Yedil Utekov, KMGI: The effect of the crisis will most likely be felt in 2021, too

KMG International found the ability to adapt its strategy, in the pandemic, with employee safety first. This meant the development of flexible work programs; the concept of work from home has been implemented and great efforts have been made to maintain jobs, in a national context where there has been a great deal of discussion about technical unemployment or redundancies, says Yedil Utekov, Chief Officer Production and Industrial Services at KMG International, in an exclusive interview for Energynomics.

How did the COVID-19 pandemic affect the Oil and Gas markets this year and how will affect 2021? What can you say about the longer term – will we see a price recovery?

The COVID-19 pandemic was a factor that affected the industry in an unprecedented manner. The effect has been seen in the oil products segment, with significant decreases, especially in the aviation fuel sector, where demand has virtually halved.

Thus, major pressures on the gross refining margins have been generated. We can say that in the first 9 months of 2020 it reached 11 dollars per ton, much less than in the same period last year – 37,6 dollars per ton. But the volatility of refining margins started in 2019, when OPEC oil production fell to its lowest level since 2015. They were the first signs of difficulties in the market, which were then doubled by the impact of the COVID-19 pandemic.

Even if we are faced with a real crisis in the industry, as we have rarely seen, we have managed to remain operational despite the losses we have experienced.

The impact will most likely be felt next year too, because if we look at the evolution of macroeconomic conditions, the pandemic’s influences will also be evident in the near future.

In our industry, we have seen how most European refineries have reduced processing capacities, or have delayed important maintenance work. We, at Petromidia refinery, went on with the general overhaul, which is absolutely necessary every 4 years, for the best possible operation, but also for the safety of our employees. It was a real challenge, but the professionalism of the people in Rompetrol Rafinare (a company that is a member of KMGI, which operates Petromidia Năvodari and Vega Ploiesti refineries) made possible the success of this major project. It is 6-weeks long project, involving thousands of specialists in the field and more than 1.500 works carried out. We decided to go on with the general overhaul, because an entire country, both in the public system and the people, depend on the safe operation of a refinery.

With refining margins returned to a stable global point, we will be able to talk about a real recovery in the sector.

How were the refining margins of Rompetrol affected by the prices and the demand on the oil market?

At the end of the first nine months of the year, our refineries had processed over 5 million tons of raw materials, in January-September this year Petromidia and Vega processed almost 4 million tons of raw materials. A difference of about 20% in operational performance. But this aspect should not be completely set against the background of the pandemic, but also on the fact that Petromidia refinery was not in operation for 45 days, for general overhaul. Our people have worked just as well as before. By contrast, the huge pressure on the gross refining margins, volatility on the global market and restrictions imposed with the emergence of the pandemic have affected the financial results.

In March-June 2020, fuel sales fell by about 40%. Even if a recourse was observed during the summer, it was insufficient to cover the losses incurred.

Important to note is that despite all the difficulties, the KMG International Group has found the ability to adapt its strategy, on all levels: operational, human resource, investment. For all of us, the safety of the employees was first. As a result, flexible work programs were developed, the concept of work from home was implemented, and the IT component helped, as it facilitated communication and the operationalization of people.

Great efforts have also been made to maintain jobs, in a national context where there has been a great deal of discussion about technical unemployment or redundancies. At the same time, the group focused on maintaining its activities and operations — oil refining and fuel distribution in Romania and the region.

A partial balance of low margins has come from good retail and wholesale sales, both in Romania and in the subsidiary countries where the Group operates (the Republic of Moldova, Bulgaria, Georgia). And all this happened, as we kept Rompetrol stations open, in accordance with the recommendations and norms imposed by the authorities in each country.

How much of the Rompetrol investment fund was spent and in what projects? What’s next?

So far, investments worth about 290 million dollars have been approved through the Kazakh-Roman Energy Investment Fund (FIEKR).

We already have about 20 fuel stations developed throughout the country through this mechanism, and the target is to reach 84 stations (18 modernized and 66 new ones) to strengthen our position on the national fuel market.

Two major projects have also been approved, aimed at developing Petromidia refinery. First is the deparaffinization plant, which will help us achieve better returns on winter diesel fuels. The integration of this installation into the operational flow will allow us to increase the production of special aviation fuel too, because we hope that soon the demand in this segment will return to the pre-pandemic indicators. The other major project is the conversion of the high-density polyethylene (HDPE) plant to a polypropylene (PP) plant, which will lead to an increase of approximately 30% in polypropylene production, a highly sought-after product.

Last but not least, the contract for the construction of the cogeneration plant on Petromidia, which will be a community asset, was signed in August. In addition to having access to sustainable resources for operational processes, we will be able to provide low-cost thermal agent for local communities. As energy specialists have said, the new plant will have a special contribution to stabilizing energy production and distribution for the whole Dobrogea region. When we draw a line, we are talking about a major project, with financing of almost 150 million dollars, which highlights the good cooperation between our company and the Romanian state.

FIEKR is a complex mechanism, through which projects will be generated with a value of around $1 billion over a period of around 7 years It is clear evidence of the commitment that KMG International has made to support the entire Romanian energy sector.

What other future investments are prepared for Romania?

Most of the investments made by KMG International addressed, in addition to the operational aspect and development of production capacities, the integration of the environmental component. With every investment we make, we manage to reduce the environmental impact. If we look at the trend adopted in recent years, we see many projects that support this direction: The LPG recovery plant, the investments in the late coke plant, modern vapor recovery systems. They all have a dual objective, both just as important: operational development and environmental protection. One without another cannot function efficiently and sustainably in our industry, an industry that always looks for ways to comply with the new realities.

This adaptation also involves a major direction that we have already started and that we are going to develop more and more – the digitization of processes. As about the refining segment, especially in Petromidia, we have a number of very interesting and highly efficient projects, because the role of digitization, in our view, is to make production more efficient.

Thus, we have managed to implement Advanced Process Control, a complex software for predictive control of operating units and flows, with the aim of identifying optimal conditions for increasing capacity, improving product quality, reducing power consumption and more effective control of key parameters.

Then, Shunting Expert – developed together with GFR, our railway logistics partner – is a solution implemented on the Petromidia and Vega platforms that allows real-time monitoring and control of oil product traffic on the railway infrastructure. Digitization is 100% integrated and the benefits are countless: total control of the situation of wagons, total control of the situation of railway lines (implicitly and control of the degree of occupancy of lines), significant decrease in human effort and human error, accuracy of reporting, traceability of wagons, locomotives and specialized staff or interconnection with other applications.

We also have programs such as predictive maintenance, or process simulator that help us to have a more reliable overview of the refinery. Let us not forget the analyzers in the installations, which show us exactly what technical parameters.

Further, we will be advance on environmental investment, digitization, but also CSR actions for the benefit of the community.

As you know, we have a diverse strategy and we can adapt to different situations. In addition to investing in the core business segment, we are considering transactions that can benefit our group. KMG International has a number of non-core assets for the group’s activity in the region, such as the production of pipes and fittings – Palplast Sibiu, the design and manufacture of industrial installations – Rominserv Valves IAIFO Zalau, security services, Protection and prevention of emergency situations – Global Security systems or oil Probe services – Rompetrol Well services. As part of the broader strategy supported by the single shareholder – KazMunayGas, KMG International is considering selling its participations in all non-core assets.

How will Rompetrol transform itself in the context of Green Deal and the growth of electromobility?

The basic concepts of the European Green Deal include sustainable industry and the elimination of pollution. These are concepts that we support and we will constantly do, as all our previous investments show.

In Rompetrol Rafinare, for example, there is a very well structured internal program aimed at improving flows, production units. Petromidia also produces hydrogen, which can have several uses – raw material, fuel and many other industrial applications. And because hydrogen does not emit CO2 and other pollutants, it does not, in practice, pollute the air when it is used; it is clear that we are dealing with a product that will gain more and more status in the near future.

We do not exclude integrating photovoltaic panels and a wind farm for supporting our business. Also, traditional agricultural crop biofuels are gradually replaced by some generation II biofuels from residual products. There are very interesting studies already carried out in the United States, for example, which have proven that biodiesel can be produced from marine algae in a CO2 environment. Industry is adapting, and so we will always be in line with news and sustainable solutions. As you well know, we were among the first in the field to introduce electric charging stations in our gas stations, because we see ourselves as meant to support mobility.

We have all welcomed the news that Romania will get a share of almost 90 billion euros to be used for development in various fields of activity. I believe that this amount, if invested in infrastructure or education, will have effects on all levels. For example, a well-established infrastructure will also be a support for us in energy, because we will be able to transport finished goods more easily.

It is as process where Rompetrol Rafinare can be a reliable partner, as the only producer of bitumen at national level. We are ready to get involved in infrastructure projects because we have the capability to deliver quality products, polymer modified bitumen included.

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This interview firstly appeared in the printed edition of Energynomics Magazine, issued in December 2020.

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Bogdan Tudorache

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