MOL GROUP Annual Report

Refining and MarketingDuna Refinery in HungaryRefining and Marketing2010 was the year of continuing development with a focus on operational efficiency.Refining and Marketing operates five refineries and related asset networks in the CEEregion driven by the Supply Chain Management. Bratislava and Duna refineries continueto enjoy the advantage of their strong asset structure while major efforts to elevate InADownstream performance have been in progress. Competitive crude and raw materialsupply and low cost product distribution are ensured by an extensive pipeline systemand increased depot coverage. Regional wholesale activity is effectively supported bya widespread service station network of more than 1,600 sites in 11countries with 7 brands operated in a multi-brandstrategy by Retail Division.Competitive advantageMOL Downstream has an outstanding assetstructure in the European refining sector.Our most complex refineries, Duna andBratislava have had leading net cash marginpositions in Europe since 2003 accordingto WoodMackenzie studies. Revamp of lessefficient and sophisticated assets in Croatiaand Italy gained momentum in 2010, enablingall of our refineries to produce Euro V qualitymotor fuels. While our refineries enjoyed thedirect pipeline access to Russian crude supplies,seaborne crude markets provided an opportunityto select the optimal crude slate. The divisionoptimized refinery operation to exploit synergiesavailable in regional markets. Our extensive logisticsnetwork coupled with well positioned commercialactivity reaching end-users continued to be keyadvantages of capturing sales margin revenues.Retail Division is responsible for strengtheningmarket position of fuel sales via convenience retailingactivities across 11 countries. After a period of dynamicgrowth in the number of filling stations as well as intheir geographic distribution, the key challenge now isto consolidate the existing filling station portfolio andimprove its efficiency.HIGHLIGHTSGradual improvement of refiningenvironment in line with slowly recoveringeconomy, while market developments in theCEE region showed diverse picturePhase-1 of INA modernization program isbeing completed to produce Euro V motorfuel quality and to reduce environmentalfootprintStrong emphasis on operational efficiencyimprovement continued to help balance thestill challenging external environmentStrong market position and furtherexpansion to South Eastern Europe aresupported by the development of logisticssystems and retail network consolidationwith revised focus on geographieswww.mol.huDownstream continues the roll-out ofsustainability principles among businessunits and countries on regional levelwww.mol.huKey AchievementsDownstream takes advantage of its asset structureHigh complexity refineries utilize the advantage ofproducing a higher proportion of valuable ‘white’ products(e.g. diesel, gasoline), which is one of the key drivers of MOLDownstream’s competitiveness and value creation as well.Phase-1 of refinery modernization program in Croatiahas almost been completed, which enables INA refineriesto produce Euro V quality motor fuels to fulfil marketrequirements. In Rijeka refinery, a new hydrocracker unithas been mechanically completed to produce Euro V dieselproducts, while Sisak refinery is now able to produce EuroV quality motor gasoline thanks to the new investments.A new hydrogen generation unit and revamp of otherolder plants were also required for this investment, whilethe sulphur recovery unit ensures compliance with futureEuropean environmental requirements. Additionally to thecompliance, the investments at Rijeka increase the refinery’sNelson Complexity Index to 9.1 and improve its productyield towards middle distillates. Further projects are plannedto increase the production flexibility as part of our effort toretain our ability to react quickly to changes in the externalenvironment.Access to pipeline and seaborne crude ensure refiningprofitabilityOur landlocked and high complexity refineries designed forural type crude (Duna, Bratislava) may well take advantageof the direct pipeline access to Russian crude oil supply.Refineries with seaborne crude supply in Mantova, Sisakand Rijeka benefit from crude cargo trade and relatedoptimisation of matching product supply with local demandpatterns. In 2010 MOL paid special attention to select themost economic crude slate for refineries and increased thevariety of processed crude in Croatia and Italy compared toprevious years.Setting the pace in efficiency improvementContinuous efficiency improvement has to be the basis notjust for the less competitive refiners, but even for the mostefficient as well, thus MOL launched focused programsfor the whole Group. Our five refineries and two petchemunits enable us to improve internal efficiency and capturesynergies, like higher external purchase power.OptINA program was the first attempt to harvest quickwinsof the implementation of MOL standards to elevate theoperational efficiency, spreading ‘best practices’ in Croatia aswell. Maintenance of the sites was harmonized and productionwas optimized in order to supply the markets withoutdisruption. In the first full year of the Program, implementedprojects significantly over-delivered the preliminary targets.Downstream continues and extends its EIFFEL Program(Efficiency Improvement Framework) in order to supportstrategic pillars of growth, efficiency and capabilities by abottom-up approach that encourages people to be moreinnovative. The majority of savings is due to new creative andflexible solutions and small technology modifications.Beside the significant direct cost savings, the real added value ofEIFFEL Program is the creation of a self-improving organizationand the establishment of a modern knowledge sharingenvironment, which supports the cooperation withinMOL Group’s multinational and multicultural operational area.Refining has launched an Energy Conservation Program in2010, with the aims to improve ‘traditional’ energy efficiency,reshape the contract management system and utilize onlineenergy optimization due to the energy market deregulation.Additionally, harmonization and synchronization of theexisting internal energy accounting-controlling systems intoa common platform are intended.In sales and distribution, the proprietary distribution pipelinenetwork allows us the lowest possible cost to serve ourcustomers. Additional cost reduction and rationalization intransportation were in focus by exploiting synergies aimingto improve road and rail tank car management and harmon-24 MOL GROUP AnnUAL REPORT 2010 25