Energy 6 March, 2018 11:00 am   

Will the merger of PKN Orlen and Lotos accelerate diversification?

According to, even the Germans bring oil from outside of Russia via the Gdańsk oil terminal today. Although the Russian blend of REBCO will still be needed by refiners for technological reasons, diversification is progressing. Grupa Lotos reports that 40 percent of deliveries in the first quarter of 2018 came from outside of Russia. Will the takeover of Lotos by Orlen accelerate it? – writes Wojciech Jakóbik, editor-in-chief of

Connection with obstacles

Information on the State Treasury letter of intent and PKN Orlen regarding the takeover of the Lotos Group shares has been heated by the media. The Pomeranian government is afraid of losing the pearl of Pomerania and the impact on the activity of the Gdańsk Refinery, which will become a branch of the Płock concern. The Office of Competition and Consumer Protection (UOKiK) indicates that the transaction will have to be verified by the European Commission or an authority on its behalf.

Therefore, it may involve the necessity of selling some of the petrol stations in favor of competition, in order to avoid monopoly. The information shows that the Lotos station brand will certainly not disappear, familiar to customers with a lush yellow color visible from afar on Polish roads.

Grupa Lotos refuses to comment. Perhaps the company’s authorities are not satisfied with the idea of ​​the Ministry of Energy. It was implemented by breaking the resistance in Orlen, which the previous authorities did not want to merge. President Daniel Obajtek argues that after the merger, the new giant will have a stronger bargaining position and will obtain a synergy effect. If it was possible to efficiently combine the assets, it would be visible in the Gdańsk Refinery. Orlen and Lotos bring more and more oil from outside Russia. Perhaps one larger company could get a better offer for such deliveries. Trends are conducive to diversification.

Russia is losing Europe

Russia is losing the oil market in Europe. Poles and other nations turn to other suppliers. The return of Russian supplies to China is going on.

In the first two months of 2018, Russian oil exports to Europe fell by 10 percent to 25,4 million tons – informs Igor Kacal, head of Transneft’s supply and accounting department.
Deliveries through Drużba oil pipeline decreased by about 3 percent to 7,7 million tons. Oil transshipment fell in ports: Novorossiysk – by 5 percent to 4,17 million tons, Ust-Luga – by 2 percent to 4,8 million tons, Primorsk – by 31 percent to 5,8 million tons.

Deliveries to the East have increased by 30 percent to 6,1 million tonnes. Exports through the port of Kozmino fell by 3.3 percent to 4,8 million tonnes. After delivery starts, 1,8 million tons will be delivered to China by Rosneft and the Chinese CNPC. Kacal speaks of redirecting oil from Europe in this direction.

Rosneft is the main supplier of oil to China. It has three contracts with this company from 2009 for supplies of 15 million tons of oil annually in 2011-2030, from 2013 for deliveries of 325 million tons a year for 25 years (it was extended in January 2017 and the volume increased by 56 million tons).

Last year, Rosneft supplied about 40 million tons of oil to China. This year it is to be 50 million tons, thanks to a contract with the private CEFC China Energy Company for 10 million tonnes per year signed in 2017.

Fitch analyst quoted by Vedomosti argues that due to the necessity to limit extraction under the oil agreement with the OPEC+ countries, Russia could not develop exports to China without limiting supplies to Europe. The reason for the decline in the use of Transneft transmission infrastructure by 2 percent to 73.4 million tons were the storms that caused problems with deliveries from Novorossiysk.

The reduced demand in the Czech Republic and Hungary is also responsible for the decline in deliveries to Europe. Although Vedomosti do not mention Poland, diversification through the use of an oil terminal by PKN Orlen and Grupa Lotos may also be important, which after the acquisition of shares of the other company by Orlen may gain a stronger bargaining position by signing new contracts with non-Russian suppliers. The main competitors of Russia in Europe are suppliers from the Middle East. Both Polish companies have already imported oil from Saudi Arabia and Iran, but also from the USA. The restriction for imports from Iran is the threat of new US sanctions, which discourages Poles from investing in long-term cooperation with this country.

The importance of non-Russian oil grows

According to the International Energy Agency, in 2019 the USA will overtake Russia as the world’s largest oil producer. Shale oil extraction on US concessions increased over 10 million barrels a day. This allowed the Americans to overtake Saudi Arabia in mining. By the end of 2018, according to IEA, it has to exceed 11 million tonnes. The agency does not expect production to collapse in the next five years, which is augmented by skeptics of the shale revolution in Arabia and Russia.

Although American oil can not directly replace supplies from Russia due to differences in chemical composition, it causes a drop in imports to the USA. Oil imports to the US last week fell by 1,6 million barrels a day to 4,98 million. This is the lowest level since 2011. The drop in interest in the US translates into an increase in supply in the world, which undermines the efforts of the OPEC+ group to increase gas prices through coordinated reduction of output. This trend will be strengthened by other producers, such as Canada and Brazil, in MAE’s opinion. As established in recent days, at the oil terminal in Gdansk, crude oil was transhipped from outside Russia on the order of a customer from Germany. Therefore, the regional significance of diversification carried out by Polish companies is growing. Their combination can affect the process.

40 percent from outside Russia

In an interview with Dziennik Bałtycki, Lotos Group president Marcin Jastrzębski informs that the first quarter of 2018 will end with a record share of crude oil not coming from the East at the level of 40 percent. After joining PKN Orlen, president Jastrzębski could enter the authorities of the new entity and continue the course on diversification in Gdańsk. Some speculate that he could even become the president of the new Orlen. They remind us that Daniel Obajtek was to remain in the position temporarily, until the completion of personnel changes.
At, it can be read that combining PKN Orlen and Lotos Group may trigger controversy on the fuel market in Poland, which may relieve the sale of parts of the station and the maintenance of two separate brands in red and yellow. On a European scale, the merger can support the diversification trend that has so far been present in both companies. The condition is an effective combination of assets, which will be hampered by resistance in Pomerania. It is worth recalling that without joining forces with Orlen, Gdansk Lotos effectively increased supplies from outside Russia. They should not be too fetishized because Rosneft remains the main supplier to Poland.