The role of innovation as a key to future success of oil industry

► MOL GROUP

Jaroslav KOŠŤÁLIK Regulatory and Public Affairs Director, SLOVNAFT

Bratislava 6,1 Mt

Schwechat 9,6 Mt

Ingolstadt 12 Mt

Vohburg 5 Mt Burghausen

3,4 Mt

Leuna 10,7 Mt

Schwedt 10,5 Mt

Litvinov 5,2 Mt

Kralupy 3 Mt

Rijeka 4,5 Mt

Sisak 2,3 Mt

Bosanski Brod 2 Mt

Novi Sad 2,6 Mt

Pancevo 4,8 Mt

Petrom Pitesti 3,5 Mt

Lukoil 3,5 Mt Petrom Ploiesti 4,5 Mt

Rafo Onesti 3,5 Mt

Drogobich 3,8 Mt

PKN Plock 13,5 Mt

Százhalombatta 8,1 Mt

Mozyr 15,5 Mt

LOTOS 6,2 Mt

Key refining capacities in Central Europe, oil processing capacities in millions tonnes / year

Mantova 2,6 Mt

radius 500 km

SLOVNAFT – reliable supplier of the regional markets Exports – key driver of Slovnaft´s results

Max. Refining Capacity 6,1 mn t/a

Oil processing ´13 5,8 mn t/a

Key products ´13 motor fuels 4,57 mn t/a plastics 330 kt /a chemicals 300 kt /a Employees ´13 3 300 + 1700 (in filling stations)

Turnover ´13 4,7 bn EUR

,

Slovnaft - MOL refining assets Refineries in Slovakia and Hungary among the best refineries in Europe

Net Cash Margin ranking of European, North African and FSU refineries in 2011-2012 How much can refineries earn from converting crude oil into products?

USD per processed barrel of oil

HFO 1%

Gasoline Diesel Naphtha

Source: WoodMac

Refining and petrochemical industry in Europe under heavy pressure declining demand, new alternatives & growing competition from USA, ME, FSU and Asia

15% of refineries in Europe already shutdown, next 25% of refineries under the risk of closure till 2035

Oil consumption EU, mn t / ysource BP, statistical review 2013

611

722

580600620640660680700720740

1998 2000 2002 2004 2006 2008 2010 2012

European Union

Source: Bloomberg, refining capacities in ths / y

59%

41%86%

14%

1995 2005

Change of the production structure towards more valuable light products

present

SLOVNAFT INNOVATION story – from an average production portfolio to excellent one

,

Products with low market value

(heavy fuel oils, bitumen, sulphur etc)

Products with high added value

(motor fuels, chemicals, plastics)

Production structure, %

,

Integration of all activities, processes and optimisation of use of resources within the Group maximizes its overall performance and profitability

Effective supply chain management is besides modern refining technology another key pillar of the Slovnaft – MOL – INA leadership in oil industry

Refining & Marketing

Supply Refining Logistics Sales

R & D

Production

Petrochemicals

Sales

Supply Chain Integration

250

50

10

Eastern Europe EU presentstandards

EU standardsfrom 2009

Huge past investments spent not only for production portfolio modification….

Desulphurisation of fuels

Biocomponents mixing and production

Lowering GHG emissions, solving old environmental burdens

Soil & water protection, water treatment, waste recycling

Other past major projects: Desulphurisation

kg of sulphur in 1 mn kg of fuel

Polypropylene production modernisation and expansion

Sale channels investments

BIO trends EUR bn 2+

New Products

Recent development of premium diesel fuels with improved low temperature properties and engine parameters Five new products were developed. Two end-products were launched: EVO Arctic type diesel fuel for Slovnaft Service Stations and a modified polyethylene and polypropylene in answer to customer requests for improved processing.

Actual investments worth 500 mEUR aimed at maintaining high complexity, market positions and preserving industry leaderhip

New polyethylene plant & reconstruction steam cracker higher capacity, lower energy consumption, less env. burden, new market possibilities

EUR 300 m

Modernisation & cap. increase of power plant less dependence on ext. sources, less env. burden,

elimination of nonmarketable oil residuum

EUR 150 m

EUR 60 m

ADRIA

New route for alternative oil deliveries

oil security for Slovakia and region

On customer orientated modern sales increasing sales potential and customers´ satisfaction

Innovation and EU regulatory measures

KEB – climatic and energy package adopted by EC and EPaC in 2009 (20-20-20) Directive no. 2009/30/EC on engine fuel quality, aimed at monitoring and reduction of greenhouse gas emissions from fuels (road transport and inland waterway transport) –(FQD) Directive no. 2009/28/EC on renewable energy sources– promotion of use of energy from renewable resources– (RED) Directive no. 2009/29/EC on the greenhouse gas emission allowance trading – (ETS) Directive no. 2009/31/EC on geological storage of carbon dioxide - (CCS) Decision of EPaC no. 406/2009/EC on the effort of member states to reduce greenhouse gas emissions by 2020 - (non-ETS)

Innovation and EU regulatory measures

• Directive on implementation of infrastructure for alternative fuels, approved by the European Parliament and the Council It includes an extensive portfolio of measures to promote the alternative

• fuel market in Europe (CNG. LNG, hydrogen and other fuels) It sets out the obligation to build filling station infrastructure, e.g.

• necessary average distance between CNG and LNG filling stations on main European roads

It sets out the obligation of member countries to report on the level of implementation of national measures every three years It declares aid for research and innovations of motor vehicles powered by alternative fuels and relevant infrastructure, including adoption of common technical standards

Playing field for refineries and the requirements

Gradual reduction of the volume of CO2 emission allowances Gradual reduction of emission ceilings of pollutants, SO2,NOx Achievement of the target for share of energy from renewable

resources by substitution of fossil fuels by bio fuels and renewable energy sources

Obligation of bio-component addition to fossil fuels Reduction of sulphur, aromates and other components Requirement of adding bio-components produced from raw-

materials complying with set criteria and indirect soil utilization Requirement of reduction of emissions resulting from crude oil

extraction

CONCLUSION

Maintaining competitiveness of the oil refinery sector under global geopolitical

and economic free market conditions is a great challenge for research and

innovations in all sectors referred to herein, including technical and

technological progress in crude oil processing !

► MOL GROUP

Thank you for attention !

Sources: BP, Shell, EIA, IEA, Bloomberg, Reuters, MF Dnes, E15, Patria Online, OPEC, The Economist, Citibank, CMAI, Nexant Parlamentní listy.cz, MOL Group