The global economic recovery, which began in the second half of 2016 and gained momentum in 2017, increased demand for petroleum products not only in developing countries but also in developed countries. This situation supported sectoral profitability and increased product mobility between regions due to the increased supply resulting from global high capacity utilization rates, which further intensified competition in the sector.
The price of crude oil, which started 2017 at USD 55/barrel, declined to USD 44/barrel by June due to the weak demand growth in the first half of the year, in addition to the low compliance of OPEC members with the cut-off agreement, increased production from Libya and Nigeria and the continuous increase in US production.
However, oil prices changed direction in the second half of the year, when there was an upward trend in prices as OPEC members fully complied with the agreement to lower production, besides recovering demand from China, India and the United States. Oil prices closed the year 2017 at USD 66.54/barrel, marking an increase of 21.3% due to rising geopolitical tensions in the Gulf Region and the decision to extend the agreement to cut oil production until the end of 2018.
While the supply glut resulting from increasing refinery production in 2017 was balanced by unplanned outages and accidents, periodical supply losses due to hurricanes in the USA refinery region, and continuing product deficits in the West Africa and South America regions once again supported refining margins, as they did in the last year. As a result of all these interactions, the Mediterranean refinery margin, which averaged USD 3.97/barrel in 2016, increased by USD 1.37/barrel to reach USD 5.34/barrel in 2017.
The upward trend in consumption of petroleum products in our country also continued in 2017. According to EMRA figures, consumption of diesel in Turkey grew by 8.3% YoY, consumption of gasoline grew by 3.1% YoY and the consumption of total petroleum products grew by 6.5% in 2017. Increase in the demand is supported by economic growth, thanks to the support measures and incentives, and is estimated to be realized at 6.5-7% at the year end. The continuing infrastructure investments, the ongoing steady growth in the vehicle park and the air transportation demand which has begun to grow again with the revival of the tourism sector especially after May, can be counted as the main factors behind the higher rate of economic growth.
At Tüpraş, we are delighted to have rounded off a year in which we achieved results exceeding our operational and financial targets and we have set the bar higher in creating value for our stakeholders and our country after the inspiring results that build our confidence.
Thanks to the proximity of the Tüpraş refineries to the centers of consumption, its experience in procuring crude oil and its extensive production power, Tüpraş managed to increase its operating profit to TL 4.86 billion in 2017. Tüpraş wrote a net profit of TL 3.81 billion in 2017 with the support of its successful management of exchange rate volatility and the fluctuations in crude oil prices, as well as the correct execution of its risk management strategies.
As Tüpraş, we view our investments as vital in achieving a sustainable high performance. We invested USD 183.8 million in refining in 2017 and USD 117.5 million through Ditaş, our maritime transportation subsidiary. This year, our fleet capacity doubled to 622 thousand DWT with the addition of two new Suezmaks tankers. We are strengthening the logistics infrastructure, which accounts for a significant share of Tüpraş’s costs, through railway transportation, which we attach great importance to, in addition to sea transportation. With a total of 549 wagons and 5 diesel locomotives leased from the TCDD (Turkish State Railways), we started our Company’s railway operations in early December.
We aim to undertake 10% of the total railway transportation in Turkey with the transportation of approximately 2.5 million tons of petroleum products annually, and to become the largest railway carrier in the sector through Körfez Ulaştırma A.Ş., which is wholly established with Tüpraş’s own capital.
Being aware that the most important source of energy is efficiency, Tüpraş rapidly completed its investments with the goal of being included in the first quartile in terms of efficiency and reduced its energy intensity index value by 1.2 points to 102.2, while also achieved a reduction of 46 thousand tons in its CO2 emissions through the 15 energy saving projects implemented.
Tüpraş closely monitors potential business and investment opportunities in both the domestic and international arena in addition to its investments aimed at logistics infrastructure and operational excellence. The Company established a business diversification strategy to deal with the transformation and change in the energy sector. Within this framework, we aim to invest in sectoral integration and start-ups, while continuing to keep refining at the core of our activities. We will thus bring a new structure into operation in 2018, which will enhance our visibility and our commercial effectiveness in international arenas. On the other hand, with renewable energy becoming more competitive, we anticipate further reductions in carbon emissions, while first meeting the energy needs of our own refineries.
As part of our in-house entrepreneurship and open innovation studies, Tüpraş determined its innovation strategy in order to create value through new products, services, processes and work models with a perspective focused on the future. The Innovative Ideas Portal, where innovative ideas can be shared, was commissioned, and the in-house entrepreneurship team has been working on the prioritized ideas.
Another area of continuous improvement is occupational safety. With a comprehensive review of all of our processes, we have increased our efforts to instill our point of view, which places people and occupational safety at the heart of our operations and into every area of our organization.
Having gained pace on a global scale, the digital transformation changes peoples’ lives and also affects how they do business in industry. As Turkey’s largest private sector company, we have already determined our strategy and execution steps in this field. Tüpraş built its digital strategy on the main theme of adopting technologies which support processes and production and which do not deviate from occupational safety and cyber security. In this context, we have concentrated on the work in the fields of Data Analytics and in Production and Field Activities with Optimization by coming together with our employees and stakeholders to choose these fields as the focal points in the applications of Digitalization and Industry 4.0.
Our basic motivation in all our activities that we carry out is to create value for our country and all our stakeholders. Of the BİST, Tüpraş is currently one of the companies that distribute the highest profit share. We are proud to continue to provide the utmost benefit to our investors. Tüpraş will maintain its work aiming to produce the highest added value for its partners, stakeholders and Turkey’s economy with determination also in the future as it has been to date.
I would like to thank all of the colleagues who contributed to our 2017 performance, and all of the stakeholders for their encouragement.