution. Let's start with our role in the economy. Right now, we assist the transportation segment by providing fuels made from crude oil. But what will we do in the future? At ORLEN, we have a clear answer. We'll continue helping the transportation segment by providing the energy sources needed. In response to the energy transition, we need to evolve into more sustainable and diversified multi-utility businesses.

Now, onto the second question: What kinds of fuels will be needed? This depends on new ways to power vehicles. It also depends on regulations, which need to change as things evolve. The answer also changes based on where you are in the world. In places like Europe and the northern part of the world, using electricity for vehicles will be common. But in places like the southern hemisphere, combustion engines will remain, and they'll need cleaner fuels like biofuels or perhaps synthetic fuels. These, along with methods to capture carbon, will help make things cleaner.

So, the global refining has to change and adapt in some areas, and lead the change in others, like with low emission liquid fuels. This change is often described as the 3R challenge: Reducing (global refining capacity), Repurposing (for example by transitioning to the biorefinery), and Reinventing ourselves by developing technologies to provide customers with the same quality products, but based on feedstock from recycling at an affordable cost. ORLEN has been going in this direction for years, and I'll be discussing it further at the IDW conference in Istanbul.

2. How long will Europe need its own refineries and what does this depend on?

In Europe, there won't be a place for regular refineries anymore. They will end up like coal-powered electricity plants. It's quite simple. About 80% of the pollution from fuel happens when it comes out of the car's tailpipe. Making transportation more eco-friendly means getting rid of fuels made from oil.

Our predictions for Central Europe show that if the countries stick to their plans for energy, the demand for oil will drop by over half in 2050. But if more aspirational goals are met, the demand for oil could drop by 84%. The decline in oil’s share in final energy consumption speeds up after 2030, but refineries in places where oil is cheap and regulatory environment less restrictive, like the southern hemisphere, are already competing with our refineries pushing many of them out of the business. The first victims will be the stand-alone refineries on the coast, followed by the stand-alone onshore refineries. Integrated refineries can survive, provided that they have already started implementing the aforementioned repurpose and redefine strategies.

3. How can regulation, incentives, and policies better coordinate (globally) the transition of the downstream industry to profitability decarbonize and achieve its goals without causing another energy crunch?

While the climate policies managed to slow down the pace of emissions increase, the world has not yet bent the emission curve. Fossil fuels continue to be the backbone of the global economy. This outcome can be attributed to a pivotal twofold rationale.

Climate change, inherently global, extends beyond regional efforts like those of the EU. While some of the economies in Europe and Northern America have managed to decouple emissions from economic growth, it has not been the case for developing economies. Less carbon intensive solutions are often more expensive, and even when they are cost-competitive (like renewables in Africa) the issue is very limited capital availability.

Second, a consequence of this disjointed approach is the premature divestment from fossil fuels, notably oil and natural gas. This rush has contributed to energy predicaments, exemplified in 2021. A just energy transition must ensure reserve security, including refining capacities. Shielding domestic refineries from undue competition by emerging giants in Africa, Asia, and the Middle East is vital. This strategy preserves fuel quality and grants refineries time for adaptation.

4. With the changing dynamics in the energy sector, how do you perceive the future role of National Oil Companies? What opportunities and responsibilities do they have in driving sustainability and meeting the evolving energy demands?

National Oil Companies are important employers, running multiple refineries. It's up to NOC boards and policymakers to protect these jobs. As we shift to cleaner energy, some refineries that are part of bigger profit-making chains might remain unaffected. Take Orlen, for instance. It started as a refinery and retail business but now does petrochemistry, multi-source energy, and more, guaranteeing a steady energy supply. Diversifying oil and gas sources in the past made things more secure, and the same could happen with the energy transition in the future. We've committed to having zero net emissions by 2050, and we're making steady progress.?

5. Finally, what do you hope the discussion from a long-running conference like IDW, will help the downstream industry to achieve over the next 12 months???

12 months is a very short time to make changes. However, it is long enough to design and start such changes. I expect we will discuss less about how to protect our current production lines from declining demand and growing competition (which of course you have to do to make money) and more about how to repurpose and redefine ourselves.

?? Would you like to hear more?

Ensure you don't miss the chance to hear more from Adam Czyzewski during the upcoming IDW - Downstream Conference in Istanbul, 18-20 September 2023.

Adam will take part in the Keynote Producers Panel, where he will engage in discussions about the resilience of refineries in the face of a rapidly changing environment. Join us in Türkiye and gain valuable knowledge and perspectives on this crucial topic!

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?? Learn more about the event: europetro.com/idw