Despite a difficult start for Tüpraş and the industry, we closed the year with success thanks to a rebound in the sector during the second half-year and our exceptional performance. We achieved all our operational and financial goals, despite many unfortunate external developments, once again confirming the well-deserved trust in the Company. Meanwhile, we continued to create lasting value for our shareholders and our country.
In 2016, developing countries maintained an average annual economic expansion rate of 4.1%, despite the slowdown in China and India. On the other hand, average GDP growth in advanced economies fell from 2.6% to 1.6%. As a result, global economic growth came in at 3.1% in 2016, down 0.1% from a year earlier. The Turkish economy is expected to post 2.9% growth for the year, despite rising foreign exchange rates, terrorist attacks and the treacherous coup attempt. This projected GDP expansion is the result of ongoing infrastructure investments and healthy growth in the first six months of the year.
In addition to the current state of the global economy, OPEC’s production exceeded quotas and markets felt the strong impact of excess supply in 2016. As a result, crude oil prices fluctuated between US$ 26 and US$ 50.7 per barrel during the first half of the year. However, as demand grew stronger toward the end of the year and OPEC decided to cut its oil production, the price of crude oil closed 2016 at US$ 54.9/bbl.
After expanding by 2.1 million barrels/day in 2015, well above the previous five-year average, global oil demand growth dropped to 1.6 million barrels/day in 2016, albeit continuing its uptrend. As a result, world oil-liquid fuel consumption averaged 96.6 million barrels/day for the year. Oil demand growth, driven by low crude oil prices over the past two years, is expected to continue in the coming period, in line with expected global economic growth.
Fluctuating market conditions had a significant impact on product profitability in 2016. Gasoline margins dipped slightly under its high in 2016, nevertheless remaining strong and supporting refining profitability. Consumption was robust during the first half-year, thanks to the mild winter season, with gasoline margins at US$ 14.6/bbl on average during the first six months. However, in the second half of the year, gasoline margins dropped to US$ 11.9/bbl due to high stocks. Meanwhile, diesel and jet fuel margins, continued their decline from the fourth quarter of 2015 into the first quarter of 2016. Despite the modest rebound in the rest of the year, it continued to put downward pressure on refining margins. Even though diesel production surged in line with increased capacity utilization rates worldwide, average diesel margins stood at US$ 8.6/bbl in the first half-year, 47% below the five-year average, due to weak demand. However, diesel margins climbed to US$ 10.1/bbl in the second half of 2016, as maintenance shutdowns started in September and agricultural demand increased.
In 2016, Tüpraş purchased 17 different types of crude oil thanks to the convenient geographic location of Turkey and increased refinery conversion capacity and supply flexibility for crude oil after the commissioning of the RUP facility. Despite maximum capacity utilization, our Company maintained production profitability via high white product yield. In 2016, margins narrowed and regional arbitrage opportunities diminished. Nevertheless, thanks to our robust production, Tüpraş’s domestic sales hit a record high, by increasing 11%, which is above the growth in overall demand in Turkey. In addition to record-high domestic sales, Tüpraş, as an active player in global markets, exported 5.5 million tons of products to 27 countries across the globe, through its international buyer network. As a result, our total sales jumped to 30.3 million tons in 2016-the highest level in our Company’s history.
Despite oil price fluctuations and the many concerns surrounding emerging markets, Tüpraş refineries maintained maximum profitability during the year. The solid performance of our refineries is thanks to their proximity to primary consumption regions, advantageous location in terms of crude oil supply and reduced unit costs resulting from increased production levels. Tüpraş’s operational and financial performance reflected the global oil market recovery in the last quarter of the year as the Company posted operating profit of TL 2.52 billion for fiscal year 2016. By implementing effective risk management strategies, Tüpraş successfully navigated fluctuations in exchange rates and oil prices throughout this challenging year, with our Company recording net profit of TL 1.81 billion.
In the coming period, we plan to focus our efforts on maximizing capacity utilization and increasing white product yield to further improve our operational performance. To this end, we are currently in the process of modernizing the gasoline units to improve the FCC Unit’s productivity and boost the amount of naphtha processed at the CCR Unit by about 40%. Additionally, the crude oil unit modernization project carried out at the İzmir Refinery, which began production at full capacity after the commissioning of the RUP facility, is scheduled for completion in 2017. Thereafter, the İzmir Refinery will reach maximum sustainable capacity while energy efficiency will improve significantly.
Tüpraş’s energy efficiency projects aim to minimize energy consumption and eradicate any energy waste via the use of new technologies, as the Company targets joining the ranks of refineries in Europe with the lowest emission levels by 2017. To this end, Tüpraş has reduced its energy intensity index (EII) from 120.9 in 2009 to 101.8 in 2016, through new capital investments and upgrades.
Our Company’s achievements and commitment to energy efficiency were once again confirmed with the awards we received at the 2016 “SENVER” Industrial Energy Efficiency Competition, organized by the Ministry of Energy and Natural Resources.
Tüpraş constantly strives to minimize the environmental impact of its operations and production processes. The Company fulfills its duties and responsibilities to the environment via continuous improvement efforts and investments. Improvement efforts undertaken in 2016 resulted in a reduction of 77.7 thousand tons in greenhouse gas emissions. The total amount of emission reductions achieved over the past nine years has climbed to 2.1 million tons of CO2 equivalent. This is equivalent to the amount of carbon dioxide that can be absorbed by forestland with some 200 thousand trees.
Additionally, Tüpraş undertakes investments to supply process water to refineries through the treatment of wastewater. To this end, İzmit Refinery has treated domestic wastewater from Körfez Municipality for reuse as process water since 2014. Our Company continues its capital investment program to set up this system at other refineries as well.
As a result of the Company’s commitment to corporate governance principles and its success in this area, Tüpraş was assigned a Corporate Governance Rating of 9.42 in 2016. Our Company was also once again included in the BIST Sustainability Index in 2016.
Aiming to achieve long-term sustainable success, Tüpraş works constantly to improve itself with new investment projects. In addition to the US$ 213 million investment in its refineries in 2016, Tüpraş’s total investment spending amounted to US$ 291 million, including the tanker purchases undertaken by the Company’s subsidiary Ditaş to expand its fleet. Over the past 11 years since joining Koç Group in 2006, Tüpraş’s total investment spending has amounted to US$ 5.7 billion.
While focusing on operational sustainability, our Company also continues to create maximum value for its investors. Tüpraş ranks among the BIST listed companies with the highest dividend yield. Our Company will continue to pay dividends by taking into account our profitability and cash position in parallel with investment needs, long-term strategies, and investment and financing policies. As in previous years, Tüpraş will continue creating added value for its shareholders, business partners, and our country.