Guest: Alexandru Nicolcioiu, adviser to the general manager of KMG International You’ve spend your entire professional life in this domain, in Rompetrol, starting as head of workshop and moving up to General Manager of Petromidia, along with many other responsibilities connected to the development of this sector. Unfortunately, this year the pandemic has significantly affected this industry, at a global level. Before exploring the causes and effects, I would like to ask you to answer in the most objective way: is the oil and gas industry still strategic for any country, we refer here primarily to Romania, of course?
Alexandru Nicolcioiu: Good day! I am very pleased to have the opportunity to address these subjects. I have been working in this industry for over 45 years and I plan to continue my work for at least half this period. I look forward to the next 20 years because this is a very attractive industry, an industry that creates many opportunities.
If we refer to the refining industry, certainly, this industry has been, it is and it will continue to be one of the main developing branches for the economy of any country.
It involves complex activities starting with prospection, extraction, processing and in the end delivering the products to the consumers.
Oil manufacturing provides fuels for auto, naval and air travel and also the main petrochemical products such as polypropylene and polyethylene and all the range of polymer products available on our planet.
Oil also accounts for products used in the transport infrastructure such as bitumen, solvents for the lacquers and paints industry, solvents for the food industry and many other wide consumption products. Basically, all that surrounds us is connected to oil. Oil and natural gases act as main pillars for the development of any economy.
As for Romania, before the 90s we used to manufacture 32 million tons of oil in 11 refineries located throughout the country.
Romania is still one of the countries with a great tradition in oil processing, prospection, exploration and extraction.
During present times, between 2019-2020, Romania is processing 10.5-11 million tons of oil, of which 8 million tons are imported.
Oil import is represented by the Rompetrol Refinery which accounts for 5.5 million tones of oil , insured on the Romanian market by our mother-company, our main shareholder, NC KazMunayGas.
As I’ve previously stated, all the processing chains are also found in the Rompetrol Rafinare company, from fuel, petrol reactor (jet) production to bitumen, polypropylene and other solvents for industry use.
If we were to draw a map of the oil molecule as it leaves the deposit and is transported via ships, is processed, reaches the petrochemical and plastic industry we can notice that it employs many individuals. Apart from the people that work directly in the oil processing sector, there are also subcontractors that make sure that the installations are kept at operating levels.
Oil is one of the sources that ensures economical development, jobs for thousands and millions of employees all over the world – tens and hundreds of thousands in Romania alone; it also ensures the main source of taxes for the state’s budget.
Oil is involved in all aspects of our day to day life.
Alexandru Nicolcioiu: For sure the pandemic is a phenomenon never before encountered for most of us, globally.
All countries have been affected at the same time, fighting against this common enemy that we face every day.
One of the main ways to fight this virus were isolation, limiting communication and social distancing. These measures have affected global communication and have led to a drastic reduction of fuel consumption. The most drastic reduction is in petrol reactor used to fuel airplanes, and the recovery of this sector is very low due to the fact that one of the measures taken to prevent the spread of the virus was to limit air travel.
The global economy decreased by 20-30% and, of course, it affected our oil processing industry. This industry is highly volatile anyway
In 2019 there was a big amount of oil processed at a global level. The processed quantities surpassed the demand for this product. The storage parks were full as well as the ships transporting oil based products for sale purposes.
Some companies chose not to stop oil extraction because it is very complicated to stop large sea or land platforms that extract oil from big depths; instead they preferred to sell the oil for nothing in order to keep the crude wells in function.
As I’ve previously said the activities in oil and gas are highly complex and the costs for shutting down an oil platform for 3-4 days are much higher than delivering the crude for free.
In all my 45 years of working in this field, I have never heard or encountered such a context of giving away fuel for free.
Alexandru Nicolcioiu: 2019 was, as well, a year marked by several political tensions such as the one between OPEC, Russia and the US, the terrorist attacks on the oil fields and refineries from Saudi Arabia. It was the year the US flood the market with a lot of products resulted from shale gases and it overlapped with economical actions in Iran. All these events have confused, so to speak, the oil marketplace. But due to crude importance for countries that manufacture it, all refiners have chosen to keep their businesses open. They would keep a close eye on their competitors, always ready to step in to replace them.
There were also studies that stated that refineries that have a crude processing capacity of under 5 million tons and lack complex installations, are the first ones that will stop. If you stop the activity of a refinery because it is not economically efficient, you have to make a complex calculation of what shutting off the plant would mean in terms of stuff layoffs, conservation or restart of the activity. Based on these calculations most of the refineries were kept functional, which led to a massive increase of oil-based products.
The pandemic has negatively impacted this industry not so much from an operational point of view but because of the sudden drop of consumption which left manufacturers with large quantities of processed oil that surpassed their stocking and delivering capacities. This in turn, led to the reduction of oil processing in Europe. There are refineries in Europe that have shut down completely; some kept their operating levels at 60-70%.
Alexandru Nicolcioiu: As many of you know, Rompetrol owns two refineries: Petromidia in Navodari and Vega in Ploiesti, both operating at 80% level.
Considering the current context, our strategy has been to keep our refineries operating at 80%, to ensure the necessary fuel for the whole network of gas stations in Romania and other countries in which Rompetrol is present: Georgia, Bulgaria and Moldova.
During this period, many states focused on improving the transport infrastructure. In Romania as well, many projects involving road reparations have been started and we have been the main supplier of bitumen. We’ve also supplied the petrochemical industry with polypropylene and polyethylene. Thus, we have adjusted our business on a market that would allow us to function at 80% capacity.
Our main objective was to have an active role in fighting the pandemic. We’ve teamed up with Romania, Bulgaria, Moldova and Georgia and have donated fuel for emergency medical transportation; we’ve also gathered fuel for various hospitals and local authorities.
We’ve also developed a new product for petrochemical use. It is used as a primary material for obtaining the middle layer of the protection masks.
Our gas stations have been kept opened and have turned into supply points for basic food products as well as their intended purpose of suppling fuel to those unable to work from home.
Our refinery, along with Vega and petrochemicals division are very flexible, which has allowed us to keep our manufacturing complex operational as well as preventing and protecting the health of our employees. Through our emergency committees we have taken precautionary measures in all refineries to limit the effects of the pandemic.
In conclusion, the two refineries and the petrochemicals division have adjusted to this period, both from a sanitary point of view as well as delivering products that are in demand.
Alexandru Nicolcioiu: This November, Vega will celebrate 115 years since its commissioning. These 115 years have flown by as fast as my 45 years of experience in this field.
Vega is one of the pillars of the KMG International activity, as well as a pillar for Romania.
It is located in Ploiesti, near the river Dambu. It does not manufacture oil; its activity is focused entirely on manufacturing high value added products from the raw materials received from Petromidia. It is an extension of the processes carried out in Petromidia, which is 200 km away. Even before it was connected to Petromidia, Vega was an active connection for the 11 refineries in our country.
In relation to the white products, the refinery in Midia supplies the light raw materials from which hexane is obtained. It is sold on the Romanian marked but also for exports. Hexane is used in the petrochemical industry, the food industry, the lacquers and paints industry.
It is a refinery that is constantly developing; it is part of the last 4 operational refineries in Romania, out of the 11 we had before the 90’.
Apart from fuel, Petromidia also produces polymers. What is Petrochemicals division’s role on the local market?
Alexandru Nicolcioiu : Petrochemical unit uses the raw materials supplied by the refineries. We have a polypropylene installation which functions only with raw materials supplied by the Petromidia refinery. It is the only installation in Romania – there used to be an installation in Teleajen, but it was not operational – and it is one of the main products that is delivered only in Romania, for 94 companies operating in the plastic industry.
Polypropylene is also used for a series of parts used in the automobile industry. We are one of the biggest supplier of raw materials for the companies that manufacture accessories, parts and ornaments for the auto industry in both Pitesti and Craiova.
Raffia sacks are also obtained from Polypropylene which are commonly used in many industries.
Thus, the petrochemical activity through its Polypropylene installation is found all over Romania. Moreover, about 40% of the Polypropylene production is going to export.
Another installation of Petrochimia is the one for high-pressure polyethylene.
We use imported raw material, ethylene, as we are equipped with a cryogenic terminal and we can unload it. It is the only ethylene terminal from the Black Sea area and it has given us the opportunity to fully use of our polyethylene installation. We use the same client network mentioned before; we supply them with high-pressure or low-density polyethylene.
It is the base of all plastic industry related products – of injection, blowing, foil etc. – all of them are obtained from these products.
We are proud to be the only petrochemistry producers in Romania for these two particular products. Our colleagues in Petrochimia fondly remember how strongly I lobbied to keep the installations working.
Indeed, during 1990-1992 we used to produce lower quantities , which led to certain political discussions. The discussions were about shutting the installations down, but we managed to keep them operational. It is one of the domains in which we see an increase of the value of crude oil; it is found in all goods of mass consumption.
And, our latest development, is the new material we are currently delivering to mask manufacturers. Hopefully we will get rid of these masks soon but by looking at the context, the vaccine will be the one to save us from this predicament.
How is the transition to a cleaner energy?
Alexandru Nicolcioiu : There are several plans and projects being developed by 2030-2050. This is a wide subject, it involves a country strategy, it is about how the local system can produce electric energy, what infrastructure is available for each country, how much fuel is used to obtain the energy. All these affect the emission level.
According to the European Union and real time measurements, there are still thermal power station that operate on charcoal. 100% of the emissions resulted from burning charcoal turn into gases with greenhouse effect and carbon dioxide.
Plans to stop the use of charcoal are planned for 2050. The goal is to transition to green, ecological energy.
Emissions that come from our refinery are around 15-20% of total processed raw materials, sometimes 19-20%.
This does not mean that since we are not the main polluters we are not considering producing energy by developing wind or photovoltaic parks for the future..
In the Dobrogea area, as you know there is a mix of energy produced by the thermal power stations , the nuclear energy from Cernavoda and the photovoltaic parks combined with many wind farms.
We have about 400 hectares in Midia and 100 hectares in Vega and other areas that can be turned into solar or wind parks, in the future, in order to obtain electric energy without using fuel that emits CO2.
Also, next to Petromidia refinery, on the property owned by the thermal power station we’ve already approved and started a project that entails the construction of a cogeneration plant that will supply the refinery with electric and thermic energy by burning the methane gas from the Black Sea.
The main objective of the KMG International Group is to find new ways to produce energy without emitting greenhouse effect gases.
We also own the hydrogen factory in Petromidia. We are currently discussing the possibility to use hydrogen as automobile fuel. We are currently analyzing and studying this process with professors from the University of Constanta. We are searching for processed used all over the world that would make it possible to use hydrogen to fuel cars.
As far as using electric cars, for sure, this is the way of the future. We will not be impacted because, as I mentioned before, we are very flexible.
Even if there will be a reduction of fuel and gasoline use we can increase bitumen production in Vega.
All cars, electric or not, need to be driven on roads because I haven’t seen yet flying cars. They will continue to drive on roads and highways that have to be developed, as such, bitumen is required. That is why we are considering enhancing the bitumen production capacity in Vega and planning to develop a new bitumen installation at Petromidia.
In conclusion, the popularity of the electric cars does not scare us; we are flexible enough and have the means to adapt with niche products that can ensure that electric or fuel supplied cars have roads to drive on.
Predictions for 2021?
Alexandru Nicolcioiu: General predictions made by various companies for 2021-2022 announce the price for oil at 40 USD per barrel. The hope is that the vaccination program will start at the end of Q1 and that the vaccine will be the main antidote for wiping out this pandemic.
There are prognosis that state that in the second half of 2021 and in 2022 the market will recover in terms of oil production and consumption.
As a conclusion of what we have discussed earlier, there will be an increase in investments for developing transport infrastructure. The state will manage these investments in order to sustain an active work force and avoid massive unemployment that may lead to major social conflicts at an European level and that might prove difficult to contain.
So, this niche section of our business will also continue to develop. We also foresee that by 2023-2024 the consumption of petrol reactor will return to the values recorded in 2019.
Of course all these are just predictions, calculations, assumptions that, in turn, depend on political contexts. Hopefully, there will not be other attacks on the oil fields.
We are optimistic that the vaccine implemented in the first quarter of 2021 will have a significanteffect in the eradication of this virus which is proving hard to contain even via these isolation methods that are being imposed in this period. The vaccine is the best way.
Both our platforms, Petromidia and Vega, have shown in 2019 that they can function at full speed so they can easily maintain their 80% capacity.
We are fully prepared, once the market recovers, to revert to fully functional operating levels in terms of product delivery, to revert to the processes obtained in 2019 in accordance to the development of our sales networks and increase of oil based products, petrochemical and niche products.
This pandemic has shifted us into a field that will continue to accelerate through new digital technologies applicable not only in the operating processes but also in the way we communicate
If three-four years ago we were still struggling to communicate online in order to manage companies, to complete various processes, to have efficient meetings and conferences, here we are now, working from home and keeping complex processes unde online control This proves that we are prepared for these future challenges.
The digital transformation of Rompetrol has been, it is and will remain our main priority in terms of future activity.