The refining sector in Europe has undergone a pivotal change over the last decade: as recently as ten years ago, refineries were considered to be industrial plants demonstrating the strength of an economy. Today, they are often issue assets for their owners. Author Karol Wolff director of Strategy and Strategic Projects Office, PKN ORLEN, Photo: press materials

Going forward, European refiners are set to face a decline in demand for liquid fuels as a result of technology and regulatory changes. This is also a challenge for Poland, which has adopted specific goals and is running projects designed to transform not only one sector, but the whole economy.
After WWII Poland remained in the USSR's sphere of influence, which hindered the possibility of adapting and implementing state-of-the-art technologies. Poland often had to catch up with Western standards, and it was the 1970s that saw it move closer to other European countries in terms of car ownership. A license to produce a small-displacement car for the mass market was purchased from Italy's Fiat. Two new factories were put into operation, and conceptual and research work on new vehicles was being developed. The result was that while there were 6 cars per 100 households in 1974, by 1979 this number rose to 19.
However, this growth would not have been possible had it not been decided a decade earlier that a large refining and petrochemical complex would be created in Płock, a medium-sized city in central Poland. Commissioned in 1965, the plant was to provide fuels and petrochemicals for the growing economy. Six years later, in 1971, a decision was made to build another refinery, in Gdańsk, on the Baltic Sea coast. Development of the petrochemical industry spurred growth of the automotive sector, which in turn gave momentum to other sectors.
Refineries became a driving force for the economy. Those large industrial complexes created jobs not only at their own facilities, but also in the dense network of contractors and business partners. Based on estimates, in Poland there were 7 to 9 jobs in other sectors of the economy per each 1 refinery worker. What is equally important, operation of the refineries supported the growth of other industries. For example, with the relatively cheap fuel and low labour costs, Poland became the largest road transport carrier in the European Union.
However, the glory days of the refining industry are gone. Because of technological, market and regulatory changes, the oil sector is facing dark clouds coming up really fast. The energy transition and transformation towards a clean energy-based economy will produce a new set of winners and losers, and if oil and gas companies do not bet on multi-utility models, they will undoubtedly join the latter group. The transport sector is changing rapidly, with alternative fuels, such as electricity and hydrogen, expected soon to reach critical mass, including in Central Europe.
This tension between the accelerating energy transition on the one hand and fossil fuel sectors on the other is also shaping the situation on the energy market in Poland. As one of the largest coal consumers in the power industry, Poland urgently needs low-carbon, stable and innovative energy. Our country will no longer be able to maintain competitive energy systems without investment in low- and emissions-free energy sources. At the same time, companies relying on fossil fuels in their operations must either adapt quickly or look for new business models.
These changes should also be viewed in the context of the new headwinds the industry faced over the past two years. First the COVID-19 pandemic and now the war in Ukraine – the effect is major oil price fluctuations globally. In addition, the declared intention of most European countries to phase out Russian energy commodities makes the situation unstable. This can be seen as an opportunity though – another argument for transforming the Polish and European energy sector.
As a consequence, oil and gas companies, which for many years were in the economic vanguard, need to implement, and even accelerate, a strategy of change. And they do. ORLEN Group, the largest oil company in Central Europe, was the first in the region to declare its ambition to achieve net zero carbon emissions by 2050. To this end it has announced an action plan in which investments in renewable energy and modern petrochemical solutions play a key role. The Group is developing the first offshore wind farm in the Polish part of the Baltic Sea. Power generation, in particular from renewables, is to be the future lever for building the Group's value.
Another key growth lever is petrochemicals. The forecast increase in petrochemical product demand in the 2050 horizon supports execution of the largest olefins project in Central and Eastern Europe, which is being built by the ORLEN Group. It will reduce the Płock refinery's exposure to engine fuels, thus mitigating the risks related to a decline in demand for those products and paving the way to growth in the promising petrochemicals market. Worth about EUR 3 billion, the project will extend the economic life of the entire complex by about 20 years, increasing the value of the current units.
In addition to investments, another crucial pillar of oil and gas companies' strategy is innovation. The success of energy transition mostly hinges on technologies and business models that are yet to be developed. Oil and gas market players need to create and implement them, if they want to maintain their leading position. Polish companies are working on projects relating to such areas as efficient energy storage, carbon capture and utilisation (CCU) and hydrogen technologies. For instance, they are developing innovative ideas to produce hydrogen from municipal waste as a comprehensive solution to address the problems of modern cities. Another essential aspect is the ability to meet the needs of the growing population using various materials. This is where recycling and circular economy technologies and business models come into play.
It is the oil and gas industry that will drive the success of other sectors of the economy, just as it did 50 years ago. But today's challenges seem more profound – businesses need to embrace completely different operating models. With high ambitions, bold projects and efficient management, Polish companies seem to be well positioned for successful entry into the mainstream of the energy transition. The prospect of Poland switching to green energy is becoming quite real. In fact, there is no reasonable and viable alternative.