For a Low-Carbon Circular Economy in Central Europe

The Hungarian oil and gas company MOL is not only one of the best-known Hungarian brands, but has been expanding in the region for a good quarter of a century, followed by the acquisition of positions in Asia and a role in the North Sea. Keeping up with the times, the company diversifies its operations and develop into the region’s leading chemical and consumer goods and services company while keeping an eye on sustainability.

This year, it will be 30 years that MOL Plc, better known as MOL Group, was established as legal successor to Hungarian state-owned oil and gas companies, giving also birth to the MOL brand. As the Senior Vice President of Strategic Operations and Corporate Development at MOL Group, György Bacsa explains to Diplomacy&Trade, “strengthened by the well-known local brands (e.g. INA and SLOVNAFT), MOL brand represents for us our common traditions, values and our success story of developing a sustainable regional champion in the benefit of our customers, stakeholders and countries.”

An engine of the green energy transition
MOL is one of the few internationally recognized growth success stories of the region, which story has been built for 30 years, since it started right after the democratic changes. Continuously enlarging and modernizing its asset base and market coverage enabled MOL to provide better products and services for our consumers and operate with higher efficiency. “Our purpose is to take care of our consumers, to meet their needs and to drive the progress of the region every day. This business mindset is our heritage we want to build upon it, but we realized that we have to further increase the focus on sustainability and especially on climate change,” the Senior Vice President adds.
On February 24 this year, MOL Group announced its 2030+ ‘Shape Tomorrow’ strategy. This sets the path for MOL Group to become a key player of the low-carbon circular economy in the region. Thus, György Bacsa is of the view that “MOL is not only an efficient oil and gas company any more, but also an engine of the green energy transition in Central-Eastern Europe.”

Unceasing expansion
In the middle of the 1990s, MOL began to expand in the Central Eastern European region and as the Senior Vice President puts it, they have not stopped the regional growth and they will continue to thrive for leading role in all their main businesses in the region. “The key task for us is that the expansions shall be sustainable, and we shall be able to manage the new businesses efficiently. As opposed to the large global players, our role in the region has always been associated with long-term local responsibilities: in addition to profit generation, we have to ensure supply security primarily for energy, fuel, chemicals, we have to fulfill the mobility needs, we have to take care of our talents, environment and people. Following the successful regional market consolidation, we focused on the integrated management of the asset portfolio and – especially in the recent crisis situation with parallel demand and supply shocks and frictions in global value chains caused by the lockdowns –, the benefits of this model became clearly proven,” he highlights.
This responsible regional focus remained unchanged in the updated strategy, MOL aims to make new investments and transformational projects here in its core area, in Central-Eastern Europe, and to fuel the regional economies.

Improving the integrated business model
The regional expansion was followed by wider international one and today, MOL Group is present in numerous locations from the North Sea to Pakistan. As György Bacsa explains, the key factor in international (non-CEE) investments was to replace the crude oil and natural gas reserves that MOL have produced for decades in the CEE region, slowly but inevitably depleting these legacy fields. “As an optimal level of hydrocarbon production improves the stability of MOL Group’s profit generation and therefore improves its resilience to the external environment, exploration and production (E&P) is an important pillar of our integrated business model. In the updated strategy, we did not set volumetric targets for upstream though. One of the reasons behind this is the recent acquisition of close to 10% in the giant ACG oil field in Azerbaijan, which solves the reserve replacement for several years; and the other one is the speeding up of green energy transition, which implies significant capital expenditure need for the transformation of our downstream business to fit the low-carbon circular economy. Still, despite the strong regional focus of our strategy, we will selectively look for good investment opportunities in international E&P as well, but not for reserve replacement, rather for value creation purposes.”

Diversification
Over the past five years, MOL Group has been diversifying its classical oil and gas business portfolio and develop into the region’s leading chemical and consumer goods and services company. “Looking back to the progressive targets announced in 2016, in my opinion – despite the serious external headwinds –, we are on good track of delivering them. Our flagship transformational project, the polyol investment at Tiszaújváros, NE Hungary, is in final phase of construction and with the successful acquisition of the ACG field in Azerbaijan, the reserve replacement challenge has been met. We made the first steps of entering into the recycling sector and a complex mobility service portfolio (car sharing, fleet management, EV chargers) has been launched and available to the customers. We also made significant progress in the fuel-to-chemical transformation and identified the three technologies with the best fit to our existing portfolio, with which we can decrease our fossil fuel output by up to two million tons per annum by 2030. These directions are proved to be valid and with the updated strategy, we aim to accelerate the transformation of our traditional fossil-fuel-based operations into a low-carbon, sustainable business model,” the Senior Vice President points out.
He adds that the diversified and integrated portfolio was one of the key characteristics of MOL’s business model in the past decades. The golden age of the downstream division supported to fund the international E&P growth in the beginning of the century and our upstream segment successfully balanced the decline in the downstream in the 2008-2009 global crisis resulting in stable liquidity and only moderate decrease in MOL’s consolidated profitability compared to the pure-play competitors. This business model proved to be successful and the goal is to keep it in the future. However, to keep this resilience, the portfolio will also have to be adjusted in line with the evolving green energy transition. “We will have to decrease the carbon footprint of our own operations and more importantly, continuously grow the share of sustainable, circular economy related businesses in our portfolio, such as waste management and utilization, carbon capture and storage, second generation biofuels, low carbon energy and hydrogen related opportunities,” he stresses.

Helping out in the pandemic
One of the ‘fruits’ of this diversification was the production of hand sanitizers after the pandemic set in last year. As György Bacsa explains, MOL has a complex responsibility in the region towards the different stakeholders and this role became very important during the pandemic. “Despite the extreme market volatility in 2020 and the sudden collapse of global supply chains, we decided to continue majority of the ongoing large-scale investment programs which contributed significantly to the local GDP and employment. We had to ensure that our employees can work safely not only for their own, but for the whole region’s interest as well. MOL has one of the strictest protective measures introduced, and we continuously looked for the opportunities where we can help our people, societies. The disinfectant MOL HYGI is one of these things and it was a success story in the most difficult time. We developed and put to the market a product at large scale from scratch in a few weeks’ time, during lockdown when every day counted and when global supply chains collapsed and there was a serious shortage of all kind of sanitization. It is less known, but MOL also donated respirators to places where they were in need. Recently, MOL and INA Group have supported the earthquake victims and the renovation works in Croatia not only with money, but with equipment as well.”

Notable achievements in sustainability
At a conference in November 2019, György Bacsa pointed out that the goal of making the EU carbon neutral by 2050 presupposes a huge improvement in energy efficiency in buildings and everywhere else, and companies need to offset their own CO2 emissions. As to what MOL Group is doing to offset its carbon footprint, he now highlights that “sustainability was an integral part of our 2030 targets and we made notable achievements both in the fields of green energy generation, recycling and energy efficiency.”
The company installed solar power plants on its unused industrial sites and targeted the extension of this portfolio with additional acquisitions. In the downstream segment, they established strategic partnerships for recycling (APK, Meraxis) and entered the plastic recycling sector through the purchase of the firm Aurora in Germany in 2019. The capacity extension of the existing rubber bitumen plant in Hungary was completed in 2020 allowing to recycle appr. 10% of used tires in the country. The second generation biorefinery project is in preparatory phase. MOL concluded smaller scale investments into innovative green tech companies via venture capital funds.
“All of these successful actions represent only the beginning of our strategic commitments in connection with decarbonization. However, in our strategy update, we further increased the focus on sustainability and on carbon emissions. In the next five years, we will spend USD one billion on new, low-carbon and sustainable projects (such as waste integration and utilization, recycling, carbon capture, utilization and storage, advanced biofuels and potentially hydrogen-related opportunities) to become a key player in the CEE region in the circular economy. We will decrease our own assets’ carbon emission by 30% in the next ten years. This is a very ambitious goal and we will largely rely on carbon capture and storage and we will also reduce the emission of our assets to achieve it. We have also set full carbon neutrality by 2050 as an ambition in line with EU goals. We see this as a huge challenge, such as the green energy transition is but definitely not mission impossible,” the Senior Vice President concludes.