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Good morning, ladies and gentlemen. Welcome to OMV's earnings call for the Q4 2021. With me on the call are Alfred Stern, OMV CEO, and Reinhard Florey, our CFO. Alfred Stern will walk you through the highlights of the quarter and will discuss OMV's financial performance. Following his presentation, the two gentlemen are available to answer your question. With that, I'll hand it over to Alfred.
Thank you very much, Florian. Ladies and gentlemen, good morning, and thank you for joining us. I'm very happy today to report our best quarterly and yearly performance in the company's history, driven by a very strong market environment, excellent operational performance, and underpinned by our expansion into the chemicals business. Before I go into details of our quarterly earnings, I would like to invite you to our Capital Markets Day on March 16, where we will present our Strategy 2030. Let me start with a brief review of the market environment.
The Q4 of 2021 was the sixth consecutive quarter of sequential Brent price improvement. Prices exceeded $85 per barrel, the highest level since the Q4 of 2018. This upward momentum was driven by demand recovery and strong OPEC+ quota compliance.
European gas prices continued their rise to reach record levels on the day-ahead market, driven by low European storage levels in a physically tight market. The continent went into the winter period with low levels of gas storage. For example, Austrian storages were at just 53% at the start of the quarter and decreased to 35% at the end of December. Supply remained limited as higher LNG imports were not able to compensate for low Russian flows into Europe. At $6.3 per barrel, the European refining indicator was one of the strongest in many years, up by more than 40% compared to the previous quarter.
The increase was due to higher naphtha, diesel, and jet crack, partially offset by rising energy costs. European demand for olefins and polyolefins remained above expectations, especially in the packaging, hygiene, and medical sectors.
The typical seasonal pattern of lower demand at year-end was not seen in 2021. Several unplanned cracker outages and logistical constraints restricted supply, keeping the market on the tighter side. As a result, prices for both ethylene and propylene increased further, and margins improved slightly versus the Q3. Prices for polyolefins rose as well, but margins decreased as feedstock costs increased faster. Constraints on deep-sea imports due to the ongoing logistics crisis maintained the market in a tighter position than in the comparable period last year. At EUR 2 billion, our Clean CCS operating results reached a new all-time high in the Q4 2021.
The result increased further by around EUR 200 million compared with the very strong previous quarter and was roughly three times higher than in the Q4 of 2020. Thanks to a very strong underlying cash flow and a special dividend from Borouge, we were able to deliver an outstanding quarterly cash flow from operating activities, excluding net working capitals of EUR 3.5 billion. Ladies and gentlemen, we continue to reward our shareholders through our progressive dividend policy.
We will propose to the annual general meeting a dividend of EUR 2.30 per share for the financial year 2021. This is an increase of 24% versus the previous year and marks a new record in OMV's history. Looking at operations in the Q4, our E&P production was 4% higher than in the Q4 of last year.
The utilization rate of our European assets was very strong. Our refineries in Europe ran at 95%, and the steam cracker utilization rate improved to 92%. Polyolefin sales volumes were slightly lower. We also made further progress with our divestment program. We closed the sale of our 25% share in the Wisting oil field in Norway to Lundin. We are proud to have been recognized once again as a sustainability leader by S&P Global, and we're included in the Dow Jones Sustainability World Index for the fourth time in a row.
We are one of the top ten energy companies globally and one of Europe's five sustainability leaders in the energy industry. We are still the only Austrian company listed in this prestigious index. In the Q4, we took FID to build a chemical recycling demo plant based on our proprietary ReOil technology.
The plant will turn plastic waste that is not fit to be mechanically recycled and would otherwise be sent to waste incineration into a valuable resource. The feedstock will be sourced in Austria in close cooperation with local waste management companies and will consist mainly of polyolefins. Examples of such plastic waste include food packaging, plastic cups, lids from takeaway coffee, and confectionery packaging.
Through the chemical recycling of plastics, OMV obtains a pure raw material, which can again be used to produce virgin quality-based chemicals and plastics for all types of applications, including packaging for the food industry and medical products which must meet the highest quality and safety standards. Production startup is planned for early 2023. This is a step closer towards our ambition of an industrial scale plant, planned to begin operations in 2026.
Together with ADNOC, we also took FID to build the fourth Borouge facility at the polyolefin manufacturing complex in Ruwais. Borouge is the key vehicle that enables us to serve the growing customer needs across the Middle East and Asian markets with future-oriented and differentiated solutions based on Borealis' proprietary Borstar technology. The facility will consist of an ethane cracker producing 1.5 million tons of ethylene and two Borstar polyethylene plants producing 1.4 million tons of polyethylene per year.
This expansion will see Borouge become the largest single-site polyolefin complex in the world. Last but not least, we received a binding offer from EuroChem for the acquisition of Borealis' nitrogen business. The offer values the business on an enterprise value basis at EUR 455 million.
The transaction is subject to certain closing conditions and regulatory approval, and we expect closing in the H2 of 2022. Let's now turn to our financial performance in the Q4 of 2021. Our Clean CCS operating results rose sharply to EUR 2 billion, an increase of almost EUR 1.5 billion compared with the Q4 of 2020. All three segments contributed to this positive development.
We saw a sharp increase in the exploration and production results, an improvement in refining and marketing, and a strong contribution from the chemicals and materials business. The Clean CCS tax rate increased to 36%, which was four percentage points higher than in the same quarter last year. This was due to a significantly larger contribution from exploration and production, especially from high tax regime countries.
Clean CCS net income attributable to stockholders surged almost five-fold to EUR 1 billion. Clean CCS earnings per share amounted to EUR 3.11. Let me now discuss the performance of our business segments. The clean operating result of exploration and production rose considerably to EUR 1.2 billion from EUR 184 million in the Q4 of 2020. The driving factors were significantly higher realized oil and gas prices, as well as higher production and sales volumes.
This was partially offset by the negative impact of hedging of around EUR 260 million, and by the write-off of exploration assets of around EUR 70 million. Compared with the Q4 of 2020, our realized oil price increased by 85%, thus slightly more than Brent. Our overall realized gas price almost tripled compared with the prior year quarter.
Roughly 20% of our gas production is linked to European spot pricing. While half of that volume, about 10% of our total gas production, benefited from the surge in prices, the other 10% was hedged at 27 EUR per MWh. The remaining 80% of our gas portfolio is linked to domestic markets, where we have also seen increases, especially in Romania, where the realized gas price more than doubled.
The PASFA benchmark, the basis for pricing of half of our production volumes in Russia, trended upwards as well, averaging 32 EUR per MWh in the Q4. Our production volume rose by 19 to 491,000 barrels of oil equivalent per day, primarily due to increased contributions from Libya and the UAE.
In addition, production in Russia climbed again to above 100,000 barrels per day due to the booster compressor installed during annual maintenance activities in the previous quarter. The increase was partially offset by a natural decline in Romania, as well as divestment in Malaysia and Kazakhstan. Total sales volumes improved by 12,000 BOE per day due to higher production volumes. The Clean CCS operating results in refining and marketing more than doubled year-on-year to EUR 351 million due to stronger refining margins, outstanding gas business performance, a positive contribution from our own refining and trading, and higher fuel sales volumes.
Refining margin hedging contributed positively to the result, but to a much lesser extent than in the prior-year quarter. Despite lockdowns and rising travel concerns due to the Omicron variant, we saw a demand recovery compared to the prior-year quarter.
Total sales volumes were up 15% with a significant uptick in jet fuel sales. Both the commercial and the retail businesses delivered an improved contribution on account of higher unit margins and sales. Retail volumes were only slightly below the pre-pandemic level, yet fuel volumes saw a strong increase compared with the Q4 of 2020, but were still 30% below pre-pandemic volumes on average.
The contribution from ADNOC refining and trading improved from minus EUR 33 million to EUR 14 million due to increased refining margins and higher utilization rates. ADNOC Global Trading, which started its activities at the end of 2020, contributed to this result. The earnings from the gas business rose significantly to EUR 160 million.
They were supported by a strong performance of the power business in Romania on account of higher revenues from the electricity balancing market and higher power prices. In addition, a one-off reversal of certain provisions contributed positively to the results. Factors partially offsetting this development were the divestment of Gas Connect Austria and higher storage expenses. Gas sales volumes rose by 5% on account of higher sales in Germany and the Netherlands, which were slightly offset by lower sales in Romania.
The clean operating result of chemicals and materials increased from EUR 208 million to EUR 512 million, driven by strong margins, positive inventory valuation effects, and the full consolidation of Borealis. O&D's based chemicals business showed a slight improvement. Higher ethylene and propylene indicator margins were largely offset by higher customer discounts and increased feedstock costs.
The contribution of Borealis, excluding the joint ventures, grew from EUR 81 million to EUR 337 million. Despite higher indicator margins and improved steam cracker utilization, the Borealis-based chemicals business weakened due to substantially higher light feedstock costs and a decline in the phenol business. Polyolefin earnings rose sharply due to substantially higher margins and positive inventory valuation effect.
Polyolefin sales volumes in Europe were slightly lower as higher sales volumes in the energy and healthcare segments could not offset lower volumes in the mobility and infrastructure segments. The share of specialty products grew. The contribution from the fertilizer business was substantially higher as it benefited from positive inventory valuation effects, the reclassification as an asset held for sale, as well as strong sales margins.
The contribution from Borealis joint ventures, Borouge and Baystar, came in at EUR 138 million, primarily on account of higher polyolefin prices in Asia. Sales volumes came down by 9% from the exceptionally strong level of the Q4 in 2020 due to lower volumes at Borouge. In addition, we had equity consolidation for the entire quarter in 2021 supported the results. Turning to cash flow, our Q4 operating cash flow, excluding net working capital effects, reached a historical high of EUR 3.5 billion. This was driven by the strong market environment, good operational performance, and dividends received from Borouge in the amount of EUR 1.4 billion.
Following the initial successful EUR 4 billion external financing of Borouge, a special dividend of EUR 1.3 billion was agreed between the two shareholders, as funds are not immediately required for funding Borouge 4. Depending on future cash flow generation and external project financing, the shareholders will contribute equity and/or loans as required in the overall funding setup. Net working capital effects generated a cash outflow of EUR 672 million in the quarter, mainly attributable to higher oil and gas prices.
Despite the considerably negative effects, we recorded an excellent cash flow from operating activities for the quarter of almost EUR 2.8 billion. Looking at the full-year picture, cash flow from operating activities, excluding net working capital effects, amounted to EUR 8.9 billion, an astounding increase of EUR 6.1 billion compared with 2020.
Cash flow from operating activities more than doubled to EUR 7 billion, despite the big swing in net working capital effects. In 2020, we recorded an inflow of EUR 351 million, while in 2021 we had an outflow of EUR 1.9 billion. The organic cash outflow from investing activities amounted to around EUR 2.5 billion, which is 32% higher than in 2020. This is primarily attributable to the segment chemicals and materials.
The organic free cash flow before dividends for the full year came in at around EUR 4.5 billion, and thus contributed significantly to the deleveraging of the company. Let me give you an update on our divestment program. Since the announcement of the program last year in March, we have signed agreements resulting in a deleveraging effect of about EUR 2 billion.
After the successful closing of four projects last year, we realized around EUR 1 billion. In 2020, we expect closing with a deleveraging effect of above EUR 1 billion. This includes the closing of the divestment of the retail stations in Germany, our Slovenian business, and the closing of the nitrogen business. The closing of the sales agreement in Germany has been shifted to the H1 of 2022, as we are waiting for the antitrust clearance from the German authorities. Thanks to outstanding cash generation, the progress with the disposal program, the dividends from Borouge, net debt excluding leases decreased to EUR 4.8 billion compared with the Q3 of 2021. Consequently, our gearing ratio, excluding leases, decreased by seven percentage points to 22%.
We are now back to the 2019 level before the acquisition of the additional 39% share in Borealis. In the Q4, OMV incurred non-cash impairment charges and value adjustments of around EUR 1.7 billion. They are of around 40% for OMV's 15% share in OMV Refining, 35% for E&P assets, and 25% for the Borealis nitrogen business. E&P recorded a valuation adjustment of receivables triggered by the positive reserves reassessment in the Yuzhno Russkoye field. The overall impact on our gearing ratio, excluding leases, was only minor due to a strong balance sheet. At the end of December 2021, OMV had a cash position of EUR 5 billion and EUR 4.3 billion in undrawn committed credit facilities.
Ladies and gentlemen, as I already mentioned, we will reward our shareholders and again deliver on our progressive dividend policy. We will propose to the annual general meeting a dividend of EUR 2.30 per share for the business year 2021. This is an increase of 24% compared to the year before, a record in OMV's history. Since 2015, we have increased our dividends at an average rate of 15% per year. We hereby reconfirm our progressive dividend policy. I would like to give you an update of the synergies program we announced following the Borealis acquisition. We expect synergies of more than EUR 800 million until 2025 from operational cost savings, combined purchasing, debottlenecking, value chain optimization, as well as tax benefits. The program is well on track.
We realized synergies of more than EUR 200 million already in 2021. In the coming years, we expect synergies in the range of EUR 150 million-EUR 200 million per annum. I will now move on to the outlook and start with the capital spending. We are expecting an organic CapEx of around EUR 3.5 billion, which includes non-cash leases of around EUR 600 million. If we exclude the leases, our organic CapEx amounts to EUR 2.9 billion, which is in line with our previous communicated guidance of EUR 2.5 billion-EUR 3 billion per year. The increase in the leases in the amount of EUR 400 million versus 2021 is temporarily and expected to go down next year.
In Chemicals and Materials, we plan to invest in the PDH plant in Kallo, the ReOil demo plant in Austria, and in the expansion of our steam cracker in Burghausen this year. All projects are expected to come on stream in 2023. In addition, we plan to upgrade our production capacity in Antwerp to ensure supply security for growing energy projects. In Refining and Marketing, we will invest in sustainable energy projects such as co-processing and perform major maintenance turnarounds at our refineries in Schwechat and Burghausen. In Exploration and Production, we plan to invest in workovers and drilling projects in Romania and in our development projects, notably in New Zealand, Malaysia and Romania. The investments in chemicals, circular economy and low carbon solutions will account for around 40% of the entire yearly spending.
Looking at the market environment for the full year 2022, we assume an average Brent price of around $75 per barrel and an average realized gas price above EUR 25 per megawatt hour. We have no oil hedges in place, but we still have around 10% of our gas production hedged at around EUR 29 per megawatt hour in the Q1. In Exploration and Production, we expect average production of around 470,000 barrels per day in 2022, following natural decline in various countries and the divestments in Malaysia, Kazakhstan and New Zealand. The refining indicator margin is projected to be above the 2021 level at around $4.5 per barrel. We no longer have margin hedges in refining.
Despite two major turnarounds at our Schwechat refinery in the Q2 and at the Burghausen refinery in the Q3, we anticipate the utilization rate of our European refineries to be at a similar level as in 2021. Total product sales volumes are projected to be slightly higher than in 2021 due to continued demand recovery. Retail and commercial margins are estimated to be slightly below the 2021 level. In chemicals and materials, we expect the European ethylene and propylene margins to stay strong at the 2021 level. The utilization rate of our steam cracker is forecast to be slightly below 90%. We plan two turnarounds at our steam cracker at Stenungsund in the Q2 and at Burghausen in the Q3. Olefin margins are expected to decline from the exceptionally high levels of 2021, given rising energy prices and improved product availability.
The European polyethylene indicator margin is expected to be around EUR 400 per ton, while the one for polypropylene is forecast to be around EUR 600 per ton. The polyethylene sales volumes of Borealis excluding JVs are projected to be above the 2021 level, while the polypropylene sales volumes are expected to be slightly above 2021. Looking at cash flow, we forecast two extraordinary effects in 2022, which I would like to mention. Firstly, our tax liabilities in Norway increased significantly to around EUR 1 billion due to higher commodity prices in 2021. The major part, EUR 0.9 billion, will be paid in the first half of 2022. Secondly, we anticipate receiving around EUR 1 billion from Baystar as a shareholder loan repayment based on external financing.
The clean tax rate for the full year is expected to be between 40%-45%. Now I would like to thank you for your attention, and Reinhard and I will now be happy to take your questions.
Thank you, Alfred. Let's now come to your questions. I'd ask you to limit your questions to only two at a time so that we can take as many questions as possible. You can, of course, always rejoin the queue for a follow-up question. The first questions come from Mehdi Ennebati, Bank of America Merrill Lynch.
Hi. Good afternoon, all, and thanks for taking my question. First question on the chemicals business piece. You've highlighted that chemicals EBIT has been impacted by a higher discount to customer and also feedstock cost increase. Can you please tell us if those large discounts to customers will remain in the coming quarters in 2022 or no? And can you also tell us if it is mainly the gas price increase which impacted, you know, which inflated your feedstock cost or the naphtha price increase? And can you please also tell us if Borealis, Europe in general, is purchasing gas on long-term oil link price or is it purchasing gas on spot? This is the first question. And the second question is about the guidance you provided on polymer margins for 2022.
You expect them to decrease by roughly around 25%. What is your indicator showing, please, year to date compared to the Q1 of 2021? Do you already see this decline happening or not yet? In your margin forecast for full year 2022, did you take into account the easing of the logistics constraints which impacted, you know, positively the margin in 2021 or no? If you did take this into account, when do you think, you know, those logistics constraints will ease? If I may just a very small last short question, there was, you know, some news flow on Reuters highlighting that, when the group might be split into two companies, one the upstream business and the other one will be the chemical business.
Can you please update us on that potential split? Thank you.
Thank you for your questions, Mehdi. Let me try and answer those in sequence here. Let's start with the discount and the feedstock prices. I want to go back to just remind what I said in my initial presentation. This was a comment that was referencing to the OMV Chemicals business. The increase in feedstock cost is mainly an effect of higher naphtha costs that are also traveling with, let's say, in a certain connection also with oil costs. That's the feedstock cost comment.
On the discounts, that is the effects of the higher prices that we have here. As long as the price environment remains, this will remain to a certain degree in our results. On the Borealis gas purchases. I assume you're talking about the feedstock gas purchases for the chemical business. Maybe you're referring to the nitrogen business. I'm not exactly sure which one it is.
No, it's for the Borealis, not the nitro. Yes, for the chemical business.
Oh, okay. Okay.
Yeah.
Chemical business, yes. In Borealis, it's mixed because the crackers take a benefit of feedstock flexibility that there can be certain shifts between the feedstocks that are used in those crackers. The supply contracts are mirroring this capability, in some being longer term contracts that have linkages to market prices and others then being also spot contracts.
On the margin development for 2022, we can say that We actually had quite a strong start of the year on the olefin side. It's more or less at the same level that we also found on average of last year for ethylene and propylene. On the polymer margins, so those indicator margins, right? I want to emphasize that this is indicator margins that I'm talking about here. On the polyethylene indicator margins, we find also and polypropylene indicator margins stronger start of the year than what we indicate here for the full year, this EUR 400 and EUR 600. We came into the new year in January, more at the level of Q4 of last year.
Still a strong start. What we see is a continued good demand picture, as you point out, still some supply chain issues that are constraining material flows. Yes, we do see that over the run of the year, in particular, in the second half of the year, we will see those supply chain constraints improving as we move forward. Your last question was around the split of the company. There I would like to reference to the 16th of March where we will make the presentation of our strategy how we are going to move forward.
I don't want to comment on rumors that were picked up, I don't know how, in the press.
All right. Thanks very much for your answer.
You're welcome.
Thank you.
Thank you, Mehdi. The next question comes from Sasikanth Chilukuru, Morgan Stanley. Please go ahead, Sasi.
Hi. Thanks for taking my questions. The first was related regarding the dividend. The 24% increase in the dividend, of course, came ahead of consensus expectations of around 10%. I was just wondering if you could provide more color on how you have arrived at this level, the EUR 2.3 per share as the right level of dividend for now. What are the factors that have kind of led to this higher than expected dividend level? Do you also believe that there is room in your financial framework for a consistent double-digit % increases year-on-year in the dividend in future years? The second question was again related to the dividends, but the expected dividends from Borouge.
The special dividend of EUR 1.4 billion this quarter was indeed surprising. Can you give us some guidance on the expected dividend from Borouge in 2022, 2023? Also, if you could remind us what dividend payments are expected for the minority shareholders of Borealis during the period? They've remained quite low in 2021. That would be helpful. Thanks.
Sasi, may I just take these questions? I think regarding the dividend, we of course took into account a very strong cash performance that OMV was able to achieve in 2021. Not only because there was a special dividend from Borouge, but very much from the operational business. This increase is a little bit the reference to a record year in OMV, so that we were striving to have also a record increment to the rise of the dividend as a tribute and make sure that we let our shareholders participate in this successful year. On the other hand, it is linked with a very strong and continued commitment towards the progressive dividend policy.
What we mean by that is this is not a one-time peak where we say, "Okay, a good year," and then if there would be a year maybe with some lesser cash output, then we would have to go back to lower levels. We are convinced that we can achieve a similar or higher level for the coming years, and therefore we continue our commitment to the progressive dividend policy, in that sense very much. Regarding the dividends of Borouge, of course, we have to see that this special dividend from Borouge into Borealis is a possibility for Borealis also then to take the necessary equity injections into a Borouge 4 project, which of course over the next years, starting with this year, will consume some cash.
Therefore, there was the conclusion that giving that benefit from this year and from the refinancing that was done in Borouge directly to the share, that enables then over the next years also some cash flexibility. In that sense, we do not expect that there is a major deviation from the normal Borouge dividend into Borealis, because there is not necessarily a cash need for the financing of Borouge 4 out of their own cash flows that would then diminish the dividend basis. This will depend very much on the economic environment, which currently looks good, and therefore we are quite optimistic on that.
Great. Thank you.
Thank you. The next questions come from Michele Della Vigna, Goldman Sachs.
Thank you very much for your time, and congratulations on what's been a very good year. I had two questions, if I may. The first one relates to the EU green taxonomy. Companies are gonna start to report this year the percentage of their revenues and investments which are taxonomy compliant. I was wondering if that's something you've already starting to work on. Clearly, there are still a few issues that are being defined at the moment, but if you have an idea more or less of where the percentages will be for you on revenues and investment.
Then my second question really relates to the strong growth you are pushing for the circular economy. Some of your competitors are starting to move upstream into some of the waste processing and collection, especially for the biofuel side.
I was wondering if that is something as well that you would think could be strategic for the long term. Thank you.
Maybe I start with the second question, and then maybe Reinhard can answer the taxonomy piece. Of course, we'll present more details to you on March sixteenth how we want to go about these things. One thing I can say here that two of the key pillars on the strategy going forward will be circular economy and sustainability. You may have read recently our agreement with Austrian Airlines around sustainable aviation fuels, or you might have also picked up that we launched in the second half of the year EcoMotion Diesel, that is a solution as a liquid fuel, but with lower CO2 emissions.
We see actually increasing opportunities both around the circular economy or the broad circular economy that's both on the recycling of plastics, but also on sustainable fuels, be it now bio or e-fuels that we see going forward in the future. As you point out, building supply chains and supply chain partnerships is critical with this. For our ReOil 2000 project, for example, it's we have agreed the sourcing here with Austrian waste management companies and sourcing this mainly for Austria. Of course, we also have a longer term view how we will then make a next step into bigger scale production. Maybe on the taxonomy, Reinhard, can I ask you?
Sure. Michele, I think what is important to understand that of course, we are now deep into this process of preparing this new reporting requirements for the year 2022. The progress is to make a taxonomy eligible reporting, and then the year after, we will go into taxonomy applicable. This is the way that is foreseen also as a general standard. Therefore it's too early to give you exact numbers, but you can be sure that there will be a quite rich and transparent picture about that.
I would still refer to what Alfred has already indicated, that also in 2022, around 40% of our investments will be for chemicals, for circular economy and for sort of green new energy and sustainability measures. This can give you a little bit of an indication on how we plan for the future.
Thank you.
Thanks, Michele. We now come to Josh Stone, Barclays.
Thanks, good afternoon. Two questions, please. One on the upstream, just looking at the production levels at 470, do you think this is a level that can be sustained at current investment levels, or should we expect the declines in later out years? Secondly, if I just look at the downstream performance in your sort of core business in the quarter, it was quite weak despite better headline margins. I presume that's power costs, maybe carbon costs. Maybe if you could just talk about that and if there are any other one-offs we should be thinking about when thinking about modeling for next year. Thank you.
Yeah. On the production level for E&P, we are saying for 2022 our outlook is 470,000 barrels per day. That is mainly on the back of some divestments that we have done. In addition, some natural decline, mainly driven by Romania, first of all, and then to some degree also from Austria. These assets are older assets where we will see natural decline also in the future. In that sense, it's a project story that we will probably see also going forward.
However, at the same time, we have a significant CapEx spend for 2022 in E&P of EUR 1.3 billion.
Some of this CapEx also goes to the development of some of our key projects moving forward to compensate these natural declines, and the three big things there are really New Zealand, in Romania, Neptune and Malaysia, the Jerun field that we are working on there. On the downstream results, what we saw there in refining and marketing, we actually saw in the Q4 in improving demand picture. We could actually see that our capacity utilization, also the run rate of our plants, was on the higher level. We also saw a good development of the price situation and margins.
However, at the same time, we did also see some catch-up effect around cost, as you point out, mainly utility cost that is catching up with us in those areas.
Thanks, Alfred. Are you able to give a number on that utility cost or any sort of order of magnitude?
I don't have one. I'll check with Reinhard if he has anything, but I don't have one off the top of my head.
Okay. That's fine. Thank you.
In Q4, that amounts to a lower double-digit EUR million amount.
Thanks, Reinhard.
Thank you, Josh. We now come to Peter Low, Redburn.
Yeah, thanks for taking my questions. The first was just on the average gas price realization. You're assuming for next year over 25 EUR/MWh is clearly a very high level. Can you just walk through some of the assumptions that get you there? In particular, perhaps kind of what spot prices you're assuming in Europe, and then to what extent, for example, your Romanian realizations benefit or not from those. My second question was just really a clarification on the Borouge cash flow dynamics. You said that you'll continue to receive dividends in the coming years from Borouge, but you also might have to make equity injections. I guess that they will net off to some extent. Did I understand that correctly or am I missing something?
Thanks.
Okay. I'll start off with the gas, with your question around gas. I just want to recap briefly what our gas business situation looks like. We have about 20% of our gas exposed to Western European pricing. As I said before, also half of that, so about 10% of our total volume in the Q1 is still hedged at EUR 29 per MWh. After that, we have no more hedges. The remaining business that we have is about 80% is also exposed to international pricing situation, Romania, and then also in Malaysia.
Then of course, Russia, where about half of it is exposed to BAFA price and the other one, Russian inland prices. With the development we have in 2021, we had in the Q4 still also gas price hedge of the same 27%. The average price was about 27. The average realized gas price was about 27 EUR per megawatt hour. That's how we left last year. On average for 2021, it was 16.5 EUR per megawatt hour. We believe that the gas demand will remain strong in the next couple of months with a tight supply situation.
With the hedges coming off, and the strong demand situation with tight supply, this is how we get to the EUR 25 per megawatt hour average gas price, realized gas price, for the full year. On the Borouge cash flow, you're indeed correct. The special dividend was on the back of a agreed funding policy for Borouge 4. At this moment, of course, since we only took the FID now, there was no immediate need for that liquidity, and that's how we agreed on a special dividend.
On the way forward, as Reinhard already pointed out, we are rather optimistic about the funding of the Borouge 4 activities. But it may require, depending on how that project go forward, and how the funding can be achieved, To make some equity injections.
Thank you.
Thanks, Peter. The next questions come from Raphaël Dubois, Société Générale.
Hello. Good afternoon. Can you hear me correctly?
Yes.
Yes, we can.
Yes. Excellent. First off, let me congratulate you for those results. I have two questions, please. One is on the UAE. They have recently announced they will start taxing corporations at 9%. I was wondering if you could tell us a bit more about the impact it will have on the money you get from Borouge as well as from ADNOC Refining. Still on the UAE, on the Borouge 4 expansion project you announced recently, could you maybe tell us a bit more about the inflation that you have seen between the time you were thinking about the project and the time you sanctioned it?
Maybe still on the UAE, I'm still not certain to understand why you feel you're better off with the cash transfer to Austria rather than having this EUR 1.3 billion still sitting in the UAE waiting for eventual calls on financing this very large project. Thank you very much.
Yeah, Raphaël, if I may start with the first question of the 9% corporation tax. The reason actually for that is, of course, the urge of UAE also to be among the, I would say, investable countries that are compliant with general tax rules and not be more or less considered as a tax haven that would evade some of the normal ways of business. Therefore, we were expecting that, and this is a step that is very much aligned with the way how the countries are trying to still stay attractive for investment and on the other hand, not to be excluded in any kind of compliance topics that may be imposed.
Therefore, the impact that we see on our operations there is minimal and has been considered already in the plans as far as we could do it. Regarding your question about inflation, we cannot see that there is any difference in terms of planning regarding CapEx or EPC contract. At the moment, I think with such a significant and important project, there is still a very good negotiation position, and therefore we are not too concerned that that would change anything in the general profitability of this amazing project, because of course, with this magnitude, it will be much more relevant how the market conditions and the competitive position regarding the Asian market will be rather than the costs now immediately at the beginning.
To your third question, of course, the question is legitimate to say, where should that money sit? The original consideration clearly was to say, now that the money is there and a common decision on investing for a significant project is there, and we don't know what kind of financing opportunities will come. Let's first reward the shareholders and get the money out both to ADNOC as well as to Borealis. Also make sure that bit- by- bit, where necessary, equity injections will be done and will come. I think this is certainly something that will come in 2022 and 2023.
However, there are also opportunities to do direct project financing on this project Borouge 4, and therefore, with all these kind of considerations, the conclusion was that it's wise to do some cash out at the moment.
Excellent. Can I maybe just ask one quick question?
Sure.
Yes. Great. It's on the Borealis nitrogen. Can you maybe say, year-on-year, how much worse have been the results at EBITDA level? Just to have a rough idea how you've been impacted by some of the curtailment decisions you've taken, as well as the higher gas prices.
Yeah, what I maybe could say is that in comparison to 2019 and 2020, there was a significant impact of the higher gas prices in the nitrogen business. As you point out, some of these gas prices, at some point, the situation was such that it made the ammonia production not very attractive anymore. The impact was significant in that phase. Towards, as we went along in the year, some of the prices started to ripple through the supply chain.
Towards the end of the year, it actually started to improve significantly and the pricing situation in the market also started to reflect the actual feedstock cost changes that have been seen over the years. It was a bit of a movement through the year, but in the total of 2021, the impact was negative. It was then recognized with a positive price development towards the later end of the year.
Great. Thank you.
Thanks, Raphaël. Next questions come from Tamás Pletser, Erste Bank.
Yes, thank you very much. Good morning. I got two questions, and both are related to your refining activity. I mean, your indicator refining margin, does it include the cost of energy, I mean, natural gas and electricity as well as the CO2 costs? That would be my first question. I'm pretty much interested in, you know, whether your higher estimate of this margin for 2022 includes these costs or not, because that can be a little bit misleading in my view if this indicator margin doesn't include these costs. My second question would be regarding ADNOC Refining. It's already in a positive territory.
I'm just interested in what do you expect here, and what kind of EBIT would you be happy with, or what kind of level do you think would be satisfactory in the future? Thank you.
Tamás, maybe let me take the first question, then Alfred will take on ADNOC Refining. Regarding our indicator margin, energy costs are not included for natural basis. This is really an indicator margin that we see there. We do not see that the energy cost as such will then change the margin as such. The margin is what is ultimately coming out.
Therefore, if we have a higher estimate, this is certainly also if you take a little bit the very high oil prices that we have today, which are also above the oil prices that we have as an average, which are still at a rich level, but as an average still a little bit lower than the current levels, that this stabilization where the upward trend is stopped will also have a positive impact on the refining margin, and that will help stabilize the refining margin also on that step. Not a direct connection to the energy prices that we're expecting.
I will take the second question, Tamás , on the ADNOC refining business here. We had quite a good improvement of that business over the last couple of months here. In the Q4, we actually had a positive contribution then from the ADNOC refinery versus quite a negative in the Q4 of 2020. That is also reflected through the year that we had a move forward. The move is actually made by two things.
One is better operational performance of the asset, but at the same time also improved refining margins in the Middle East there that allowed for that result. As a total then the full year we had significantly improved, but still a negative result in the ADNOC refinery. This will be the big task over the next couple of months, to continue to work on the operational performance of the plant and also make sure that we continue to work on the cost side in order to go there.
The reason for the impairment that I have mentioned earlier that we took on that 15% share of the refinery is that our expectations of the market development are lower now than they were three years ago.
Okay. Good. Good. Thanks so much.
Thank you, Tamás. We now come to Matt Lofting, J.P. Morgan.
Great. Hi, gents. Thanks for taking the questions, and congrats on very strong execution through the last 12 months. Two things if I could please. First, ReOil, coming back on some of the earlier feedstock supply chain comments, can you just expand on some of the key logistics and procurement steps and systems required from a raw material perspective and how challenging or it may be to expand that from the first phase over the sort of the medium term to perhaps sort of extend the reach outside Austria to facilitate scaling up over the medium term? Second, project execution and cost inflation, I think you referenced confidence around Borouge 4 earlier. But could we just expand to the broader sort of project slate that was outlined earlier in the presentation?
Sort of thinking about both the upstream oil and gas side, and also chemicals and materials, to what extent are you seeing supply chain tightness or cost inflation becoming a headwind to budgeting in any specific project cases? Thank you.
Maybe let me start with the ReOil project. Yes, you are absolutely correct, right? In order to run such a plant, you need to have the right feedstock, and that is not just the quantities, but also the right qualities in order to make the plant work efficiently. I think OMV, we are one of the few companies that actually has the advantage that we had a pilot plant running since 2018 in order to test. That pilot plant is actually integrated into our refinery operation in Schwechat. So it's real life operating conditions where we are doing this but at a smaller scale.
That plant gave us the opportunity to also work with supply chain partners, but to also understand better what the implications of different qualities or compositions of the feedstock stream are. On the way forward, I already indicated that we have a clear view on a next step beyond this immediate next step, right? Now we built the 16,000, and then we have a view that by 2026 we will have a 200,000-ton plant in operation. Of course, that also continuously ramps up the feedstock challenges. What is required is two things, the partnerships to get access to sufficient quantities of the feedstock.
The second I already alluded to as quality, and that requires sufficient access to sorting capacities that make sure that the right quality levels can enter that plant and allow an efficient operation. This is actually a part I do believe at OMV we have quite an advantage because of this pilot plant since 2018, and quite advanced with securing the feedstock for the next step now for the ReOil 2000 and working on further steps.
On the second question that you had around execution of the project and inflation, I can maybe answer part of this that as Reinhard indicated on the Borouge 4 project, that is of course something where we have just taken the FID and recognized the current situation. What was of course visible over the last couple of months is some constraints around workforce in those projects, and also some constraints around supply chains.
I think now after 18 months of this pandemic, our teams and our projects have understood how to try and manage and mitigate most of those results that my estimate would be that from where we stand today, we have tried to recognize a realistic situation on the way forward.
Matt, maybe to add to that, I think we are in the position, at least for 2022, partly also for 2023, that we are in our spend mainly in multi-year projects, which have been almost completely contracted out. Inflation does not hit us in that way. Most of the big projects like Kallo, like Baystar, or the PP5 in Abu Dhabi, but also the Sharjah project, they are more or less in existing contracts, and we do not see now inflationary tendencies or supply chain constraints. The big project, Neptun and Borouge, we'll of course have to see.
At the moment, we do not see major constraints, but this is specifically in Neptune. We still have to wait for the agreement on the offshore law before we can start preparation for contracting this and finding EPC contractors and all that. This is the only area where we could see a potential impact. The others, and that's the main part, we see in quite safe and stable situations.
Good. Thank you, Matt. Now the next questions come from Henri Patricot, UBS.
Yes, hello, everyone. Thank you for the presentation. I have two quick questions, please. The first one is going back to the CapEx guidance for 2022 and the higher amount of non-cash leases. Can you perhaps expand on what's driving this temporary increase in 2022 and why that drops next year?
Secondly, can you share some comments around what you're seeing on fuel demand trends year-to-date, as we see kind of COVID restrictions being lifted gradually, but we also have higher prices? I'm interested to hear how you see demand evolving year-to-date.
Henri, maybe on the first question, on the second Alfred will dwell. On the CapEx side, the high non-cash, so the so-called IFRS 16 cash out, where we have to more or less put in our cash flow in our CapEx accounting all those leases. This is specifically project related, where we have big warehouses, both in Belgium as well as in Sweden, where we are investing into buildings that we do not own, but that we will lease out. These are quite sizable investments. Of course, in general, there are a couple of investments, like also filling stations and things like that, where leasing concepts come to bear.
This indeed is not a cash out of this total amount of EUR 600 million that we have for 2022. It's a fraction only of that. Therefore, we also split that in transparency to you to say the organic directly cash relevant CapEx expenses will be in the range that we have originally laid out at or below EUR 3 billion. Yeah.
Okay. I will try and give some color to your question around the COVID and development and influence on demand picture. I think it's probably a bit of a mixed picture that we see. I think that potentially even also true for the COVID pandemic. I mean, as you all know, it's not quite over yet. I would actually anticipate or what we have seen over the last couple of months, some potential issues coming around availability of workforce in the supply chain. I just mentioned the cancellation of flights before Christmas in the U.S., for example.
We anticipate still a healthy development for 2022. Further need in the different segments that we have so that we should actually see some improved demand there. In particular in oil and gas. This is also then the basis for our belief in average Brent $75 as an outlook for this year and our average realized gas price of about EUR 25. The refining margin we also see for Europe increasing significantly above the 2021 level to $4.5 per barrel.
I think that reflects our expectation of a healthy demand growth. I think a big uncertainty, as I said, is still how fast will the supply chains continue to normalize, and will we still see issues around those supply chains? At this moment, we still see some significant challenges around it, and therefore, tight supply and supply chain situations.
Okay, thank you.
Thanks, Henri. We now come to the end of our conference and would like to thank you for joining us today. Please mark March 16th in your calendar, the day of our CMD, where we will present our Strategy 2030. Should you have any further questions, please contact the investor relations team. We will be happy to help you. Goodbye and have a nice day. Thanks.
Thank you. Thank you very much. Have a great afternoon.
That concludes today's teleconference call. A replay of the call will be available for one week. The number is printed on the teleconference invitation, or alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers. Thank you.