MACROECONOMIC ENVIRONMENT

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Economic situation and exchange rates

Gross Domestic Product yoy (%) in 2013–2019 and forecast for 2020-2021

^{Source: In-house analysis based on data published by the Central Statistical Office and the European Commission.}

Poland’s GDP growth rate for 2019 is estimated at 4.0%. In the first half of the year, it was 4.5%, supported by robust internal demand. A source of uncertainty for Poland’s economic outlook is the external environment, including in particular possible disruptions in the global supply chains, which may affected Polish manufacturers. According to the European Commission’s forecasts, Poland’s economy is expected to expand at the rate of 3.3% in 2020. Despite the slowdown, it is set to remain among the growth leaders. Higher economic growth rates are anticipated only in the case of Malta (4.2%), Romania (3.6%) and Ireland (3.5%). In the following year, the estimate growth rate is going to be maintained at 3.3%.

^{Source: In-house analysis based on data published by the National Bank of Poland (NBP).}

The USD and EUR exchange rates are a significant indicator for the Group, mainly because of their impact on gas procurement costs in the Trade and Storage segment. The USD/PLN exchange rate affects settlements with gas suppliers and revenue from sales of crude oil, and the EUR/PLN exchange rate is a factor driving cost of gas purchases from the western direction.

Trends in the natural gas market

Gas prices in Europe and globally

In 2019, prices of natural gas in Europe fell significantly relative to prices quoted at the US Henry Hub. During that period, the average price of natural gas at the Dutch TTF hub was EUR 13.58/MWh, down 40.7% yoy. Comparing the same periods, the Henry Hub natural gas prices fell by EUR 1.33/MWh, to an average of EUR 7.82/MWh. The average price of gas in the United States was down 14.6% at that time. The spread between those two trading points shrank by almost 58% last year, by EUR 8.0/MWh, to an average of EUR 5.76/MWh in 2019. The highest price spread of EUR 10.06/MWh was recorded in January.

Average monthly natural gas front month at Henry Hub and TTF (front month - ontract with execution date next month)

Source: In-house analysis based on NYMEX and ICE data.

Gas prices in Poland

In 2019, the weighted average spot price (on the Day-Ahead and Intraday Market) of gas in Poland was PLN 72.72/MWh, down by PLN 33.30/MWh on 2018. Gas prices in Poland were strongly correlated with those in Germany and on the European markets in general. The average spread between the spot prices (for Day Ahead products) on the PPX and GASPOOL in 2019 was EUR 1.83/MWh.

Average monthly spot prices of natural gas in Poland and Germany in 2019

^{Source: In-house analysis based on PPX and EEX data.}

Spot price of gas on PPX, TTF and GPL in 2019

^{Source: In-house analysis based on PPX and EEX data.}

The situation on the natural gas market in Europe and globally has a bearing on the Group’s financial performance, mainly due to its impact on the Trade and Storage segment, both on the cost and revenue side.

Trends on the crude oil market

In the first quarter of 2019, oil prices followed an upward trend. The main factor supporting the stable price growth was the imposition of sanctions on crude exports from Iran and Venezuela by the US. This made room for an increase in the market share of the US, which consistently scaled up its supply throughout the year. In the second quarter, oil prices began to move down, Driven chiefly by deteriorating economic forecasts, mainly those related to industrial production of China and the US. The trade war between the two countries depressed expectations of global economic growth and crude oil demand.

At the beginning of the third quarter, the OPEC announced introduction of new production caps for its member states, which were expected to result in aggregate supply reductions of 1.2m bbl/d. However, because of the failure by some of the countries to comply with the limits and the growing production in the US, the prices did not go up. Apart from a short period after the attack on the Saudi Abqaiq refinery, the month-ahead contracts for Brent crude fluctuated around USD 60/bbl.

In the fourth quarter of 2019, the oil price moved up. Dissatisfied with insufficient price growth and some countries’ failure to respect the supply limits, the OPEC decided to increase the cuts. The fact that the US and China reached a consensus as the first part of their trade agreement also provided a stimulus for the price growth.

Month-ahead Brent and WTI oil prices (month-ahead - ontract with execution date next month)

^{Source: In-house analysis based on ICE and NYMEX data.}

In 2019, the average demand for crude oil rose by 0.83% year on year, to an average of 100.78m bbl/d. Among the world’s largest consumers outside the OECD (Organisation for Economic Cooperation and Development), the most pronounced increase, of 3.54%, was seen in China. Other Asian countries also recorded demand growth, on average by 2.01%. The global oil supply was reduced in 2019 by 0.11% year on year. The strongest oil output increase was recorded in the United States – by 9.13%, or approximately 1.64m bbl/d. Canada also raised its output, by 2.15%, or 0.12m bbl/d. The former Soviet Union countries did not change their supply volumes. The strongest decline in production (by 8.5%, or 0.18m bbl/d) took place in Mexico. The OPEC countries also slightly cut their output, by 5.65%, to an average of 35.2m bbl/d.

Global oil demand
million bbl/d Demand	2019		2018
million bbl/d Demand	H1	H2	H1	H2
OECD	47.05	47.79	47.43	47.81
including United States	20.35	20.65	20.35	20.65
Non-OECD	53.08	53.63	52.06	52.60
including China	14.53	14.50	14.05	13.99
Globally – total	100.14	101.42	99.49	100.41
^{source: in-house analysis based on EIA data.}

Global oil supply
m bbl/d Supply	2019		2018
m bbl/d Supply	H1	H2	H1	H2
OECD	31.20	32.15	29.32	31.03
including United States	19.14	19.99	17.13	18.74
Non-OECD	69.30	68.85	70.33	71.03
including China	4.79	4.79	4.82	4.75
including FSU countries	14.67	14.68	14.43	14.76
including OPEC	35.78	34.64	37.27	37.37
Globally – total	100.50	101.00	99.65	102.06
^{source: in-house analysis based on EIA data.}

Crude oil supply and demand balance
m bbl/d Surplus / deficit	2019		2018
m bbl/d Surplus / deficit	H1	H2	H1	H2
Globally – total	0.36	-0.42	0.16	1.65
^{Source: In-house analysis based on EIA data.}

The situation on the oil market in Europe and globally has a bearing on the Group’s financial performance, mainly due to its impact on the Exploration and Production segment (chiefly sales of crude produced in Norway) and the cost of gas imports in the Trade and Storage segment.

Average monthly temperatures

Air temperatures in the 2019 winter season were close to the highest levels seen in previous years: on average 2°C in the first quarter and 7°C in the fourth quarter, relative to -1°C and 5°C, respectively, in 2018. In the spring and summer season, temperatures stayed around 15°C in the second quarter and 18°C in the third quarter, compared with 17°C and 19°C, respectively, in 2018.

Air temperatures are an important indicator for the Group given their impact on the operating performance of the Trade and Storage and Distribution and Generation segments.

Average monthly temperatures*

^{Source: In-house analysis based on Wholesale Trading Branch data.

* Reference point for temperature measurement: Rzeszów.}

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The role of the Group in ensuring the reliability and quality of energy supplies

Market environment