a double responsibility preem petroleum annual report 2006

Moving forward

contents

The future is our most important market

Measures to improve the environment

Our organization – from supply to distribution

Our employees

Our offer

A look back at 2006

Financial documents

Directors’ report

Notes

The Preem Petroleum group’s operation in brief

Senior Management

Board of Directors

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8

18

32

36

42

44

58

68

86

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89

Welcome to the Preem Annual Report for 2006. this is a summary of the past year

– but also a look at the future. How are we to progress in our role as a transportation

fuel supplier? the answer is double-edged: society needs our products, while we have

to ensure that they are produced and used in the most energy and environmentally

efficient way possible.

our journey from oil company to transportation fuel company is well underway. this

Annual Report gives you an opportunity to find out what work has been carried out so

far and what the results have been to date.

© 2007 Preem Petroleum AB. We accept no responsiblity for any printing errors.Photography: Per Asplund, Hans Berggren, Antoinette Eugster, Lena Granefelt, Hans Gustafsson, Olof Holdar, Anna Lassen, Rustan Olsson, Evelyn Eliasson, Thomas Ögren, www.matton.se and www.gettyimages.com Print: AlfaPrintDesign: Infobahn

Preem Petroleum | Annual Report 2006 �

As I look back over 2006, I can say with some certainty that

it has been a year of many exciting events for us at Preem.

It has also been a year of major, labor-intensive organiza-

tional changes. 2006 was a year of even more marked focus

on the environment, both for Preem’s own production

and in the form of improved products. It was also a strong

financial year, even if we did not quite achieve the heights

of 2005. Despite this, sales increased to seK 67,435 million,

excluding taxes and VAt.

The future is our most important market

� Preem Petroleum | Annual Report 2006

Some important eventS in 2006

May saw the inauguration of the new isocracker plant at Preemraff Lysekil. This is an investment of just over SEK 3.1 billion which means that we can now convert 3.4 million tons of heating oil into sulfur-free diesel.

To me, this project is clear proof that we are applying our strategy in practice, and are optimizing production and focusing our operation on sulfur-free diesel, the fossil fuel most preferable to the climate. We have a responsibil-ity to utilize the oil in the best way possible. Fossil energy should not be used when there are excellent non-fossil substitutes suitable for, for example, heating purposes. By turning heating oil into highly-efficient transportation fuels and fuel components, we optimize our production and ensure that we obtain the greatest possible value from the crude oil.

The gasoline price war and the continued falling vol-umes in the Swedish heating oil market triggered a neces-sary strategic change within business area Market. To pro-vide our customers with an even better service, we will be increasing and deepening the level of collaboration with strong business partners. An example of this is our part-nership with Menigo (formerly ICA Meny) in the dev-elopment of our shop concept. Our new partner within the carwash area is Wash Tec. Rather than committing ourselves to our own road tankers, we have handed over responsibility for our deliveries to Hoyer Svenska AB. They have high standards for health and safety and the environment, and a road safety policy, which are extremely important parameters for us.

Another way in which we are improving customer service, is through increased collaboration with local agents. They are now handling all our sales of domestic heating oil, as well as sales of our products to smaller local companies. Customers benefit by gaining access to high-quality products supplied by partners with signif-icant local knowledge. This means that we can focus on major corporate clients and improve the level of the overall offer to them.

In 2006, we also implemented a major organizational change at our filling stations. The aim is that all our man-ned filling stations are to be operated by independent dealers. This is a measure triggered by new customer demands and increasingly fierce competition in the filling station market. At the same time, the use of dealers with local knowledge and their self-employed drive improves the level of service to customers.

The roll-out of a completely new carwash and shop outlet has now begun at our stations. This involves giving premises a significant face-lift, both inside and out. In a fiercely competitive market, we are one of the few organiz-ations to invest in the future.

the buSineSS in brief

2006 was another year of very satisfactory profitability for the refinery operation, even though the record levels of 2005 were not repeated. The global refinery margins fell somewhat during 2006 in comparison with 2005, but were still at a high level. The weaker margins were offset by the new isocracker in Lysekil. An extensive price war on the filling station market resulted in low profitability in the industry as a whole, and this affected us, too. Despite the reorganization and a fall in the volumes of heating oil, our Business-to-Business segment achieved the best result ever. Overall, our sales rose by 26% to SEK 67,435 million, excluding taxes and VAT.

65% of our total production was exported at a value of SEK 41,473 million. This is the highest figure ever we have achieved as exporters, which is very pleasing. I was also pleased with a return on capital employed of 21%.


investment in upgrading our plants continues. Our ambi-tion is to convert the remaining fuel oil into the world’s best transportation fuel by 2011.

This investment is a natural step as Preem chang-es from a traditional oil company into an innovative and modern transportation fuel company. The use of heat-ing oil is being superseded by ground heating and district heating in Sweden and gas in Europe. We will primarily be providing products for the transport market. The tran-sition to alternative fuels and energy solutions for vehi-cles will, however, take time. In this area, we are investing heavily in solutions adapted to the environment, not least through renewable components such as ethanol in gaso-line and FAME (e.g. rape methyl ester, RME) in diesel.

An exciting challenge facing our refinery operation is to transfer some of the production to non-fossil fuels: in five years time, our goal is that 10% of our production will be non-fossil. We are, for example, looking at the use of “green” hydrogen gas in our production, e.g. through the gasification of biomass. The hydrogen gas would then increase the renewable portion in our diesel. All this we can achieve in our existing refineries.

The advantage of our operation being located in Sweden is that we can develop products which meet cur-rent requirements – not least in respect of environmental adaptation.

It is quite clear that the future is our market. I am looking forward to a Preem in constant development, a Preem finding new, exciting business areas, a Preem taken forward by a committed and positive staff.

We start this journey with the winds of change blow-ing fair for us.

Finally, I would like to thank all employees at Preem for an excellent effort in 2006.

Michael G:son LöwPresident and CEO

for continued improved credibility

Preem is the market leader in Sweden in the area of heat-ing oil and diesel. We supply energy and fuel to customers equivalent to 15% of the country’s total energy consump-tion. We are also one of the largest exporters in Sweden. Our result in 2006 improved the Swedish balance of trade by SEK 4,200 million.

The above figures are only some examples of our position.

Despite this, our operation is relatively anonymous. We need to become more noticeable and take a stronger posi-tion, not only as an important company and employer, but also as a credible partner in discussions on future energy issues. This kind of credibility is not simply awarded – it must be built up. We will achieve this by accepting our responsibility for the environment, by using the latest tech-nology to improve the environmental sustainability of our production and the consumption of our products.

the journey continueS

We currently have just over a third of the Nordic refinery market, and 80% of the Swedish. The aim is to remain a dominant player who always has the most environmen-tally and energy-efficient refinery system in Europe. The


n The new plant for the production of sulfur-free diesel at Preemraff Lysekil was inaugurated, with a speech by Prime Minister Göran Persson and guests including Preem’s owner, Mohammed Al-Amoudi.

n Preem and Perstorp AB enter into a partnership with the aim of increasing the sale of renewable fuel in Sweden. As part of the partnership, Perstorp builds a new factory for the production of rape methyl ester (RME).

n Preem launches a new diesel product, Active Cleaning Power (ACP), an environmental class 1 diesel which opti-mizes engine output, reduces emissions harmful to health and the environment, and lowers fuel consumption.

n The Swedish climate policy is unveiled in ”National climate policy in a global context”.

n The Swedish minister of enviroment, Lena Sommes-tad visits Preemraff Lysekil. We announce plans to reduce the production of fuel oil and increase the production of Swedish environment class 1 diesel by 60% in five years.

n Price wars at filling stations rage throughout the summer. We decide to lower fuel prices to under SEK 10 per liter at selected stations, in a move to really boost sales.

n Preem increases its collaboration with local agents and dealers.

n The Commission against oil-dependence presents its report “Moving towards an oil-free Sweden” with pro-posals for measures for homes, transport and industry.

n From August, we are adding 5% rape methyl ester (RME) to our diesel. This renewable component allows our customers to reduce their carbon dioxide emissions by a total of 165,000 tons per year.

n The price of crude oil reaches a new record level: USD 78.7 per barrel.

n The Secretary General of the Oil Commission, Stefan Edman, talks about environmentally-efficient diesel vehi-cles in connection with the Lysekil Women’s Match sailing race.

n The installation of Ethanol pumps (E85) continues. We now have 61 filling stations for E85 between Malmö in the south of Sweden and Haparanda in the north.

n In Sweden renewable fuels consists of around 2.9% of total fuel sales. Almost 80% of all renewable fuels in 2006 were in the form of low-blend in petrol and diesel. The second largest was Ethanol (E85) which consists of 15% of the renewable fuels on the market.

n A license application for the Coker project is submit-ted. The purpose is to further upgrade Preemraff Lysekil and to play a part in the energy transition by reducing the production of heavy fuel oils and increasing the produc-tion of sulfur-free transportation fuel.

n Preem commissions the Västra Götalandsregionens environmental medical unit to carry out a health study in Lysekil. The study generates a great deal of local interest, and a report will be presented in spring 2007.

Events during the year


ours is a double responsibility. Without oil,

society would cease to function, so it is up to

us to supply the products that people around

the world require. But we must also ensure

that the products are produced and used in

the most energy and environmentally efficient

way possible.

Measures to improve the environment

a tranSition which takeS time

The primary cause of global warming is the burning of oil and coal. When these are burned, they release carbon dioxide. Even so, these fossil fuels will be the dominant source of energy for a long time to come. Consumption is even expected to rise.

The obvious solution is to make existing produc-tion and usage even more efficient while, at the same time, developing new sources of energy that will grad-ually replace the old systems. The easiest way to reduce dependence on oil and the amount of carbon dioxide

emitted is to replace the use of oil products in fixed instal-lations with biofuels and other renewable sources of energy. Petroleum products should be used where they are most effective, i.e. as transportation fuel.

The more brains brought to bear on a problem, the better. To achieve results, it is important that the industrial sector, the academic world and the politicians work in partnership. Preem plays a natural part in this long-term effort. Our experience gives us the knowledge to urge issues, create commitment and work for change.


fossil fuels are an important part of our operation. We focus primarily on diesel, with the aim of converting most of our remaining heating oil into sulfur-free fuel by 2011 at the latest. At that point, we also expect the share of renewable fuels from Preem to have reached 10%.

The EU target for 2006 was that all road transport fuels should include 2% renewable fuels, based on energy content. In 2006, Preem’s share of renewables was 2.3% for road transports. In August 2006, a change in the law permitted amounts, up to 5%, of FAME to be added to diesel. In 2007, this will mean that our renewable fuel share will have increased to at least 4.6%. Our target is a 10% renewable share in 2011 (in comparison with the EU target of 5.75% by 2010).

Low-blend means adding renewable fuels to gasoline and diesel. Ethanol is added to gasoline, while low-blend in diesel goes under the collective name of FAME: Fatty Acid Methyl Ester. At present, low-blend of up to 5% is permitted, but we want to double this figure. By simply increasing the low-blend in gasoline to 10%, carbon dioxide emissions in Sweden could be reduced by 1.2 mil-lion tons per year. The Swedish government must, conse-quently, drive the issue of the EU permitting an increase in the amount of ethanol added to gasoline.

If we increase the share of renewable fuels in gasoline and diesel, we make it possible for everyone to reduce the emission of greenhouse gases – even those who are not in a position to buy an environmentally-adapted vehicle.

the important iSSue of carbon dioxide

In issues relating to carbon dioxide, it is important to look at the whole picture and to consider production as well as consumption. Preem’s refineries are currently among the most environmentally and energy efficient in Europe. We emit 40% less carbon dioxide than average per produced unit.

But the more advanced a product is the more it needs to be processed, the more energy is required to produce it.

The demands on fuel are rising, since the emission-reducing equipment in modern vehicles require a better quality of fuel to function optimally. Increasing demands on fuel from the car industry and increasing environmen-tal demands for “cleaner” fuel means that more energy is required at the production stage. The fact that we remove,

for example, sulfur and benzene from our fuels means that our refineries are emitting more carbon dioxide.

In the final analysis, total emissions are, however, reduced as a result of the environmental gains when the products are used.

preem optimizeS every drop

By moving our production from heating oil to highly- efficient transportation fuels, we ensure that the crude oil is utilized in the best possible way. The aim is to opti-mize every drop. And this applies to every form of energy, whether of fossil or non-fossil origin. It means that non-


the renewable fuelS of the future

We work actively to increase our production and sales of renewable fuels, in accordance with Sweden’s ambitions to be a pioneering country. But we do so methodically and with a critical approach. A potential alternative must, for example …

… generate less greenhouse gases than current products (other emissions must be at a level with or below those of current products)… produced in an ethical and environmentally sustain-able way

At Preem, we actively monitor the world around us and the research and development of more environmentally-sustainable fuels.

more exampleS of our environmental work

More RME to SwedenThe use of renewable fuels should be encouraged. But first, the necessary components must be available in sufficient quantity. To remedy this, Perstorp AB has signed a partnership agreement with Preem for a pro-duction plant for rape methyl ester (RME). The factory will have an initial capacity of around 160,000 m3 per year, but is designed to cope with expansion as demand on the market increases. The aim is for sufficient pro-duction to cover our whole requirement for adding 5% RME to diesel.

Windpower provides electricity for our refineriesWindpower is a clean and renewable source of energy which we are planning to use in our own production. In partnership with a number of other companies, we have, therefore, set up the VindIn windpower project which, within five years, is expected to produce envi-ronmentally-sustainable electricity at a scale of one terawatt hour (TWh) per year. This is approximately equivalent to the annual energy consumption of 40,000 single-family houses.

If disaster strikesIn partnership with the Djurensö (Animal island) foun-dation, we have published a handbook on how to deal with birds caught in an oil spill. The target groups are coastal communities, animal welfare organizations, those

10 Preem Petroleum | Annual Report 2006

involved in wildlife management etc. We hope that this book will help prevent unnecessary suffering and, in a wider perspective, explain what happens during an oil spill and how to act quickly.

Studies of future energyWe are involved in active discussions with Chalmers University of Technology Energy Center, primarily to find solutions which will reduce the emission of greenhouse gases. Four technical areas are being looked into: bio refining, energy efficiency enhance-ment, upgrading of surplus heat and carbon dioxide separation. We are also working at a communicative level: technological innovations versus humans. The partnership is completely in line with our environ-mental policy, in which we are promoting a dialogue with scientists with the aim of finding new, sustaina-ble solutions together.

Our environmental policyThe use of oil-based vehicle and energy fuels affects the environment at all stages, from production to consumption. Preem is a significant player in the northern European oil market, and is working to meet the demand for energy in the most sustainable and environmentally-compatible way possible. We take responsibility for minimizing the envi-ronmental impact involved in the production, distribution and use of our products. In our work, we take account of the global as well as the local impact. Our environmental responsibility involves:

n Drawing up concrete environmental targets which are measured and followed up.n Adopting systematic and structured measures to improve our products and processes as part of the every day work-ing process. n Constantly improving the efficiency with which we use energy and other natural resources.n Always considering any environmental issues in our choice of materials, input chemicals, suppliers and contrac-tors, and in the assessment of new processes and products.n Carrying on the various Preem operations in accordance with current environmental permits, and meeting the envi-ronmental requirements laid own in laws and regulations.n Developing environmentally-adapted vehicle fuels in close consultation with the appropriate authorities.n Maintaining an open dialogue and collaborating with the authorities, scientists, environmental stakeholders and cus-tomers on issues relating to our environmental impact, with the aim of jointly achieving long-term sustainability.n Ensuring that Preem’s staff, as well as appointed agents and transport organizations, have sufficient environmental expertise.n Providing regular and accurate information on our envi-ronmental work to customers, agents, suppliers and other affected stakeholders.n Providing regular and accurate information on the han-dling and end-usage of our products to customers, agents and other affected stakeholders.n Continuously identifying, communicating and managing the environmental risks of our operation.n Maintaining a high level of preparedness with the aim of minimizing the damaging effect on human health and the immediate environment in the event of an accident.

Preem Petroleum | Annual Report 2006 11

An athlete doesn’t leave anything to chance when prepar-ing for a major championship. Exercise, equipment, diet and so on – everything has to come together. We take the same approach to our environmental responsibility. We have to be in full charge of all aspects. Our responsibility starts as soon as oil is transported to our refineries...

Safe crude oil tranSportS

Crude oil and other components used in our produc-tion are transported to our refineries. For approximate-ly five years, we have concentrated our purchases of crude oil to Russia and the North Sea markets relatively close to Sweden. The short transports across the Baltic and the North Sea means less fuel consumed at sea and less envi-ronmental exposure.

Sea transport involves many risks. Consequently, Preem products are only carried aboard ships with double hulls which meet the requirements for ice classification. We work closely with the shipping companies to main-tain safety, and this, in combination with inspection reg-ulations issued by us which carefully determine which ships may be used to carry our products, ensures safe transports. Preem’s regulations are very highly regarded internationally.

In 2006, the tanker, Bit Okland, was completed. She will carry diesel and gasoline. This modern vessel is built to operate as a time charter ship on Preem’s behalf, and is owned by Tarbit Shipping AB. The ship is in full com-

pliance with our strict environmental and safety require-ments. In addition to a double hull, the requirements of Ice Class 1 A are also met. The ship also has an extra set of engines and propellers which is a double insurance for the ship’s operation. But there are other important factors which should be highlighted:

”It was important to us to reduce nitrogen oxide emis-sions which cause acidification and over fertilization of the sea. For this reason, we laid down specific requirements for the ship to be fitted with comprehensive emission-reducing equipment,” says Catarina Lotse, manager of Shipping & Operation. “We expect this to reduce nitrogen oxide emissions by 550 tons per year, and this is only the first step in halving the pollutants from our hired and chartered ships.”

Responsibility all the way

Bit Okland

Deadweight: .. 24,853 ton Length: ........... 177.03 m

Beam: ................ 26.30 m Hull type: .....Double hull


world-claSS production

Preem’s two refineries are among the most environmen-tally and energy efficient in the world. Emissions per pro-duced unit are among the lowest in the world. They emit 73% less sulfur oxides, 78% less nitrogen oxides and 40% less carbon dioxide per produced unit than other western European refineries (source: the Solomon study 2004). Over the past decade, we have cut emissions of hydrocarbons by two-thirds and, specifically for benzene, we have reduced our emissions by 80%.

In total, our emissions to the atmosphere and water are 95% lower than those of other European refineries.

This is the result of continuous investment in energy optimization, purification and combustion technology – something which we will continue to invest in.

Preem Petroleum | Annual Report 2006 1�

Gas which makes a differenceAnother important factor in keeping our emissions low is that we primarily use gas and not petroleum prod-ucts as a fuel in the production process. The aim is to increase the use of natural gas, which, due to its high hydrogen content, is an important raw material in the production of sulfur-free diesel and gasoline. By using natural gas as a raw material, Preemraff Lysekil should be able to reduce its carbon dioxide emissions by 140,000 tons per year.

The option of building a gas pipe from Kårstö in Norway to Sweden is being investigated. In 2006, a pilot study, which looked at the investment require-ments as well as the practical and license conditions, was carried out. Significant synergies could also be achieved by piping products from the refinery to our partner’s, Borealis’, cracker plant in Stenungsund. Piped transport would reduce the number of sea transports through the Bohuslän archipelago. A reduction in the number of sea transports will also cut down on carbon dioxide emissions.

Surplus heat – an alternative to heating plantsThe production process at our refineries generates a great deal of surplus heat. In 2006, we delivered heating equiv-alent to 2,000 road tankers – or 500 GWh – to Volvo, the City of Gothenburg and Lysekil. This is sufficient to meet the requirements of the recipients for a full year. The sur-plus is so great that we would be able to provide even more municipalities with energy, and so reduce the need for them to build their own heating plants. We are in con-stant contact with various municipalities to ensure that this valuable resource can be utilized.

Improved safety in a hazardous environmentGothenburg is the home of our lubrication plant, Scanlube, which has been the subject of a far-reaching investment program over the past five years. The aim of the program is to reduce hazards associated with the products and to the production process. The program includes both the work-ing environment and the outdoor environment.

In 2006, Scanlube’s ISO 9001:2000 certification was renewed.

1� Preem Petroleum | Annual Report 2006

top markS for road tranSportS

Road tankers are an important link in our logistics chain. The need for environmentally-efficient and cost-effective deliveries is growing, and this requires a transformation to a system for transports which is sustainable in the long term.

Since 2005, all drivers involved in delivering Preem products must have undergone Eco-driving training. By maintaining the correct speed, using the gears more effi-ciently and accelerating correctly, fuel is saved and the vehicles emit less air pollutants, which makes both finan-cial and environmental sense.

In 2006, Preem signed an agreement with Hoyer Sven-ska AB, who are now handling the majority of our deliver-ies. They have provided us with efficient transport solutions where the number of road tankers has been reduced by 50.

The Sustainable Transports project was initiated by the Swedish National Road Administration. Preem and other major buyers of transport services are involved in the project and in the development of a procurement tool based on five requirements: traffic safety, the envi-

ronment, efficiency, transport requirements and finance. As proof of the quality of our work on the procurement crite-ria, QIII awarded us five out of five stars in 2006. QIII is a non-profit, independent association owned by LO and NTF, and financed by the Swedish National Road Administration and the insurance companies Folk-sam, Länsförsäkringar and Trygg Hansa. Ours is the only company ever to receive five stars, which puts us in the lead of all the oper-ators assessed.

Emissions Lysekil

Emissions Gothenburg

Environmental Conditions Lysekil

Environmental Conditions Gothenburg

SO, ton S

1993 2001 2005199719891985198119770

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Sulfur emissions

Emissions Lysekil

Emissions Gothenburg

1993 1997 1999 2001 2003 200519951991198919871985

NO, ton

0

500

1,000

1,500

2,000

Environmental Conditions Lysekil

Environmental Conditions Gothenburg

The environmental condition limits are an annual average for the three subsequent years.The environmental condition limits are an annual average for the three subsequent years.

Nitrogen oxide emissions


Secure Storage at our depotS

We operate six depots in total, all with carefully devel-oped regulations. One example is the installation of auto-matic surveillance and security systems to protect against leaks and overflow of tanks and vehicles.

purpoSeful land decontamination

Preem takes an active responsibility for the environmental liability – in the form of pollution, tanks and equipment – at decommissioned plants. In 2006, land surveys and decontamination excavation was commenced or com-pleted at oil depots/rock chambers in Ystad, Eskilstuna, Västerås, Holmsund, Loudden, Finnberget, Sundsvall and Sala. The work is largely carried out in partnership with SPIMFAB, which is the oil companies’ own special-ist contractor.

Measures have also been taken at around 20 key operated vehicle fleet fueling pumps. Decontamination excavation has been carried out and completed at four of these. In addition, we are carrying out land decontami-nation around 30 filling stations, five of which have been permanently decommissioned.

In total, we spent just over SEK 30 million on decon-tamination in 2006.

improved electrical efficiency

at our StationS

A program aimed at improving electrical efficiency at our filling stations is being carried out. This involves surveying, coordinating and improving our energy consumption.


conSumption with fewer conSequenceS

10% of the emissions come from our own production, 90% are generated when our products are used in cars, tractors, the manufacturing industry etc. This is why we are continuing to invest large resources in reducing the environmental impact of our fuels. In 2006, significant progress was made in this area, particularly in the diesel area. Through our digital Björnkoll service, transport companies and other operations with a large number of vehicles on the road at any time can follow up their fuel consumption and environmental impact.

Swedish launch of 5% RMESpring 2006 saw the launch of Preem Active Cleaning Power Diesel (ACP), a new generation of diesel with ben-efits for both engines and the environment. As the name indicates, it contains active cleaning additives which pre-vent harmful deposits in the injectors. A clean engine retains its efficiency, which reduces fuel consumption. Clean nozzles/injectors also mean that the combustion process works as it should, and this prevents an increase in emissions. ACP also has several significant environmen-tal benefits, not least by reducing the amount of carbon monoxide, PAH and hydrocarbons emitted. The product meets the requirements of Swedish Environmental Class 1 diesel by a good margin.

In August, we made further improvements to our diesel by adding rape methyl ester (RME) which both reduces carbon dioxide emissions and lubricates the engine.

All the diesel we sell on the Swedish market is Swed-ish Environmental Class 1 diesel – a premium product

Swedish Environmental Class 1 Diesel in comparison with European diesel

n Contains less sulfur.n Contains around 15% less harmful aromatics.n Generates around 20% less harmful particles to the atmosphere on combustion. n Generates just over 1.5 – 2% less carbon diox-ide emissions on combustion. n Generates 5% less nitrogen oxide emissions to the atmosphere on combustion. n Swedish Diesel Environmental Class 1 also has low-temperature properties suitable for the Swed-ish climate.

which cuts particles released into the atmosphere by 20% and nitric oxide emissions by 5% compared with Europe-an diesel.

Our goal – more ethanolOur 95 octane gasoline contains up to 5% renewable bioethanol and our diesel up to 5% renewable FAME. By adding renewable fuel to gasoline and diesel, we reduce the emissions of greenhouse gases into the atmosphere. During 2006 a little over 70% of all renewable fuels on the Swedish market were in the form of low-blend bioeth-anol and diesel. We are pushing the issue of increasing the amount of bioethanol and FAME to 10%, but this will require a change in EU laws.

For more information on our products, please see page 36.


Our organization – from supply to distribution

Preem’s operation includes supply of goods, production, trading, sales and

distribution. three business areas are responsible for the flow – from importing

crude oil to ensuring that the finished products reach the customers.


suPPly & tRADIng

PRoDuctIon sAles

Supply & trading

This business area can, quite rightly, be called the spider in the web. It takes decisions on which crude oils are the most advantageous to import at any given time, and fit best into Preem’s current product and sales pattern. It is also responsible for the sale (and transport) of finished products to Preem stations and customers, as well as to other Swedish oil companies and to export markets. In 2006, we exported products worth SEK 42 billion.

production

Preem is responsible for 80% of refinery capacity in Sweden and 30% in Nordic region. It has a capacity of

335,000 barrels a day. In 2006, total production amounted to 17.3 million m³ at the refineries in Lysekil and Gothenburg. The total consumption of petroleum products in Sweden is 13.6 million m³.

SaleS

In many ways, this business area is Preem’s face to the outside world. The business area handles sales to 500,000 private customers and 1,500 corporate cus-tomers, as well as to all our local agents. It sells petrol, diesel, heating oils and lubrication oils etc. via its own marketing channels, partly-owned subsidiaries and more than 600 stations.


Supply & Trading

it StartS with crude oil

50% of our imported crude oil currently comes from Russia. There are many advantages in this arrangement. Since it is a high-sulfur product, it is cheaper to buy, and Preemraff Lysekil has invested in the capacity and tech-nology to process this crude oil effectively. The remaining crude oil comes from the North Sea.

In total, we ship in over 150 shiploads every year.

then we Sell it

Once the crude oil has been turned into petroleum prod-ucts, it is sold by Supply & Trading. About 65% of the production is exported, which makes Preem one of the largest Swedish exporters. The rest is purchased partly by Preem Market, which is Preem’s own sales unit, and

partly by other oil companies in Sweden.We also have direct sales to major industrial custom-

ers, primarily involving fuel oil used in the operation of major process facilities.

new productS under development

Maintaining our strong position requires continuous development, both of our production processes and the end products themselves. Improved energy effi-ciency and environmental adaptation are the two key words in this context. Preem has always been right at the forefront of development, and have, on many occa-sions, been the first to introduce new, groundbreaking alternatives on the market.


What governs the price of oil products?Oil is the largest commodity in the world. So it is not surpris-ing that there are many factors affecting pricing. Just like share prices, the price of oil changes on a daily basis. As with any other good or service on the open market, current demand has a great influence over the price of oil.

There are many factors which affect the availability and, therefore, the price of crude oil and petroleum products. Glo-bally, political events and natural disasters are highly signif-icant. But the current dollar exchange rate and the world’s refinery capacity also play a major part. The latter, in particu-lar, has had an increasing effect on the price of the end prod-ucts, since there is, at times, a shortage of refinery capaci-ty - the result of many years’ lack of investment in refineries. The fact that oil prices are quoted in US dollars means that the exchange rate has a significant impact on the price itself. In Sweden, as well as the level of the Krona, Value Added tax and other duties also have an impact. Another factor is the weather, which has a direct effect on the demand for heating oil during the colder part of the year.

The price of finished products charged to consumers has a tendency to be fairly similar for all oil companies. This is the result of the crude oil being purchased in the same currency and from the same market. The procurement cost is, conse-quently, pretty much the same, and this is the price on which the price of the end product is based.

The price to consumers is also affected by geographi-cal competition. The number of local price wars at filling sta-tions has increased in recent years. The reason for this is fall-ing profitability and, to some extent, over-establishment. Many stations are situated close together along main roads, and comparisons can be made between the prices charged by each station. This triggers a pricing chain reaction, and customers can be led to believe that the prices have been changed by everyone at the same time. Local petrol dealers may find it difficult to cope with long-term price wars from a purely financial point of view. Financial support for local sta-tions is often provided by the oil companies to ensure that these do not lose customers and market shares.

“We have a product development department which examines how our products can be improved and made more attractive,” says Ingrid Bodin, Executive Vice Pres-ident, Supply & Trading. “These may be called for by new legislation, but we also listen to what our customers want. This is an important area where we really use the collective knowledge and technology of Preem.”

In 2006, major news included Preem Active Power Cleaning Diesel and the addition of 5% FAME to our diesel.

heading for more efficient diStribution

The business area coordinates our transports around the world and ensures that they are managed safely, both by ship and by road tanker.

Distribution to our Swedish customers is done mainly by road and, in 2006, Preem and Hoyer Svenska AB signed an agreement under which Hoyer Svenska AB took over responsibility for our road tanker transports. On September 1, the first distribution area was trans-ferred to Hoyer Svenska AB’s organization for manage-ment of our transports. At the same time, most of our logistics staff was also transferred and will, from now on, be employed by Hoyer Svenska AB.

Preem Petroleum | Annual Report 2006 21

Production

a merger that booStS output

From two separate organizations to a single refinery system – that is how the merger of our two refineries, Preemraff Lysekil and Preemraff Gothenburg, which was carried out in 2006, can be described. The merger has clarified the roles played by the various parts of the organization.

”The merger was implemented for business and strategic reasons. The purchasing and maintenance departments are two examples of areas where we believe that we will be able to improve efficiency. And from a purely practical point of view, most things will, from now on, be simpler and more straightforward for us in the organization,” says Per Olsson, Refinery Manager at Preemraff.

Another efficiency-enhancing objective is to gain more from the energy used in our production. To answer the question of how the production at Preemraff Gothenburg could be improved, we carried out a major energy study in 2006. The study produced a number of proposed meas-ures: some we have already implemented, while others require the redevelopment planned for 2007. The target is to achieve a 13% improvement in energy efficiency by the end of 2008.

the gaS oil project – the firSt Step

towardS the fuel of the future

May 2006 saw the launch of the gas oil project at Preem-raff Lysekil. By investing more than SEK 3 billion, we have created a facility which can which can turn 3.4 million tons of fuel oil into sulfur-free diesel.

The background to this is an EU directive which requires petrol as well as diesel to be completely sulfur-free


by the end of 2008 at the latest, with the aim of reducing carbon dioxide, nitrogen oxide, hydrocarbon and particle emissions from vehicles. This means that we are already prepared to meet this requirement.

In simple terms, the new plant consists of three different parts:

1. A hydrocracker (known as an isocracker) in which vacuum gas oils are cracked in the presence of hygrogen gas to remove sulfur.

2. EA hydrogen gas plant that supplies the isocrack-er with the hydrogen required for the cracking process.

3. Various service systems that supply the new plant with important components such as amines, water and steam.

With the new plant up and running, we can increase our production of fuel and export more, primarily to Europe where there is a significant shortage of diesel.

the coker project – the next phaSe

in the upgrading proceSS

There is still around 4 million tons of heavy oil in the refinery system. It is currently being used as fuel for ships and in permanent incineration plants. We want to con-vert the heavy fuel oil (also known as residual oil) into sulfur-free transportation fuel and are, therefore, planning to continue the upgrading of Preemraff Lysekil with the installation of a coker. In a coker plant, the heavy residual oil from both Gothenburg and Lysekil is transformed into lighter components which are added to vehicle fuels, pri-marily diesel. The residual product is petroleum coke.

We will also have to build a new quay for unloading coke, and more rock chambers and tanks for storage.

We will also have to supplement some existing equip-ment. During the construction period, around 1,000 jobs will be created, and once the coker is up and running we will have to recruit 75 new staff.

Diesel is the principal product which will provide new income for a long time into the future. In addition, we will be able to receive larger volumes of high-sulfur crude at a reduced purchase price.

The petroleum coke produced during the desulfuriza-tion process is used as a raw material in concrete produc-tion, thermal power stations and incineration plants (e.g. for waste processing) with purification equipment.


go-ahead for commencing

tranSition to bio refinery

Increasing the proportion of renewable components in our products and our manufacturing process has been given top priority, and we are looking at several short- and long-term alternatives. Our mission is to increase our “green” proportion by 10% over a five-year period. It is a challenge which will require a great deal of commitment and hard work within our organization, as well as collab-oration with universities and technology companies.

We are convinced that our traditional oil refineries form an excellent basis for the cost-effective introduction of new and sustainable technology. In partnership with colleges of technology, we are now testing various types of renewable oils at our plants. We are particularly inter-ested in utilising native raw materials from the forestry industry, since these do not compete with the production of foods in the world.

We also monitor closely the development of gasifi-cation technology for renewable raw materials. In our refineries, this technology could be utilised in the pro-

duction of “green” hydrogen gas for our processes and so increase the proportion of renewables in our fuels. The technology could also be utilised in the production of renewable fuel for the refineries’ own operations. This would free up the fossil fuel we are currently using, and this could then be used as a more suitable environmental raw material in the petrochemicals industry.

We are also monitoring the development of methods for extracting and storing the greenhouse gas carbon dioxide. At present, there are applications in which carbon dioxide is added back into the raw oil fields, and intensive research into various methods is being carried out.


Sales

the beSt year for buSineSS-to buSineSS SaleS

Almost 70% of Sweden’s major industrial companies receive heating and energy from Preem. One-third of all trucks run on diesel from Preem. Our clients include eight out of ten Swedish paper and pulp mills. These figures show that we are the market leader in corporate sales of petrole-um products in Sweden.

Important client groups include operations in the forestry, transport, marine and public sectors – but our clients can be found in all industries.

Results for 2006 were excellent. We have signed general agreements with a large number of clients, refined our sales support operation and improved the efficiency of internal routines. We carried out a number of far-reaching changes aimed at improving our competitiveness and provid-ing us with an even better basis for future sales.


Improved service for smaller customersAn improvement in our Business-to-Business sales, is that we have decided that sales to smaller customers should be handled exclusively by our local certified agents. Smaller customers include private home-owners, smallholdings and small companies, which primarily buy heating oil, diesel and lubricants.

“By using two sales channels, it is easier for us to meet the needs of both large and small customers and provide them with an improved service. Smaller custom-ers appreciate the opportunity to deal locally and with greater flexibility,” says Gyda Refslund, Business-to-Busi-ness Marketing and Sales Manager. “Large customers, on the other hand, demand automated solutions”.

Local players operate in smaller markets and use dif-ferent planning and logistics processes. Their deliveries are more flexible, including supplying home-owners with oil at short notice. The benefits to customers include access to high-quality products supplied by partners with significant knowledge of local conditions.

Before becoming a certified Preem partner, opera-tors have to enroll in a certification program, which

demonstrates that they meet Preem’s requirements for, for example, knowledge and business approach. At present, there are 24 certificated agents operating throughout Sweden. The response has been extreme-ly positive, and we hope that the scheme will continue to expand.

The new organization allows our sales team to focus on the needs of the larger companies. This frequent-ly involves complex customized solutions including, for example, automated order-ing systems, which are based on long-term busi-ness relationships.

The aim is that both our customers and our cer-tificated agents should see Preem as a professional partner who makes their day-to-day work easier – and contributes to the development of their own businesses.


Easier and more straightforward for foreign driversAround 40% of the trucks operating on Swedish roads are registered outside the country. Prior to 2006, Preem already had an agreement with UTA. New for 2006 are agreements with DKV Euro Service and YX Energi in Norway and Denmark for the targeting of the profes-sional heavy-goods industry. DKV is the largest issuer of cards for international diesel users. Foreign truck drivers will now be able to use their DKV and YX Energy cards at Preem stations. A specially-developed concept for long-distance drivers is being introduced at 15 stations which have been selected on the basis of their strategic loca-tion. At these stations we will in addition to competitive prices, also offer improved services for the drivers: secure parking, international magazines, satellite television and a number of other things which will make their life easier. The idea is to add more concept stations for international diesel traffic in the future.

More miles for the moneyFor some years now, we have offered our corporate custo-mers a tool which provides them with better control over fuel consumption. This digital service, which provides

consumption statistics and environmental reports for all vehicles, is called “Björnkoll”. By following up the infor-mation and, for example, lowering speeds, companies can save large amounts of money, and also reduce the envi-ronmental impact of their vehicles.


from filling Station to convenience Store

On the basis of guidelines adopted and decisions made in previous years, 2006 saw the start of exten-sive refurbishments at our filling stations. The invest-ment was triggered by the fact that profits from filling stations have been unsatisfactory for some time, not least as a result of the aggressive price wars. It is also a matter of tailoring our total offer more closely to the wishes of our customers, and creating a profile which performs well in competition. We are planning to invest in the future through attractive customer offers.

Greater transparency in a modern environmentIn 2006, 13 filling stations underwent a signifi-cant facelift, which was completely in line with our new concept of turning the filling stations into con-venience stores which also sell fuel. This is only the beginning: in 2007, the number of concept stations will increase. It is a transformation which requires all details to dovetail.


“The overall impression is an incredibly important part in the current transformation. It involves all parts of the stations, from the outside area where customers fill up to the inside of the shop,” says Andreas Viefhaus, Station & Consumer Marketing and Sales Manager. “A visit to a Preem filling station should be a straightfor-ward and pleasant experience for everyone.”

The traditional filling station may be perceived as slightly inhospitable and “macho”. We want to change this image and invest in a concept which will appeal to women as well as men. With warm colors, open spaces and eating areas, Preem stations will become significantly more personal. The investment also includes a complete refurbishment of the toilet areas.

The food sold in the shops will place much more weight on healthy eating, and include fruit, juices, ready-meals carrying the Swedish Keyhole symbol (high in fiber and with reduced fat, sugar and salt content) and healthy fast-foods such as salads and sushi. The coffee sold will also be of the highest quality.


Updated exteriorOn the forecourt, clearer signage will be used to direct customers to “their” pumps and other equipment more quickly. In the evening and night improved lighting cre-ates a greater feeling of security, particularly for anyone traveling alone.

The new Renofin carwash concept was also launched

in 2006. The key words are clean, simple and gentle, and these apply to both vehicles and the environment. The carwash at Preem Globen was the first in Stockholm to be given the official Nordic Swan eco-label. The require-ments of the Swan eco-labeling system will be used as a guideline in the development of our carwashes in collabo-ration with our new partner, Wash Tec.

�0 Preem Petroleum | Annual Report 2006

Preem along the roads and at seaStaffed stationsWith around 250 staffed stations, Preem provides customers will full service along the roads, including well-stocked shops with long opening hours, automat-ic and manual carwash facilities.

Micro-price stationsFor customers who want to fill up quickly, simply and at a guaranteed lower price, we offer access to around 240 unstaffed filling stations, where the price is always SEK 0.25 lower than at our staffed stations.

SÅIFAWe have around 160 SÅIFA stations for heavy vehi-cles which use diesel cards when filling up. The facili-ties are fitted with high-speed pumps to ensure really fast service.

Marine stationsPreem has 13 marine filling stations along the Swed-ish coastline, where boat-owners can fill up and buy yachting accessories.

Partners with driving forceAt the same time as we are working on changing the appearance of our filling stations, things are also hap-pening within our own organization. In 2006, 54 staffed, company-owned stations began the transformation into Preem Partners, with self-employed business operators in charge. The person operating such a station receives gen-uine support from us in training, administrative support,

in-shop material and marketing campaigns. So how are our “new” stations faring? One of the

first stations where the new concept was implemented was Preem Bredäng in Stockholm. In 2006, this station increased its customer base by 20%. By the end of 2007, 50 Preem stations are expected to have undergone the transformation process.

Preem Petroleum | Annual Report 2006 �1

Our employees

great conSideration for individualS

Preem’s operation means that safety is one of our top pri-orities at all times, at the refineries and at the filling sta-tions. Reducing the number of work-related injuries and the frequency of accidents is something which we work on continuously. The aim is to achieve zero injuries – ours must be a safe workplace.

Over the past few years, we have also created a model for developing the psychosocial workplace environment. Fur-thermore, annual performance appraisals give staff access to feedback and defined goals, both on an individual level as well as ones associated to our operations.

environmental improvements are about more than energy efficiency and

action to reduce carbon dioxide. creating a workplace environment in which

the staff feels comfortable and well is every bit as important. only then can

Preem grow as a company.


What’s the best thing about your job ?“The opportunity to work as part of a team. This may in-volve providing advice or deciding on changes to routines which result in simpler and improved safety work. But it’salso about receiving and developing ideas provided by vari-ous colleagues.”Magdalena Hellgren, Safety Department Manager, Preemraff

Why does Preem offer you the ideal workplace ?“Preem prioritizes the issue of hazardous emissions. Since I work with wastewater treatment at the Preemraff Lysekil water purification plant, this means that I am given the resources I need to improve the purification process continuously.”Jan Artursson, coordinating engineer, Preemraff

How do you see the company in the future ?“We are in the middle of an exciting generational change. Preem is investing in young talent, a trend I hope will continue. I also feel that it is important that we continue to work with environmental issues and alternative fuels.” Helena Norberg, environment specialist & eco-toxicologist, Supply and Trading

Why did you look for a job at preem ?“I became involved with Preem when I was writing my thesis. The company seemed genuine, with many oppor-tunities – working either in marketing or with the refin-ery operations was an attractive proposition. This is also an industry which is receiving a lot of attention at the moment, and that only served to increase my interest.”Massoud Javaheri, trader, Supply and Trading

Preem Petroleum | Annual Report 2006 ��

Regular questionnairesThe Preem Barometer management tool is a regular web-based questionnaire, which gives the staff an opportu-nity to answer questions relating to how they see their work situation. It also allows our management team to deal with specific questions relating to current and impor-tant issues.

We encourage skills growthPreem offers its employees access to further training to allow them to increase and broaden their competence. We offer opportunities within all job-specific areas, but also general courses in rights at work, the working environ-ment, communication and project management. Individu-al coaching is also available.

Personal development for managersWe are particularly keen to provide our managers with an understanding of psychosocial factors and how they can affect work. Courses in this area form a natural part in our rehabilitation strategy. It may, for example, involve stress management where a personal analysis forms the initial stage.

“Giving managers the opportunity to identify their own strengths and weaknesses gives them greater self-awareness. This makes it easier for them to relate to dif-ferent members of staff, understand them, how they react and why,” says Catrin Arndt, staff development officer/working environment coordinator at Preemraff Lysekil.

One example of this type of skills development is that first-line managers at Preemraff Lysekil underwent train-ing in systematic working environment development and rehabilitation in 2006.

Low sick leave levels must be brought down furtherWith a staff of 1,700 in the whole Group, we had a sick leave level of 3.9% in 2006. This is an excellent figure, but the long-term goal is to reduce sick leave by 20%. The target for work-related sick leave is 0%.

�� Preem Petroleum | Annual Report 2006

Focusing on future competence

The need for competence never dries up. That is why it is vital that Preem can demonstrate to students that it is an attractive employer. One of our largest target groups is graduates in chemistry and technology, as well as graduate engineers and technicians.

In 2006, we developed our website, www.preem.se/student, to provide students with easy access to information on the student work placement jobs we offer. The site also includes comments by former students who carried out degree projects at Preem.


Our offer Preem’s sales on the swedish market are both broad

and extensive, and include private as well as corpo-

rate customers. We do not just sell products such as

gasoline, diesel, heating oil, gas and lubricants, we also

supply a large number of useful services.

tranSportation fuel for large and Small

GasolineOur gasoline meets the motor manufacturers’ require-ments for fuel aimed at obtaining optimum power from the engine in combination with the lowest environ-mental impact possible. The addition of ethanol reduc-es greenhouse gas contributions and ensures lower emis-sions of substances which are harmful to health and the environment.

Our alkylated gasoline is a particularly pure form of engine gasoline which is virtually free from the most harm-ful components. Alkylated gasoline is particularly suitable for machines, such as chainsaws, lawnmowers and snow blowers, which operate in close proximity to people in areas where there are high working-environment require-ments. Alkylated gasoline is also an ideal fuel for leisure craft, since it reduces the impact on the environment.


DieselSwedish Environmental Class 1 Diesel

We use the best commercial diesel in the world as a basis for all our diesel fuels. Comparisons carried out show that Swedish Diesel Environmental Class 1 generates 20% less particles and 5% less nitrogen oxide than Euro-pean diesel. In addition, Swedish Diesel Environmental Class 1 contains less aromatic substances which are hazardous to health than European diesel, and generates less carbon dioxide emissions.

Preem Active Cleaning Power Diesel

A new generation of diesel to which a cleaning agent has been added to the benefit of the engines and the environ-ment. The diesel contains active cleaning additives which prevent harmful deposits and protect the fuel system against rust. This increases the power of every drop of

useful information on

Preem Active cleaning Power Diesel

• Can be used in all types of diesel engines and vehicles.

• Complete combustion reduces emissions which may be hazardous to health and the environment.

• Prevents deposits in the injection system which optimizes the engine effect and, consequently, reduces consumption.

• Improved water separation ensures more reliable operation.

• Contains a corrosion inhibitor which prevents rust.

• Foams less, which makes filling up quicker.

• A higher cetane number ensures a more pleasant driving experience.

• Contains 5 % RME (rape methyl ester) which contributes to a reduction in greenhouse gas emissions.

fuel put into the tank, and reduces fuel consumption. From 1 August 2006, we have been added a small

amount, 5%, of RME (rape methyl ester) to our diesel.

EthanolAt the end of 2006, Preem had 61 filling points for the ethanol fuel, E85. The rate of expansion during the year was in line with that of our competitors, based on market share in gasoline. We will continue to install ethanol pumps at our stations during 2007.

BiogasBiogas is used in vehicles specially built to operate on this fuel. It is available from selected stations. Due to the extremely low levels of emissions it generates, biogas is one of the most environmentally-sustainable fuels.


Loyalty cards make things easyWe offer several different cards for both private and cor-porate customers. Private cardholders can fill up more cheaply, pay later and benefit from great discounts and offers every month. Corporate customers can choose from a number of great card solutions adapted to their requirements. Preem customers can also pay by the most common bank and direct debit cards – and still benefit from discounts.

Smart follow-up for prudent customersOur Björnkoll service allows companies to follow up fuel consumption and environmental impact statistics and, at the same time, save money by reducing their fuel con-sumption and making administration easier.

fuel oil for buildingS and induStry

Heavy fuel oil is available in classes 2 to 6. It has a higher energy content, and is primarily used to power industrial machinery and heat buildings. We also offer customized oils in response to specific customer requirements.

Preem’s domestic heating oil has excellent combus-

tion properties, a high heat content and a sulfur content of less than 0.05%. We also offer an oil with extreme-ly high environmentally-sustainable properties: Preem Minima which generates even lower emission levels than regular domestic heating oil. Minima is classed as sulfur-free.

Bunker fuel for shipsThree out of four ships operating in Swedish waters run on fuel from Preem. We offer reliable deliveries at the right time, which means that the shipping companies can keep their ships running at all times. Thanks to our low-sulfur bunker fuel, sulfur emissions have been reduced by 20%.

Never out of oilWith our automatic oil delivery service, customers will never have to concern themselves with how much oil is left in the tank or worry about expensive stand-stills. Preem takes responsibility for ensuring that there is oil in the tank at all times – and ensures that the right quan-tity is delivered at the right time.


enköpings Åkeri, enköping

Control over fuel and vehiclesFuel is responsible for one-fifth of the total cost of run-ning a transport company, so every litre counts. Enköpings Åkeri is one of the companies which are using the Björnkoll service, with excellent result.

“We made savings of SEK 600,000 in the first two years,” says Jonas Broberg, the company’s environment and quality manager.

Björnkoll even helped the transport company to identify a fault in one of its vehicles. Over a few months, the vehicle consumed half a liter more diesel per 10 km than normal. The garage was adamant that there was nothing wrong, but after looking at the figures produced by the Björnkoll program, a closer inspection was carried out, and the fault was identified.

Hällberg & son, svenstavik

Nice to be treated with respectHällberg & Son is an old company, which began distrib-uting gasoline in barrels in 1945. Today, the company sells Preem’s fuel products and is one of our certificated part-ners, with depots in Svenstavik and Ljusdal. The company uses its own road tankers for distribution.

“For a small company like ours, the backing of a large and well-established company like Preem is invaluable. Preem’s large refinery capacity provides us with added security. We also appreciate the fact that Preem does not act like Big Brother, but treats us with respect and listens to our point of view, even though ours is a small operation,” says Matts Hällberg, the company’s managing director.

The partnership came about in early 2006 and, according to Matts Hällberg, both parties are extremely keen to put the customer first and to collaborate in a win-win situation.

Easier to place orders via the InternetInternal Preem customers can place their orders at any time. The customer receives an order confirmation immediately, and all orders are saved in an order archive.

Clean tanksBy working in partnership with Ragn-Sells, we can assist with the cleaning and inspection of customers’ oil tanks. It is important to ensure that damage is not being caused by rust or other attacks. And Swedish law states that all tanks must be inspected and approved.

when machinery haS to run Smoothly

We have a wide range of lubricants for various purposes. All are produced at our Scanlube plant in Gothenburg, and are sold under the Texaco brand.

Automative lubricantsUsing the right engine oil can improve the engine output, lower the fuel consumption and cut the running cost of cars and buses. Different vehicles require different engine oils, and we sell oils suitable for heavy diesel vehicles, family cars and light trucks.

Industrial lubricantsIndustrial operations also use lubricants to keep machinery and other equipment running. Our customers operate in a wide variety of areas, and we have a broad range of indus-trial lubricants. Customers sometimes demand lubricants which suitable for their precise operations. In that event, we can assist by developing fully customized solutions.

GreaseGrease reduces the wear and tear on moving parts and pro-tects against rust. We offer biodegradable alternatives and products approved for use in the food processing industry.

Analysis ensures reliable operationBy analyzing the grease used in their operations, businesses can avoid breakdowns and other problems. We offer fast and reliable analysis, for individual engines as well as larger systems.

We collect the leftoversThe use of oil is associated with health hazards and damage to the environment. It must be handled in a way which pro-tects the environment. In partnership with Ragn-Sells, we can assist in the recovery of waste oil.


Without Preem, 210 million people would come to a standstillConcordia Bus – and its subsidiary Swebus – is Sweden’s larg-est bus operator. The operation is virtually nationwide, and every year, around 210 million customers travel aboard the company’s buses. At an early stage, Preem added 2% RME to its Biomil diesel which was used in the vehicles at a rate of just over 70,000 m3/year. The company now buys ACP-diesel with 5% RME. It also orders around 200 m3 of heating oil a year for use in the company’s buildings.

Constant access to diesel is of the utmost importance – the buses are out on the roads non-stop.

“Over the years, Preem has proved an exceptionally reli-able supplier. On the rare occasions that our tanks have run dry, they have always been able to come up with a solution,” says the Transport Manager, Jens Råsten.

Reliable deliveries are, in other words, an important requirement of Concordia Bus/Swebus, as are quality and attractive prices. To ensure that all these requirements are met by the suppliers, Concordia Bus/Swebus use a ten-dering process for all its goods and services. The supplier which matches the requirements most closely wins the con-tract for the following contract period.

concordia Bus, solna

of vehicles (motor gas). LPG is also used as a propellant in aerosols and as a refrigerant in refrigerators. We also supply non-scented gas for the aerosol industry in the mixture of their choice.

Testing fules are driving development forwardIn close collaboration with the motor manufacturers, we are developing testing fules in smaller quantities. The products are primarily used in the testing, development and certification of the vehicle engines of the future. We also develop various components for renewable fuels.

Our testing fuels are also used for research purposes at universities.

Broad chemical engineering rangeOur chemical engineering products have been selected for use in vehicles and industrial operations.

We make cleaning and degreasing products, windscreen washer-fluids and solvents. The solvents are primarily used by industry, for example in the production of paints and plastics. For vehicles, we produce distilled water, break fluid and radiator antifreeze.

High-energy gas with many applicationsPreem’s LPG products consist of either propane or butane – or a mixture of both. LPG is an environmentally-adapted, clean and dry combustible gas which a high energy content (1 kg propane = 12.8 kWh). There are numerous areas of use, including heating, melting, cutting, drying, tempering, refrigeration or the powering


ljunghäll AB, södra Vi

Powered by environmentally-sustainable LPGLjunghäll AB produces cast aluminum products and spe-cializes in technically-advanced castings. At the smelting works, a total of nine ovens run on LPG from Preem. The LPG is also used to power the forklift trucks at the plant.

“We have used Preem as our supplier for many years. The products we want are delivered with high reliabili-ty and at an acceptable cost,” says purchasing manager Joachim Gunnarsson.

LPG is an environmentally-sustainable fuel without par-ticles, heavy metals, sulfur or other contaminants. This is in line with Ljunghäll’s own philosophy of working actively to minimize the environmental impact of its operations.

Environmental approach to the last dropLennart Nilsson Transport knows what areas to priorities in its everyday operations. Priority number one is, of course, reli-able transports. But this is closely followed by fuel economy and environmental considerations. The company was one of the first to change to Preem’s ACP diesel, which provides more complete combustion and optimizes engine output.

“We always try to be at the cutting edge, and the switch to ACP was a natural step. Lower fuel consumption makes us even more competitive,” says Managing Director Jörgen Nilsson.

They did not have to wait long for a result. After only four months, the drivers noticed the difference, and the inter-nal statistics confirmed that the fuel consumption had fallen.

lennart nilsson transport AB, Ödåkra

We share our knowledgeSometimes, customers require more extensive and detailed information on our products. In that event, we organize courses in the relevant areas. This opportunity has been wel-comed by transport companies, mechanical engineering businesses and industrial operation. In addition, our product specialists are happy to deal with more specific questions.

Preem Petroleum | Annual Report 2006 �1

A look back at 2006Prices that first rose sharply, only to drop down almost

as quickly. new record for Preem exports. continued

strong demand for refined and processed petroleum

products. this is a summary of the oil market and

Preem’s business operations in 2006.

up and down for crude

The market for crude oil rose sharply and peaked in August when the price of Brent crude was USD 78.7/barrel. The background to the large price increase, from USD 40/ barrel in early 2005, was a long period of increasing demand, while production capacity remained virtually unchanged.

The result was a very limited spare capacity through-out the world, sometimes as little as 0.5 million barrels/day compared with a consumption of around 84 million barrels/day. This resulted in all players aiming to build up greater stocks than normal which, in turn, caused produc-tion to increase more than consumption.

The price increase was also associated with the con-flict between the USA and Iran, troubles in Nigeria, a stop in the crude flow from Alaska and the risk of new hurri-canes. But these factors had less impact on the market than expected. Prices started to fall as a result of the combina-tion of demand leveling off and very high stocks. In addi-

tion, a large number of investment funds sold their hold-ings of oil securities. Around New Year, the price was just under USD 59/barrel.

During the autumn, the OPEC producers started to realize that the build-up of stocks had been far too exten-sive. When the players in the market became aware of the dramatic fall in prices, they immediately started to plan a cut in production. For Preem, the result was that the price gains on our stocks failed to materialize.

refined productS – globally

Demand for oil products increased by 1.1% in 2006 to around 84.7 million barrels a day. This increase was, however, less than in the past few years. Some stagnation in consumption in China and the very warm weather in Europe and the USA during the fourth quarter also had a dampening effect on demand. Over-all, this resulted in a global fall in refining margins.


All Gasoline 95 octane(5 % Bioethanol) 25,245m³(CO₂ saving) 59,369 tons

Diesel 5% RME(5 % RapeMethylEster) 17,023m³(CO₂ saving) 40,032 tons

BioMil(2 % RapeMethylEster) 3,740m³(CO₂ saving) 9,554 tons

Ethanol gasoline E85(85 % Bioethanol) 1,702 m³(CO₂ saving) 4,003 tons

Sales of renewable fuel 2006

Export 65 %

Retail sector 14 %

Large customers 14 % Domestic heating oils 0.5 %

Public sector 1 %

Preem’s gasoline stations 5.5 %

Breakdown of sales 2006Preem’s crude oil purchases 2006

Russia 50 % Middle East 2 %North Sea 48 %

The fact that hurricanes did not cause disruptions at the US refineries meant that the gasoline market remained steady. The only exception to this came in the early part of the summer of 2006. The peak price in 2006 was USD 620/ton.

The market for diesel was relatively strong – diesel con-tinues to be in short supply in Europe – and achieved a maximum price of USD 650/ton. The demand for diesel continues to increase in Europe as well as in the USA.

The market for heavy oil was relatively calm through-out the year, without any dramatic price changes.

refined productS – reSultS for preem

The sale of diesel continues to grow strongly. Our vol-umes increased in this area, and we strengthened our market position. The Swedish filling station market also experienced a large number of regional price wars during

the year. These culminated during the holiday period in July, when the price of gasoline was at its peak at SEK 12.89/litre.

The oil market in Sweden is still characterized by a fall in the consumption of heating oil as a result of the mild weather and an increasing transition to alternative forms of energy. Despite this, Preem achieved an excellent result. The market for heavy oil also performed well as a result of relatively high electricity prices.

Excluding excise duties, the Group’s sales revenue amounted to SEK 67,435 million. We are very pleased with the net profit for the year, particularly given the circum-stances we face in the global market.

Preem’s Swedish market2006

Salesthroughother oil companies

Brandedmarketshare

Gasoline Diesel Homeheating

oil

Other oil0

10

20

30

40

50

60%

Profit/loss after financial items 1997–2006

06050403020100999897-1,000

0

1,000

2,000

3,000

4,000

5,000MSEK

30,000

20,000

10,000

40,000

50,000

60,000

70,000

80,000

Sales revenue1997–2006MSEK

060504030201009998970

Crude oil

Other

Heavey fuel oil

Gasoline/Naphtha

Gas oil


a double responsibility preem petroleum annual report 2006 · the preem petroleum group’s...

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