OMV Group Business Year
In the year 2019, OMV recorded a clean CCS Operating Result of EUR 3.5 bn despite the challenging market environment. This remarkable result was driven by strong results in both Upstream and Downstream business segments and strict cost discipline. In 2019, the operating cash flow amounted to EUR 4.1 bn. Following the payment of the highest dividend in OMV history, an organic free cash flow after dividends of EUR 1.3 bn was achieved, which contributed to finance major acquisitions in 2019 such as the 15% stake in the ADNOC Refining business and the 50% interest in SapuraOMV.
The global economic cooldown beginning in 2018 continued throughout 2019. Economic research institutes were forced to retract their forecasts several times during the year. Global economic output increased by 2.9%, 0.7 percentage points less than in 2018. Growth in developing and emerging economies (+3.7%) led industrialized countries (+1.7%), a gap that grew even larger in 2019 than it had been in recent years. Global trade volume increased minimally, by 1.0%, being the weakest growth in ten years. This was attributable mainly to escalating trade conflicts, heavier sanctions, and a drop in commodities prices. The result was a negative effect on investments and industry, whereas services and private consumption saw growth remain stable nearly throughout the entire year.
Despite a significant reduction in the foreign trade volume with China and stalled exports, the economic situation in the United States proved relatively robust. As in the previous year, private consumption rose by 2.9%, remaining the key pillar of the economy. This enabled a GDP growth of 2.3%. China’s economy grew at a pace of 6.1% after 6.6% in the prior year. In the eurozone, where GDP growth slowed from 1.9% to 1.2%, high-risk geopolitical issues and unresolved Brexit questions put the brakes on more positive economic development. Private consumption (+1.1%) and exports (+2.4%) grew more slowly than in the previous year.
The economic environment in Central and Eastern European countries (GDP growth of between 2.3% and 4.9%) continued to be favorable. However, this trend only partially compensated for the minimal increase in economic output by major EU countries (GDP growth of between 0.2% and 1.3%). Growth in the EU-28 was 1.5% overall, just below the average for the industrialized countries.
In Germany, sectors dependent on demand from abroad were particularly hard hit by the downturn. Exports only grew by +0.9%. The country’s GDP growth of 0.6% was well below the average for the last ten years of 1.3%. Key sectors, such as the automotive and steel industries, suffered sales declines of 5% to 10%. However, private and public-sector consumption grew by 1.6% and 2.5%, respectively, which was faster than in 2018. In terms of investments, this growth shifted to the construction industry (+3.8%), while investments in equipment were almost stagnant.
Austria experienced a delay in the onset of the downturn in the international economic climate. The country’s GDP growth was 1.7%. Unlike in previous years, exports rose by 2.8%, somewhat slower than imports. The industrial production index was up 1.6%, and investments stayed at a relatively high level, growing 3.4%. Consumption by private households increased by 1.3%, while growth was only 0.6% in the public sector. This contributed to the generation of a notable budget surplus of 0.6% of GDP for the first time.
In 2019, Romania was one of the few EU countries that was able to bump up its economic output year over year. Its GDP growth of 4.1% was mainly the result of domestic consumption. In the first six months of 2019, it was also supported by intensive economic activity in the course of the Romanian presidency of the Council of the European Union. The slight drop in industrial production, the current account deficit of 5.5% in relation to GDP, and the high rate of inflation of 3.9% compared with other EU countries dulled the economic picture.
Global oil demand rose by 0.8%, or 0.8 mn bbl/d, to a new record high level of 100.1 mn bbl/d in 2019. Whereas demand by the OECD member states declined by 0.3 mn bbl/d, or 0.6%, it rose in non-OECD countries by 1.1 mn bbl/d, or 2.1%. Asian countries accounted for more than 80% of this growth in demand.
In 2019, global oil production increased by 0.2%, or 0.2 mn bbl/d, to 100.5 mn bbl/d. The market was oversupplied, and inventories were built up by 0.4 mn bbl/d. The United States put an additional 1.7 mn bbl/d (+11%) of oil on the market and therefore more than compensated for the lower production levels of other non-OPEC countries. Other major influences on the supply side were the sanctions-related decline in Iran’s production totaling 1.2 mn bbl/d as well as the decrease in Venezuela’s oil production and the reduction in Saudi Arabia’s production by 0.5 mn bbl/d, respectively. In contrast, Iraq, the United Arab Emirates, Nigeria, and Libya were able to expand oil production. All told, however, the production volume of the OPEC countries declined 6%, or 1.9 mn bbl/d, to 30.0 mn bbl/d, with market coverage (including 5.5 mn bbl/d NGL) also down to 35%.
Against the backdrop of geopolitical tensions, oil prices rose by around 50% from the start of the year to mid-May 2019, reaching the high for the year at nearly USD 75/bbl. After that, the economic slowdown, higher than expected US production, and the extension of the market cooperation agreement by the OPEC alliance covering 24 countries were strong stabilizing forces on prices in the summer. An attack on Saudi production facilities in mid-September caused a loss of capacity of 5.7 mn bbl/d and price spikes, but thanks to fast repairs, these factors influenced market developments only briefly. In early December, the decision by the OPEC alliance to expand its oil production cut from 1.2 to 1.7 mn bbl/d dispelled fears of pending overproduction and supported the price level.
In 2019, the price of Brent crude stood at an average of USD 64.30/bbl, nearly 10% below the prior-year level. The price displayed volatility of around 50% over the course of the year. The EUR/USD exchange rate fluctuated between 1.15 and 1.09. Using the annual average of 1.12, the appreciation of the US currency against the euro is calculated at 5% in 2019. Due to these opposing trends, the prices of key products traded on the Rotterdam market for mineral oil products changed only minimally.
Austrian energy demand likely increased by more than 1% in 2019 and therefore compensated for the decline in 2018. Demand for the primary energy source oil rose by around 1.5%, while demand for natural gas grew by 2.4%. Gas-fired power plants generated 17% more electricity. The market for space heating saw surplus demand of less than 1% due to weather conditions, and industrial consumption increased only slightly as well, in response to economic conditions. Domestic natural gas production dropped by 9% to 10 TWh. Net imports grew to 121 TWh, covering not only 90% of the market demand of almost 100 TWh, but also building up storage levels to a record high of 94 TWh. At the end of the year, natural gas storages were 97% filled, compared with 64% in the previous year.
Sales of mineral oil products in the Central and Southeast European countries relevant to OMV rose by around 2.9% to about 150 mn t in 2019. In Austria, the market volume reached 11.4 mn t, with demand for fuels up 0.6% and demand for heating oils stagnant. Total sales in Germany climbed by 2.8 mn t to over 98 mn t. Fuel sales grew moderately by 0.7% and heating oil sales increased sharply by nearly 13%. Romania posted the strongest growth in Eastern Europe thanks to sales growing by more than 5%.