Business Overview

Downstream refines and markets fuel products in Central and Eastern Europe as well as in the Middle East through OMV’s 15% interest in ADNOC Refining and ADNOC Global Trading. OMV is strongly forward integrated into chemicals and recently expanded its value chain into polymers by acquiring a controlling interest in Borealis, one of the world’s leading polyolefin producers. Borealis has a strong European footprint and is active in the Middle East and Asia-Pacific through Borouge, a joint venture with ADNOC, and in North America where Borealis and Total are partners in the Baystar joint venture.

OMV’s European Downstream business model is characterized by a high degree of physical integration along the value chain from crude supply to refining, retail, and commercial sales. Total refined product sales amounted to 17.8 mn t. Commercial fuel customers are mainly from industrial transportation and construction sectors and account for more than 50% of the sales volume. Petrochemicals customers comprise around 13%. The strongly branded retail network comprises 2,085 filling stations and accounts for approximately 33% of the total marketed volume.

The gas business operates across the entire gas value chain from the wellhead to the burner tip. It includes the Group’s power business activities with one gas-fired power plant in Romania. Natural gas sales volumes amounted to 164.0 TWh.

Refining including product supply and sales

Throughout 2020, refining margins came under significant pressure. From the second quarter onward, demand for oil products dropped to unforeseen levels because of the mobility restrictions associated with the COVID-19 pandemic. At the peak of the crisis, during the second quarter of 2020, global demand has fallen by 16% compared with 2019.

The biggest contributor to the drop in oil demand was the transportation sector, particularly jet fuel, because air traffic was almost entirely halted as a result of international lockdowns. Refineries quickly adapted their processes to the new supply requirements by way of yield shifts and run cuts, but product inventories filled up quickly. Demand for middle distillates, primarily diesel, partly supported by a particularly strong economic recovery in Asia, did not compensate for this development, and pressure on the supply-demand balance remained in place.

Many refiners blended surplus jet fuel into diesel and delivered this to the market, resulting in inflated stocks. Naphtha gradually came under pressure due to increasing competition from less expensive LPG. Gasoline and middle distillates suffered due to difficult market conditions, while heavy products gained an advantage from continuous sour oil strength as OPEC+ cut supply by record high volumes. Rising crude prices toward the end of the year added more pressure, leading to lower-than-average refining margins.

Although demand was significantly lower, the sales unit’s commercial margin remained close to its 2019 level. Inland premia for the spot market came under severe pressure in 2020, due to a lack of spot demand and the excess supply caused by COVID-19. Reduced local demand was balanced out by increased sales in out-trading markets, which supported refinery utilization. The heating oil business was a significant contributor to the overall result, since heating oil demand was relatively strong due to favorable prices. This was a result of weaker crude oil prices.

At OMV’s Schwechat and Burghausen refineries, production was partly shifted toward the production of petrochemicals to adjust to the drop in jet fuel demand. Despite the challenging COVID-19 market situation, the utilization rate of OMV’s European refineries still reached 86%.

ADNOC Refining and Trading

Alongside majority shareholder ADNOC (65%) and Eni (20%), OMV became a strategic partner in ADNOC Refining by acquiring 15% of the company’s shares at the end of July 2019. ADNOC Refining owns a total capacity of 922 kbbl/d comprising its Abu Dhabi refinery (85 kbbl/d) and its two major refineries in Ruwais. Together these constitute the world’s fourth largest refining complex with integrated petrochemicals.

ADNOC Refining’s business performance in 2020 was impacted by a major planned turnaround at both Ruwais refineries in the first half of the year. This was compounded by the significant ripples on the refining market caused by the global COVID-19 pandemic.

The turnaround allowed ADNOC Refining to implement a series of technical improvements in the major plants in the Ruwais refineries. These were put in place in the hydroskimming and conversion sections such as the Residue Fluid Catalytic Cracking (RFCC) plant, which is the key unit for upgrading bottom-of-the-barrel components. This in turn lifts the refining margin.

With the same ownership structure as ADNOC Refining, ADNOC Global Trading (AGT) has the mission to trade the majority of ADNOC Refining’s export volumes of products as well as supplying non-domestic crudes, condensates, and other liquids for processing.

AGT extends the successful Downstream business model into key geographies and to strategic partners. By continuously optimizing trade flows, it allows ADNOC Refining to access attractive non-domestic feedstock sources, maximize netback for products on global markets (e.g., Asia-Pacific), and implement best practices such as risk management.

Despite unprecedented market circumstances, AGT went live on December 8, 2020, and executed its first trades before the end of the year.

Petrochemicals

Petrochemical margins fell below the 2019 average, reflecting lower global GDP growth rates and new production capacities going online mainly in Asia. After a strong first quarter, driven by a sharp decline in naphtha prices, average ethylene and propylene margins decreased. Overall, they came in below the previous year’s level. Butadiene margins were impacted by collapsing demand in the automotive industry. This was because the primary use for butadiene is the production of Styrene Butadiene Rubber (SBR), which is mainly used in the manufacture of automobile tires. The benzene oversupply and an ever-weaker demand environment put heavy pressure on margins, which gradually recovered from July 2020 onward. Increased petrochemical sales volumes helped mitigate the negative margin impact from the COVID-19 crisis.

Due to the excellent flexibility of the production plants in the Schwechat and Burghausen refineries, some production was successfully shifted to petrochemicals to adjust to the new market requirements caused by COVID-19.

Borealis

Borealis is a leading provider of base chemicals, polyolefins, and fertilizers. Its drive towards “Value Creation through Innovation” is a cornerstone of its successful business. The company is the second-largest polyolefin producer in Europe and among the top ten producers globally, with a total capacity of 5.7 mn t of polyolefins.

Key projects

In January 2020, Borealis and NOVA Chemicals announced an agreement whereby Borealis would buy NOVA Chemicals’ 50% ownership interest in Novealis Holdings. The acquisition was completed in April 2020. The two companies had established the holding company in 2018. Subsequently, they formed a 50:50 joint venture with Total Petrochemicals & Refining USA to create a new Houston-based company – Bayport Polymers (also known as Baystar). The Baystar project involves the construction of an ethane-based steam cracker in Port Arthur, which will supply approximately 1 mn t/y of ethylene. The facility’s ethylene will be used to feed both the existing 400 kt per year polyethylene unit and the new 625 kt per year Borstar polyethylene unit being built. Both Baystar projects have moved ahead, despite disruptions to supply chains around the world, due to the COVID-19 pandemic.

In June, a propylene splitter, one of the largest single pieces of equipment ever shipped, arrived safely at the construction site of the new world-scale propane dehydrogenation (PDH) plant at the existing Borealis production site in Kallo, Belgium. Borealis’ new PDH plant is Borealis’ most significant investment in Europe, amounting to approximately EUR 1 bn. The plant will have a targeted annual production capacity of 750 kt per year, making it one of the largest and most efficient facilities in the world.

Borealis announced that its new naphtha cavern in Porvoo, Finland has been safely commissioned as of October 2020. After investing around EUR 25 mn in the construction of this innovative 80,000 m³ facility, Borealis has become more independent and flexible. The company can now source naphtha for its Porvoo operations from the global market and store it in a more versatile, cost-efficient, and secure way. The cavern can also accommodate renewable naphtha, making it possible for Borealis customers to draw on certified renewable polypropylene and polyethylene, as well as renewable base chemicals (ethylene, propylene, and phenol) in the future.

In August 2020, Borealis announced the successful acquisition of a controlling stake in South Korean compounder DYM Solution Co. Ltd. The acquisition solidifies Borealis’ position as a partner of choice for global wire and cable customers, helping to meet the growing needs and requirements of the wire and cable industry today and in the future.

At the Borouge 3 complex in Ruwais, UAE, the construction of another major growth project, the fifth Borstar polypropylene plant (PP5), is nearing completion. The Borouge 4 project is also moving ahead towards successful completion of the FEED (Front-End Engineering and Design) phase.

Circular economy

Borealis continues to invest in its recycling technologies and facilities. One example of recycling innovation is the ReOil^® cooperation with OMV. The patented OMV ReOil^® technology is used to chemically recycle post-consumer plastics into raw materials, which are then used by Borealis to produce polyolefins. Leading European multinational Nestlé has become the first Borealis customer to use the ISCC PLUS-compliant polyolefins in consumer goods packaging.

In September, Borealis announced the launch of the Bornewables™ portfolio. These premium polyolefin products are manufactured with renewable feedstock, derived entirely from waste and residue streams. Bornewables boast the same material performance as virgin polyolefins, with a smaller carbon footprint.

Borcycle™ is a proprietary state-of-the-art technology launched in 2019. It transforms plastic waste streams into value-adding, versatile recycled polyolefins. These serve as the foundation for an increasing number of more sustainable products and applications in the rigid packaging segment. In September, Borealis and MENSHEN, a leading specialist for plastic closures, launched a series of new packaging closures for laundry and homecare applications based on Borcycle™ UG522MO, a PP compound containing 50% post-consumer-recycled content.

R&D

In June 2020, the Austrian business magazine trend and ÖGVS, the Austrian society for consumer studies, organized the inaugural Innovation Award 2020/2021 for Austria’s most imaginative companies. Borealis is proud to have achieved second place with 12 awards and 649 patents.

One important step-change innovation launched by Borealis in 2014 is now powering the Energiewende – or energy transition – in Germany. Crosslinked polyethylene (XLPE) power cables made with Borealis extruded high-voltage direct current (HVDC) technology are being used for the majority of the so-called German corridor projects. This is the first time that Borlink™ XLPE HVDC technology is being used at extra-high levels of 525 kilovolts (kV). The Borlink cables will be implemented in the northern part of the SuedOstLink and along the entire SuedLink corridor, thereby enabling the transmission of renewable energy from north to south with minimal loss.

Retail

Despite a challenging environment due to the COVID-19 pandemic, the retail business exceeded the 2019 Operating Result. The COVID-19-driven decline in fuel sales was more than offset by higher fuel margins, an increased share of premium fuels, and cost reductions. As a result, the retail business again proved to be a stable outlet for refinery products and a strong cash generator. Total sales declined by 10% to 5.9 mn t, equivalent to approximately 7.2 bn l. At the end of the year, the network comprised 2,085 filling stations (2019: 2,075). OMV continues to focus on its successful multi-brand strategy. The OMV brand is positioned as a premium brand, with VIVA representing a strong shop, gastronomy, and service offering. The Avanti brand of unmanned filling stations represents the discount segment, while the Petrom brand represents value for money. This strategy has continued to deliver great results, and profitability per site has increased. Sales of OMV’s premium MaxxMotion-brand fuels have reached an all-time high at approximately 843 mn l, proving the premium-quality advantage, even during the COVID-19 crisis. The non-fuel business, including the VIVA convenience stores and car washes, continued to perform well, although this segment experienced a 13% decline due to the COVID-19 pandemic. The focus on high-quality products and services in the premium filling station network remains one of OMV’s key differentiators. Our new VIVA private-label products, such as VIVA iced coffee and snacks, contributed to an improved retail result as well.

In December 2020, a divestment agreement was signed with EG Group for 285 filling stations in the OMV network in Germany. This will turn OMV’s strategic focus toward sustainable and profitable growth in petrochemicals.

Gas supply, marketing, and trading

OMV markets and trades natural gas in nine European countries and Turkey. In 2020, natural gas sales volumes amounted to 164.0 TWh (2019: 136.7 TWh), an increase of 20%. The foundation for gas sales growth is a diverse supply portfolio, which consists of equity gas and a variety of international suppliers. In addition to mid- and long-term activities, short-term activities at the main international hubs (VTP, NCG, GASPOOL, TTF, PSV) complement OMV’s dynamic supply portfolio.

OMV Gas Marketing & Trading GmbH’s (OMV Gas) sales activities are focused on a diverse and resilient customer portfolio in the large-scale industry and municipality segments. OMV Gas conducts sales activities in Austria, Germany, Hungary, the Netherlands, and Belgium, where 2020 sales amounted to 114.8 TWh, up 30% over 2019. Italy, Slovenia, and France are covered by origination activities. Increased sales are a substantial achievement given the challenging market environment. Margins remained under pressure due to a competitive and increasingly volatile European gas market, a situation expected to continue.

In Germany, OMV Gas is well on track to reach its goal of a 10% market share by 2025. In 2020, sales reached 52.4 TWh, an increase of 31% over 2019. Its market share was 7% at year-end.

In Romania, OMV Petrom gas and power activities delivered an excellent operating result, reflecting strong power business performance and the optimization of both product and customer portfolios. Natural gas sales volumes to third parties reached 47.7 TWh in 2020, a slight increase compared to 47.2 TWh in 2019. Starting in July 2020, ANRE initiated a gas release program in Romania, whereby gas producers are obligated to offer 30% of their production volume to the centralized markets.

In Romania, net electrical output increased to 4.2 TWh in 2020 (2019: 3.4 TWh), with the Brazi power plant contributing approximately 7% of Romania’s electricity production. It is also an important player on the power balancing market.

In 2020, OMV Gas again substantially improved the capacity utilization of the Gate regasification terminal. Furthermore, the LNG business provides an additional gas source to meet OMV’s ambitious sales growth targets in Northwest Europe, while enhancing supply security for OMV’s geographically diverse supply portfolio. The LNG business also supports portfolio integration of the supply, marketing, and trading businesses.

Gas logistics

OMV operates gas storage facilities in Austria and Germany with a storage capacity of 30 TWh. Additionally, OMV holds a 65% stake in the Central European Gas Hub (CEGH), the leading gas trading hub in Central and Eastern Europe. OMV’s subsidiary Gas Connect Austria operates an approximately 900 km-long high-pressure natural gas pipeline network in Austria. On September 23, 2020, OMV signed an agreement to divest its entire 51% stake in Gas Connect Austria to VERBUND. Closing of the transaction is subject to regulatory approvals and is expected in the first half of 2021.

In 2020, the storage market was again characterized by strong customer demand and higher market prices due to large summer/winter spreads and volatility. At the European hubs, summer/winter spreads for winter 2020/21 reached levels significantly above previous years. After a relatively high filling level at the end of last winter, strong customer demand meant that Austrian storage facilities were utilized at more than 90% capacity.

At around 510 TWh, actual entry/exit transportation volumes in Eastern Austria (Regelzone Ost) were lower than in 2019 mainly due to generally high storage levels at the beginning of the year and reduced consumption as a consequence of COVID-19. Utilization of the entries from Germany into Austria was particularly low. The exit point to Hungary maintained the high activity level of 2019, and the nominations at the Baumgarten exit point into Slovakia were surprisingly positive.

At the Central European Gas Hub, 827 TWh of natural gas was nominated at the Virtual Trading Point (VTP) in 2020, an increase of 10% compared with 2019 and a new all-time high. This volume corresponds to approximately nine times Austria’s annual gas consumption. The EEX CEGH Gas Market was successfully transferred from the PEGAS platform to EEX Gas as of January 2020. Traded volumes totaled 165 TWh in Austria and 13 TWh in the Czech Republic in 2020.

OMV is a financing partner of the Nord Stream 2 project. In the second quarter 2020, OMV provided funds of EUR 17.5 mn, bringing OMV’s total payments under the financing agreements for Nord Stream 2 to EUR 729.3 mn.