OMV Group Business Year

In 2022, OMV has achieved a strong clean CCS Operating Result of EUR 11.2 bn. Furthermore, cash flow from operating activities excluding net working capital effects remained significant amounting to EUR 9.8 bn, and the organic free cash flow before dividends totaled EUR 4.9 bn. As a consequence, the leverage ratio decreased from 21% at the end of 2021 to 8% at the end of 2022. This financial strength is an excellent basis for OMV’s further strategic development into a leader in sustainable fuels, chemicals and materials while committing to deliver attractive shareholder returns.

Business environment

Global economic growth during 2022 is estimated to have been the weakest for two decades, save only for the immediate aftermath of the global financial crisis (2009) and the depths of the COVID-19-related slowdown (2020). A broad set of headwinds confronted the global economy in 2022, with annual growth expected at some 3.2%, according to the IMF. This represents a significant drop from the 6% registered in 2021. According to UNCTAD, global trade, meanwhile, is expected to have reached an outright record in 2022*Source: United Nations Conference on Trade and Development (UNCTAD) Global Trade Update December 2022, with growth more concentrated in services. However, the second half of 2022 saw something of a slowdown, with global goods trade turning negative in the third quarter, before services trade followed in the fourth quarter.

Effects of the COVID-19 pandemic continued to impact markets in early 2022, even before the Russian invasion of Ukraine tipped supply and demand further out of balance from the second half of Q1 onward. Outsized spending on goods relative to services – combined with ongoing bottlenecks in supply chains – drove rapid, marked increases in inflation in almost all large economies. Headline CPI topped 8% on average over Q2 in the US, peaking in June at 9.1%. Headline inflation in the Eurozone averaged in double digits at the beginning of the fourth quarter of 2022, with a peak of 10.6% in October. Combating price increases for consumers and businesses became the main focus of central banks in 2022, while governments were tasked with mitigating the effects of price rises. This was especially true in Europe, where year-on-year price growth in energy was the single largest contributing factor to headline inflation. This became arguably the dominant political and economic issue for the region in 2022.

The economic headwinds piled up in various metrics as 2022 progressed. Purchasing Managers’ Indices sank from mostly expansionary at the end of 2021 to mostly being in contraction territory by the middle of 2022, with only a couple of exceptions. Eurozone net exports flipped negative by Q3 (Eurostat), while essentially all other economic indicators spent the second half of the year trending lower, i.e., toward recession territory. By the end of the year, financial conditions, consumer confidence, and services PMIs had made their way below the 20th percentile in data going back more than 20 years. The only metric to buck this trend has been the labor market, which, as of late 2022, remains historically tight, with unemployment numbers continuing to trend close to record lows.

This conundrum was still in place for central banks at the end of 2022 on both sides of the Atlantic. The macro environment focus has shifted definitively to the effects of more expensive financing and the potential for this to contribute to recessionary effects in advanced economies. The latest available GDP figures for the Eurozone indicate a significant decline in the third quarter of 2022. By the end of the year, the European Central Bank had raised its key deposit rate by 250 basis points, a rapid increase necessitated by surging inflation. Higher interest rates are having and will continue to have a lagged effect on consumer and business spending.

The fallout from the geopolitical upheaval following the Russian invasion of Ukraine has been wide-ranging. However, supply and trade disruptions were arguably more pronounced in energy than anywhere else. And within energy, no region saw more pronounced price effects than Europe. Following the invasion, the decision by many western corporations to “self-sanction” ahead of government mandates to limit or cease the trade and import of Russian energy was a key driver of the oil price rally that peaked at the end of the second quarter of 2022.

However, it was the natural gas market that was the epicenter of the energy-related difficulties experienced by Europe in 2022. The removal of the vast majority of Russian gas pipeline flows from the middle of the year posed an unprecedented challenge for the European Union, which, in 2021, sourced almost 40% of its natural gas imports from Russia and which was 20% dependent on natural gas for power generation. The removal of the region’s single largest supply source from the market, combined with the government mandates for minimum storage levels ahead of the onset of the heating season and reduced liquidity, saw an unprecedented peak in natural gas prices in August 2022 of more than EUR 300/MWh. This price level represented a tough test for both the region’s energy markets and its industrial base, with production in a range of energy-intensive industries forced lower or offline completely due to poor economics.

By the end of 2022, the pressure coming from high gas and power prices had moderated significantly. However, Europe’s energy markets remain fundamentally tight. This fragility means the impact of disruptions to current supply sources is potentially very significant. LNG has taken on huge importance in meeting European demand for natural gas. Continued high imports of LNG into Europe to offset the loss of Russian pipeline flows requires Europe to outcompete Asia as the most attractive export destination for spot cargoes on the international market. This in turn requires Europe to have the most expensive natural gas market globally. 2022 saw wheels set in motion to change the European energy landscape faster than anybody would have anticipated at the beginning of the year but, for the time being, high energy prices should be expected to continue.

Natural gas demand in Europe is expected to have fallen by some 10% during 2022 vs. 2021 based on a combination of factors, by far the largest of which is price-related demand reduction. Over the first half of 2022, it was residential and commercial demand for gas in Europe that was exhibiting the fastest demand declines. This was increasingly overtaken in the second half of the year as industrial gas demand fell rapidly as wholesale prices hit extremely high levels. Industrial gas demand is expected to have fallen some 20% year on year in Europe in 2022, far exceeding the estimated 3% decline in gas demand in the region’s power generation.

Natural gas was the standout performer in 2022 in price terms, but energy commodities as a whole led the market in a year when the majority of other asset classes declined. Major US and European stock indices were down significantly compared to the previous year, while bonds failed to provide any hedge against equity declines and posted their worst performance in decades in 2022. After European gas and electricity, other commodities whose price benefitted directly or indirectly from the fallout of the Ukraine conflict included coal and refined products, especially middle distillates such as diesel and heating oil. Despite high prices for refined products in 2022, Europe has seen new demand for middle distillates and some other products emerge from industrial processes that have switched away from natural gas due to the extremely high prices in that market. The IEA estimates that this demand, comprising mostly gasoil, will average more than 500 kbbl/d over the fourth quarter of 2022 and the first quarter of 2023.

It was a year of huge volatility in the Brent price. The first half of the year was defined by rapid demand growth, as oil consumption continued to recover from its 2020 lows. This contributed to the price rally in Brent, which peaked in Q2. However, supply was increasingly able to catch up. Non-OPEC supply is thought to have reached almost 67 mbbl/d by Q4/22, a 2 mbbl/d increase over the same quarter in 2021. At the same time, demand growth was starting to top out. High prices have also taken a toll on demand, which is estimated to have fallen in the fourth quarter compared to the previous year. Despite the marked decline in the Brent price in the latter part of 2022 on this softening fundamental picture, the annual average increase came in at around 40%. Industry investments have so far not exhibited any appreciable increase corresponding to the higher oil prices of the last two years.

In comparison to 2021, the olefin indicator margins were higher in 2022, driven by low feedstock prices except for the peak in the first quarter of 2022, and high monomer contract prices. On average for the year, indicator margins were on a healthy level. For some products, such as benzene, indicator margins reached historic highs in 2022 even though the market environment was challenging, which was caused by several factors, namely: the Russia/Ukraine conflict, high energy costs, high inflation, and decreasing demand throughout the year. Following the attack on Ukraine, the crude slate became lighter and naphtha was readily available in the market, which led to lower feedstock prices. Furthermore, high gas prices in Europe affected demand throughout the value chain. In summer, the low water level of the Rhine caused logistical constraints on the derivative market. All crackers in Europe reduced the throughput due to weak demand and high energy prices, especially in the second half of 2022. The cracker rates in Europe reduced to the globally near record low levels of 65% in the fourth quarter of 2022 due to extremely weak demand. French strikes and several cracker outages helped only a little in October. The entire supply chain was under the pressure of destocking as year end came to maximize cash and minimize inventory.

Margins of European polyolefins continued to normalize in Q1 from the historic highs seen in 2021. In the second quarter of 2022, margins were supported by the heavy spring turnaround season. In the second half of 2022, however, margins deteriorated, with demand decrease seen across most grades of polyolefins due to the poor macroeconomic conditions (cost of living crisis reducing discretionary incomes of consumers). Imports of polyolefins into Europe were also ample in the second half of the year thanks to the easing of the global container freight market, which ended the year being similar to pre-pandemic levels.

Arguably the most significant result of the events of 2022 has been the reemergence of energy security as a key pillar of energy policy. The reality of overdependence on a single source of energy has been laid bare via numerous reversals on long-held policies, most notably German U-turns on coal and nuclear plant life spans, as well as a rapid build-out of infrastructure to import LNG into the region’s largest economy. The sheer size of Europe’s energy bill – and its impact on corporate competitiveness and household budgets – should prevent energy security from being neglected in what’s known as the energy trilemma at any time in the foreseeable future.

Crude price (Brent) – monthly average¹

In USD/bbl

¹ ICE Brent generic 1st contract monthly average