Investment debate at Grupa LOTOS

Source Press Release
Company Grupa LotosEnergaPKN Orlen 
Tags Refinery Project, Hydrogen, LNG & Gas Storage/Processing, Production/Development, Exploration, Upstream Activities, Capital Spending, Strategy - Corporate
Date July 15, 2021

LOTOS competence centres within the newly formed multi-utility group, summary of the status of key capital investment projects and the research agenda until 2030 were the topics of the event held on July 15th at the company’s registered office in Gdańsk. The event was attended by representatives of the LOTOS Group and members of the academic community.

The investment debate was divided into three areas. The first one concerned LOTOS competence centres within the multi-utility group being formed by PKN Orlen, the second focused on the status of LOTOS’ flagship capital projects, and the third one was devoted to the strategic research agenda of Grupa LOTOS for 2020–2030.

‘At Grupa LOTOS, we recognise that in order to be a modern and efficient business we need to focus on investment and development. We currently have some 360 capital investment projects under way. Capital expenditure will reach approximately PLN 1.4bn in 2021. Given the ongoing process whereby our company is to be ultimately acquired by PKN Orlen, we want to showcase our top capabilities in hydrogen, rail logistics, offshore, and base oils. Simultaneously, we are implementing a number of other innovation projects,’ said Jarosław Wróbel, Vice President of the Grupa LOTOS Management Board, Investment and Innovation.

LOTOS competence centres within the multi-utility group

A process is under way to build a strong multi-utility group, which is to include Grupa LOTOS. As per the structure of the combined entity unveiled in May, Gdańsk is to be the location of competence centres involving hydrogen, rail logistics, offshore maintenance services and base oils.

Within the hydrogen competence centre, two projects are being implemented: Green H2 and Pure H2. Grupa LOTOS wants to exploit its potential and experience in hydrogen generation and to promote hydrogen as a zero-emission fuel of the future. Under the Green H2 project, it aims to build a large-scale unit for the production of green hydrogen. This is the Group’s idea for how to thrive on the market in the next two decades or so when hydrocarbon fuels become less popular. The Pure H2 project comprises a hydrogen purification unit with distribution and refuelling infrastructure.

As for railway logistics, LOTOS is implementing a project to purchase 326 intermodal transport units. Partially replacing road with rail transport in intermodal freight logistics could help reduce pollutant emissions and improve the safety of traffic participants. Both locomotives (a single-system and a multi-system unit) are expected to arrive in Gdańsk by the end of this year, with the last 72 out of 324 rail cars to arrive at LOTOS Kolej’s siding in mid-2022.

Grupa LOTOS also aims to exploit its offshore maintenance capabilities, hence the concept of providing project and maintenance services for offshore wind farms (OWF). LOTOS Petrobaltic intends to actively participate in the energy transition as a national operator involved in the development, commissioning and maintenance of offshore wind farms within the Polish Economic Zone of the Baltic Sea.

The fourth competence centre will focus on the production of base oils. A hydrocracking oil unit project, now at a pre-construction stage, is due to move to the construction phase in the third quarter of 2021. It aims to improve the economics of crude oil processing by generating higher margins as a result of production and sale of new high-margin products (Group 2 and Group 3 base oils).

COMPLETED AND ONGOING PROJECTS

In addition to the projects mentioned above, early this year the company completed a project to construct a hydrogen recovery unit designed to reduce adverse environmental impacts. The unit enables the combustion of cleaner natural gas instead of refinery gases. It has also helped to enhance oil processing efficiency. The new unit will deliver to the market an additional 70 thousand tonnes of LPG, 43 thousand tonnes of naphtha, 39 thousand tonnes of light gasoline and almost 9 thousand tonnes of hydrogen per year.

In May 2021, the company completed the construction of a fourth railway loading facility, which enables an additional volume of up to 530 thousand tonnes of diesel oil and motor gasoline to be marketed in Poland (annually). This will help reduce the deficit of diesel oil on the domestic market by replacing imports with the product from a Polish refinery.

The terminal in Piotrków Trybunalski is being upgraded. Once completed, the terminal expansion project will increase the existing storage capacity almost fourfold (to 11,100 m3). The handling capacity will increase almost twofold (to 700,000 m3/year), while the loading speed will increase from 1,700 to 2,500 l/min. Importantly, once the upgrade is completed (in late 2022 or early 2023), the terminal will operate 24 hours a day 7 days a week. The project is a response to rising demand for handling services driven by the successful efforts to curtail illegal fuel trade.

In order to keep the refinery’s operations as efficient as possible, the first part of routine maintenance was completed in spring 2021. Completed on schedule in early May, the works were performed safely and in line with the budget. The second part of the overhaul is due to start in spring 2022. The implementation of ‘partial maintenance shutdowns’ entailed a number of adaptation projects.

LOTOS is also pursuing capital projects in the Exploration & Production segment. One such project is the development of the B8 oil field located within the Polish Exclusive Economic Zone in the Baltic Sea. Also, work is being carried out to launch a gas compression system, enabling gas transmission from the B8 field to the Energobaltic CHP plant in Władysławowo.

One of the key projects is Yme, now in an advanced development phase. Oil production start-up from Yme is expected in the fourth quarter of 2021.

PROJECT IN THE PLANNING PHASE

Grupa LOTOS along with  PKN Orlen and  ENERGA have commenced studies concerning the potential construction of a CCGT plant in Gdańsk that would be built by July 2026. As an investment in the energy security of the company it would improve its resilience to power outages, while also improving the national security.

In order to enable transshipment of cargos with a volume of up to 5 thousand tonnes by sea, LOTOS is making preparations to build a transshipment marine terminal on the Martwa Wisła to be located on the wharf adjacent to the Gdańsk refinery. Once completed, the terminal will ease the workload of the refinery’s railway siding and will cut its reliance on other transshipment ports. A final decision is expected by the end of this year.

One of LOTOS’ key capital projects in the Exploration & Production segment in Norway is Noaka, a project to develop discoveries made north of Heimdal. Work is currently under way to develop an optimum development concept for the fields.

Also, LOTOS has plans to develop the B4 and B6 natural gas fields in the Baltic Sea and produce natural gas with associated LPG and condensate.

In retail, LOTOS is consistently pursuing its service station rollout programme, seeking to raise the number of CODO locations and consolidate the market position of LOTOS service stations at main expressways and motorways in Poland. A total of 15 sites are to be added to the Group’s CODO network in 2021–2023.

LOTOS Group’s strategic research agenda for 2020–2030

The third part of the investment debate was the presentation of the LOTOS Group’s strategic research agenda until 2030. Areas of innovation discussed included the latest refining technologies and petroleum products, expansion of the portfolio of new products and services, digital transformation, and organisational efficiency improvements. External funding for innovation projects obtained through domestic and European funding instruments has so far reached over PLN 19m.

LOTOS intends to implement initiatives to develop refining technologies (a catalytic process research unit and hydrocracked oil bases) as well as eco-friendly petroleum products (pollutant degrading and recyclable asphalt mixtures).

Recognising the strong growth potential of the alternative fuel business, the Group wants to continue its hydrogen technology and electric mobility projects. LOTOS also wants to utilise biofuels and manage waste to drive growth in profit margins.

The Group plans to improve its organisational efficiency with digital technologies. To this end, it is building a digital working environment, digital office processes and advanced analytics of commercial and logistic data. Also, the company wants to harness IT solutions to improve production efficiency and continuity.

For more information, check out the materials contained in three presentations published on https://inwestor.lotos.pl/en/994/investors/tools_for_investors/presentations.

GREEN H2

Green H2 is a capital investment programme initiated by Grupa LOTOS in late 2020 to build a large-scale green hydrogen plant. Green H2 is an idea for how to thrive on the market in two decades or so, when hydrocarbon fuels become less popular. Consulting firms have already been selected, and a grant application has been submitted. Decisions regarding other details of the programme are expected to be taken by the end of 2021.

Grupa LOTOS is Poland’s leading producer of hydrogen. Now, the Group wants to focus on the production of an environmentally-friendly variety of the gas to reduce CO2 emissions from the refinery and ensure compliance with the National Indicative Target in motor fuel production. The Group is interested in hydrogen as more than just a process substrate.

The plan is to obtain hydrogen by electrolysis, a process that splits water using electricity. Where electricity from renewable sources is used in hydrogen production, such hydrogen qualifies as green hydrogen according to the European Union classification. If used in refinery processes, it will make conventional petroleum fuels greener. Also, electrolysis emits no greenhouse gases.

Green H2 involves the construction of a large-scale plant consisting of electrolysers, hydrogen storage facilities and fuel cells or, possibly, hydrogen turbines, controlled by innovative software. The system is to produce zero-emission hydrogen for the refinery while supporting the Polish power system in the same way as a pumped storage plant.

The first step under the programme is a pilot project to develop a small-scale electrolysis plant with additional functionalities, such as hydrogen storage and fuel cells. The plant would be a target configuration for the large-scale project, designed not only to deliver hydrogen for the refinery’s needs, but also to enable Grupa LOTOS S.A. to gain a share in the power capacity market, render services on the balancing market and, in the future, provide services to wind farm operators in the Baltic Sea.

The project’s expert partner is Polskie Sieci Elektroenergetyczne, the operator of the Polish transmission system.

The Green H2 programme will evolve over time. The pilot project is scheduled for 2020–2023. It will provide first experience and will form the basis for developing the required software. Phase one (2020–2025), aiming to create a full-scale electrolysis plant that would produce hydrogen for the refinery and participate in the electricity market, is to be implemented in parallel with the pilot. Phase two (2025–2030) will involve further expansion of the plant capacity and increasing its role in the electricity market. In a subsequent phase planned to run until 2040, LOTOS intends to consolidate its position as a regional leader in hydrogen production and distribution in the long-term. Hydrogen would be supplied to refineries, customers in the power industry and injected into the gas grid.

PURE H2

The Pure H2 project implemented by Grupa LOTOS involves the construction of hydrogen purification and distribution facilities plus two refuelling points (in Warsaw and Gdańsk). Both stations would be capable of refuelling all kinds of hydrogen-powered vehicles. The dispensers would be 700 bar pressure-rated for passenger cars and 350 bar-rated for buses and heavy goods vehicles.

Both projects to build hydrogen refuelling stations were covered by a single request for proposals, and today it is difficult to indicate an exact date of their launch. Securing formal approvals and permits, also those granted at the local level, will also be a key part of the construction process. Accordingly, the actual pace of the project work will depend on the length of the approval and permitting process. The project is expected to be completed by the end of 2023.

The purpose of Pure H2 is to enhance the competitive position of Grupa LOTOS through the roll-out of a new product – the ultra high purity (99.999) hydrogen. The new product would be innovative and is currently not produced on the Polish market.

The use of hydrogen as an alternative source of energy would contribute to tackling air pollution caused by emissions of exhaust gases from conventional vehicles, especially in urban areas. Hydrogen obtained through the Pure H2 project is also to find applications in other industries, such as energy, food, IT, etc.

The project locations and components will be integrated and aligned in terms of capacity and logistics. The hydrogen purification system in Gdańsk will have a capacity to produce 160 kg of hydrogen per hour, the entire output to be fed into a hydrogen compression unit. Then, based on the distribution and refuelling infrastructure in place, it will be possible to sell hydrogen in Gdańsk. Additionally, adequate amounts of hydrogen will be delivered to Warsaw by two tube trailers acquired as part of the project, which will also be used for deliveries to other large customers.

Pure H2 has been included in the list of approved projects supported by the CEF instrument (2017 CEF Transport Blending MAP Call II), under the Connecting Europe Facility (CEF).

Source: EvaluateEnergy® ©2022 EvaluateEnergy Ltd