Fundamentals may still remain above mid-cycle levels in 2016: With a cautious approach we forecast refinery margins of around 4-5 USD/bbl and the petrochemical margin of around 500 EUR/t or even slightly below. It implies that downstream macro condition retreat somewhat from exceptional 2015 levels, but overall they remain supportive versus mid-cycle levels. While the lower crude price environment is lending support through lower processing costs this effect is limited as European refinery capacity overhang will persist, capping any sudden surge in margins. Commissioning of more complex and more competitive refineries in the US and the Middle East put Europe into a vulnerable position since additional import volumes of diesel pushed crack spreads lower. Although in 2015 gasoline crack spread have been performing better compared with diesel ones due to high global demand growth mainly driven by the US and Asia, the Group expects that this trend might not continue in the future.
Following that motor fuel demand increased by 5% in 2015, consumption approached pre-crisis highs in some countries of the region. Motor fuel demand is expected to stabilise with an approximate 2-4% growth in the CEE region during 2016. Further diesel demand growth might be affected by the extent of economic growth (GDP growth) and the potential changes of the regulatory framework which might not support the trend of further dieselisation.
Next Downstream continues to target USD 500mn EBITDA improvement by 2017, USD 210mn already delivered: Although the current business environment is very favourable, we expect the external environment to fade during 2016 compared to 2015. Therefore we are aiming to partially offset any negative effects by continuing the Next Downstream Program in 2016 and 2017 as well. The overall target of Downstream is to achieve USD 1.3-1.4bn EBITDA and around USD 900mn normalized cash flow generation by the end of 2017 on the base of our 2014 performance and external environment. If there is an upside in external conditions that would elevate the above mentioned EBITDA figure further. Ultimately the target of program is to reach an incremental USD 500mn EBITDA from internal efforts.
USD 350mn coming from asset and market efficiencies: Altogether more than 150 individual actions are included in this part of the program, tackling efficiency improvement in production and commercial areas. As a result MOL will improve its white product yield by 2.5ppt, increase operational availability of key assets, enhance energy intensity and increase traded motor fuel volumes to 150% against own produced motor fuels, gradually increase crude intake from through seaborne purchases. Following the successful rehabilitation and expansion of the Friendship I pipeline connecting the Danube and Bratislava refineries in the first half of 2015, from 2016 we are launching seaborne crude oil deliveries to the Bratislava refinery as well. Number of tested crudes in the complex refineries will increase in the future and decision on supply will be made based on economics of different available crude types.
Higher fuel sales are planned for 2016 driven by the acquisitions and country concept actions targeting enhanced captive positions. As a supply & trading priority we are aiming further growth in 3rd party product supply to ensure market coverage and flexibility.
USD 150mn added by strategic projects: Additionally our strategic growth projects will further contribute USD 150mn to the Next Downstream Program. This part of the program covers the constructed new 130,000 tons per annum capacity butadiene extraction unit at our MOL Petrochemicals site and the finalization of the new low density polyethylene plant (LDPE) in Bratislava which will not only replace 3 out-of-date production units currently in operation, but also significantly increase the quality of produced LPDE. From sales perspective we are targeting to reach effective placement of products of the above mentioned new units.
With more than 250 initiatives and major strategic projects coming on stream (e.g. LDPE 4 unit in Slovnaft Petrochemicals), an additional USD 140mn EBITDA improvement is targeted for 2016.
Pursing inorganic opportunities in the region and developing our retail network: Following the aggressive inorganic network expansion of the previous years, according to new strategic directions 2015-2017 which sets MOL Group Retail to become first customer’s choice in fuel and convenience retailing we continue to further investigate inorganic growth opportunities across the CEE region within the supply radius of our refineries. Such potential steps are going to enhance our captive market positions and support overall margin capture of our Downstream business. Our new non-fuel FRESH CORNER concept has been developed according to the needs of the modern customer. The plan for 2016 is to roll out the concept in more than 300-400 stations across 8 different countries.
In 2016, significant efforts will be put in training, developing and motivating our staff and partners on the stations to create unique host culture and make our customers smile and feel welcome and understood.