CEPSA Sets A New Strategy in ‘Positive Motion’

system could look like. And today we have the opportunity to hear firsthand from Martin Witsellar, the CEO of SEPSA, regarding what they're changing, what are their targets for decarbonizing, what are some of the things that they might be struggling with, and what could the future of their company look like now. For background, SEPSA first started over ninety years ago and they are the first private oil company

in Spain. Today they're across five continents and historically their business activities have been focused on oil, gas and chemicals, so this is quite a pivot. With their announcement of their Positive Motion Plan, SEPSA is now investing sixty percent of their eight billion investment budget into sustainable business activities. By the end of the current decade, they want to see a fifty five percent emissions reduction when compared to twenty nineteen law. So how are they going to pull

it off and what is their strategy? Well, BN EF's deputy CEO, Albert Chung, spoke with Martin about just that. They discussed topics including international competition between nations within the clean energy space, seps's to Gigawat and a Lucian hydrogen Valley project, and the new Green Corridor between Spain and the Netherlands. And they also talk about transportation and mobility customers and how SEPs is adapting to meet their needs, and of course SEPs as plans for their upstream business.

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end of the show. And now let's get to the conversation between Albert and Martin.

me through almost all the businesses. So I started in the downstream trading business, then in downstream trategy and marketing and finance, and moved into upstream and quickly from the upstream business, cut engaged on the gas business and that's where I probably spent the majority of my time in Shell. To basically grow consolidate the gas business and particularly the lerg business, which at the time was still i would

say in the beginning a bit of a niche business. Nowadays, of course, is a global business in its own right, and certainly in Shehall it's one of the biggest businesses that the company has and I was privileged to lead that business for nine years, three years as an EVP. And then you may recall both BG Group former British Gas,

who were also a significant energy company. We combined the businesses and I moved on to the executive committee of Shell, where I stayed for six years, running that gas business but also picking up the newly formed new energies business.

In twenty sixteen, Shall switched on a new energies business which had before in the two thousands but basically closed down in two thousand and eight two thousand and nine, started up again in twenty sixteen, and so over the last six years, based in then Atherlans, I rent both the gas and energy business and the new energies business, which took Shell into offshore wind, into solar, but also into biofuels, hydrogen batteries, power training, power sales et cetera

to customers, so setting up an integrated new energies business there, and then in the course of twenty twenty one, the opportunity to lead SEBSAT came along, and eventually I took it, not just because the amazing city that marid is, with its climate and it's the social life, it's position in the center of Spain, a bit more over because I saw an opportunity to lead a fundamental and very fast transformation of a company that has as a starting point

and we can talk about it later, a quite traditional fossil fuel based integrated oil gas chemicals business, to lead a transition that would actually before the end of the decade, turned that into a leader in in clean energies, clean green molecules, and clean mobility or sustainable mobility. And that

opportunity to me was irresistible. So I moved by the end of twenty twenty one, and I am now fourteen months into that adventure and very pleased with the progress and still at the same time quite in all of what still needs to be done to get to the endpoint.

what you've been working on. Now, as you say you've been at the Helm of Stepster for a little bit over a year, now, could you first maybe tell us a bit about the company first of all for those of our listeners who are less familiar, and then I'd also love to hear what you've learned since joining the company, anything that surprised you perhaps over that year, and a bit that you've been there now.

has a presence in Mexico and Morocco. In the downstream, the company owns the largest refinery in Spain and another big one both in the south of Spain and Ondalucia, and that's relevant when we start to talk about the transition, and we are eighteen hundred service stations and are significant

players in aviation, in bunkering. In all that, let's say, the classic B two B and B two C businesses in the oil industry were less less of a player in meatural gas actually, although we do import the products. So it's company with between twenty eleven thousand employees last year three billion dollars of EBITA to give you a

sense of the dimensions. And one of the things I've learned is you, of course when I joined, or before I joined, I talked as significantly to be shareholders about what they were hoping to achieve with how they saw the future, and they very much saw the future or were very interested in the future that will be a radical transformation into the transition data. Partly because they think that's the right thing to do, that the world needs

an example of that, or multiple examples of that. But I would say also partly because attracted by the situation in the equity markets where companies with a predominantly fossil portfolio at the moment, certainly in Europe, attracked ebe down multiples of three and a half to four in evaluation, whereas companies that are predominantly sustainable and green attract double

digit eb down multiples in evaluations. So if you apply that to let's say a three billion door EBITA, it's the difference between a ten billion dollar valuation and thirty billion dollar valuation. And since re private equity owned, there's an incentive to see can you get from A to B and can you do it this decade? So with that inside and with the chareholder Wiship, I certainly have studied the company ahead of joining and these I thought

it was possible. But I think the lesson that I've learned is that strategy is really an art of making choices, and too many companies and I think that was also probably the case in thepside before, end up doing a bit more of everything. In our sector, companies with such a broad portfolio of chemicals, upstream gas, downstream renewables end up their strategy ends up being, well, let's grow everything

a little bit. And what we've come up with is a strategy that really makes choices, that decides to ribble down,

triple down on sustainability businesses. We've announced that we will invest more than sixty percent over our eight billion investment budget into sustainable businesses the rest of this decade, creating a company that's more than fifty percent sustainable income by the end of the decade, and therefore, as a result, shrink the classic business of fossil based businesses by essentially running them for maximum value rather than investing in them.

And I think that having such a clear choice on the strategy has been important internally to make to align

everybody and to give direction to the company. But it's also been hugely helpful excellently because it really creates a story about where we're going, and a story that is easier to understand and that can be explained by all the other thousand people in the company, but also can be easily understood by people who we deal with in government, in regulatory agencies, in the press, and in the general public. And having a story that is focused and that is exciting.

I think we're reaping the benefits of that every day, even if we're only at the start of executing story.

all about transforming to net zero. You've already started telling me a bit about that, but cauld ask you maybe just to map out some of the main pillars, the main components of that. What are the main pieces that make up that overall strategy over the next eight to ten years.

customers and offer them decarbonization solutions. The carbon footprint of a company like Stebsite is significant, but eighty five percent of that carbon footprint if you go scope one, Scope two, Scope three, so let's say life cycle carbon impact of our product, not just our own emissions but also our customer emissions, eighty five percent of the emissions take place when the customer use our products when they drive the car, and they use the gasoline over the plane flys and

they use the curacy. So for us to have a meaningful and impactful impact on climate change and on the energy to tradition, decarbonizing our own facilities doesn't make much of a difference because it's only fifteen percent of our carbon footprint. We need to do that, of course, and we're doing it. But much more importantly is that we help our customers decarbonize their energy use, which will then decarbonize the life

cycleed carbon footprint of our business. But starts with understanding what do our customers need to decarbonize, and it's actually a relatively simple story. We think that there are mobility

customers which are at the B two C side. That starts with let's say the cars that fill up at one of our eighteen hundred stations will need green electrons, will need electric vehicle charging solutions because that's where light vehicles are going by and large, So on that segment, we are raining down all Liberia super fast chargers so people can can charge in fifteen twenty minutes to eighteen ninety percent of their battery and go on their live

journey again with their ev charge staff. Of course, we continue to offer diesel and gasoline as we go, but becoming the leader in super fast charging in Iberia is our main B two C strategy. Alongside that strategy comes a convenience strategy, because, of course those customers will spend a bit more time in our stations, let's say twenty minutes on average, and therefore we want to give them

options to make the most of those twenty minutes. Whether that's drinking coffee or doing some e commerce, or picking up a meal, or picking up groceries or having a meal are many, There are many options. But we will treat those stations not so much anymore as places where you have to go because you want to fill up your garmend casoline, but where you want to go because there are convenience locations that are offer many options whow you charge your vehicles. So on the B two C side,

it's super fast charging plus convenience strategy. On the B to B side, what our customers need most from us is green molecules. And I mean with that is many sectors in the B to B business that we serve are very difficult to be electrifying. The ones that can electrify will do so because that's the easiest way to

decarbonize your energy usage. But there are many sectors such as aviation, such as maritime trans or such as heavy industry, but also such a heavy transport big tracks driving long distance for whom it's or the fertilizer sector, the chemical sector, for whom it's very difficult to electrify. But they still need a decarbonization solution and for that they need green molecules.

And we've elected so again a choice. We could try and serve the industry that electrifies, but we actually believe that we can be more distinct by developing green molecules. We've been in a molecule business for one hundred years. They've been hydrocarbon molecules. Now we will develop green molecules. And essentially there's two main families there. There are biofuels

and gases, and there is the green hydrogen family. On biofuels, we want to become one of the main suppliers of sustainable aviation fuel in Europe and we will start making some substantial investments this year. We already produce sustainable aviation

fuel and on green hydrogen. We will also become one of the major suppliers in Europe of green hydrogen and its derivatives green ammonia and pretend green methodol, and in that way we can decarbonize the carbon footprint of our industrial of our let's say B two B customers who need green molecules and our BDC customers that need green electrials.

So that is broadly, let's say the growth strategy underpinned by a significant renewable energy investment, which we will do to sell green electrons to customers or so to end customers. We will do it for own use. We will do about seven gigabatts of renewable solar wind electricity then will go to feed the super fast charging for the B two C customers and then will be used to make to produce the green hydrogen and to produce the biofuels

and biogases. And so it's an own use strategy. We will not significantly compete in the electricity market itself, not because we because it's a bad business, but again because strategy is about making choices. So that's that's the growth part of the agenda. And then we will de emphasize our extreme business. As you may have seen, we've recently

announced the sale of our oil production business Adown. That's about half of our extreme and in the rest of our exstream positions, we are really not growing apart from making the investments in the fields that we already have that makes sense. We are running that business for maximum value, and you will see the relative weight of our extreme business decline in our portfolio as we grow the green side and as we run that business form maximum value

going forward. Our chemicals business does have a green agenda, is able to decarbonize and become green at kind of the pace that our energy businesses, so we've decided to keep that alongside our business for now and go on also go on a pretty aggressive green strategy. Our main business is to make La b which goes into the surfactanins business, which eventually people use to wash their clothes

or wash their hands, et cetera. And we believe that is a sector that will decarbonize early, where our green propositions will attract the preview.

the cars are now EV's that are sold. Netherlands and Germany it's twenty five growing to thirty, and in Spain it's four. And so the big question how fast will that four grow to twenty to thirty, to fifty and eighty And it's a bit a noble but it certainly

depends also on the amount of infrastructure available. So we want to be part of the solution, will investigate it, We will invest ahead of the growth of that EV park, which hopefully will in itself trigger growth of the EV park, because we believe it's a bit of a business of a land grap where it's better to be early than to than to be laid, and by creating an installed base, we can grad a much higher market share in the EV charging business, let's say up to twenty five percent

that we have in the fossil the business, where we are somewhere somewhere apt to after thirteen percent. It's an opportunity for step change in our market share by going early on ev charging, but eventually the opportunity is limited by the size of the car park in Iberia and the size of our network, so you cannot grow that forever. On biofuels, particularly sustainable aviation fuel, the risk profile is

an interesting one. It's not so much to demount because the aviation sector really has only one credible near to medium term to decarbonized, which is stainable aviation fuels, and again in Europe will be forced by the European Union to adopt. Many companies want to adopt, but even those who don't want to will be forced by regulation to start buying the stainable aviation fuel. So in a way, the demand in that sector is kind of de risked.

It will be there and it will grow. The risk profile in the biofuel's business much from the supply side. Can you find enough second generation feedstock that is genuinely sustainable and not food based but waste based. Can you find enough speedstock to grow your business? And so we are very very strongly focused at being allocating substantial resource to find a to originate in feedstock supply into the South of Spain so we can be a leader in

producing biofields of stainable aviation fuel. The main risks on the supply the feedstock supply side, on the green hydro side is the other way around. Feedstock is not a problem. You just need water and reheuble electricity and where we are in the South of Spain is the best place in Europe for reneble electricity. We have the best combination

of sun wind and space. And what I mean by space is the opportunity to build world class solar wind parks because there's quite a those space in the Midleland and South of Spain that that's usable. It's the population density is quite low. All of a sudden, the winter you get very two renewable electricity and the other component you need is water and you don't need so much of it. And actually by reducing our own use in the refinery is we can free up enough water to

grow a very very large hygien business. So there is no constraint on the feedstock side on hygien. The constraint there at the market is to actually develop customers who want to buy hydrogen and that so that's a very different risk profile. But the good thing is these three businesses all have their own different risk profiles, and so by growing all three of them, you can actually you get diversification. You don't just depend on one single one of them working out. One of them might work out

better than the others. But by growing all three into a leadership position, we're pretty comfortable with the decarbonization drive that we have in Europe, with the advantage position that we have in the South of Spain in terms of clean power being the cheapest in Europe, we will have a strong clean energy portfolio in the course of this decade.

And then where do you then see that hydrogen flowing? More broadly, I presume there'll be other applications for that hydrogen coming out of this two gigawort project, So where do you see it going into? Which industries and which geographies.

so that's one key element. But the second key element, indeed, is that we have local demands that we can use as a way to get going. We have the alliance with thirty BA. We ourselves, with our two refineries, are significant hydrogen users and we will consume our own green hydroen. And then we have a number of other customers more in the aluminium and steel side around our energy parks in the south of Spain that our potential and I

would say likely customers that we are having discussion. So clearly, if you're going to build a hydroen valley, the first step is to serve local demand, and we have quite a bit of local demand. But then the second step is to start to serve demand in other areas. And for that you need to transport the product. And that's totally trivial when it comes to hydroen because it typically can't use existing gas by bine systems and although you can blend them with a network that it doesn't derive

as hydro with the customer. So there is a plan in Europe, a very detail plan in Europe that the European Union is committed to to build a hydrid pipeline system in Europe. That will eventually solve that issue, but that's going to take time. The EU says by twenty thirty that will be very fast, could be in the cause of the thirty so we can't wait for that

to go and so for us to second. After having served local demand, we see the best opportunity in turning green hydroen into green ammonia, which is easily shippable, and then we have a number of destinations for that, so we will produce green ammonia. We've done a deal with the port of Rotterdam where we create a green ammoniac corridor between a Caceras which is the second part in Europe and Rotterdam, which is the first port in Europe.

There's a big ammonia market in Rotterdam for fertilizer for other uses that we can supply into from all caesiras and we are sponsoring the construction of the infrastructure we need in Rotterdam to do so. But we are also developing a business of selling ammonia into ships. The maritime sector will need to de carbonize and the two available pathways are methanol and green ammonia, both made using green hydrogen. So over time, we also expect to be selling into

ships or to sell into other markets. Japan is a market that is very keen to bigreen ammonia, and so that will be the second level of customer that we will serve, the shipping industry and the ammonia market globally. And then eventually, as we think of scaling that well beyond the two gigabots, we would start to count on the pipeline system to take the hydrogen to the north of Europe. So there are a number of layers. The last layer, I would say is developing a trucking market.

We do see that for a long distance heavy trucking, hydroen is the logical alternative, and we have a plan to start constructing hygen stations in Spain and then link into hydrogen distribution facilities in the rest of Europe to start sending HydroD to drugs, which is a also shepherd as otherwise very very difficult to decarbodize. So we see a large market opportunity in front of us, but we need to develop it step by step.

me on stage at our BNF New York summit. It must have been four or five years ago. I remember you explaining with quite some conviction that you felt that oil and gas companies can and must play a leading role in the energy transition. Now, I assume and I

can tell that that's still your conviction. But now that you're at SEPSO, which is still quite a large company, but somewhat smaller and different in structure, different in focus, do you feel that SEPSA has a different set of advantages or or different challenges than other players in the industry and how do you see that playing into your strategy.

so it's not that easy to copy. Is an advantage that we have and that helps helps us be pioneers in this area or the early movers. But I think there's another issue at play Albert, which is ownership structure. I have two private equity owners, Mubadla and Carla, who are convinced that this is the right strategy for steps to follow and put their money and governance behind it and allow us to execute very fast and quite medical

transformation of the portfolio and the business. I think what we've seen in public equity markets is that they're very hard to read, and if anything, they've been going the other way. I think the most recent proof point would be when VP announced that they were going to reverse to some extent their commitment to reduce their oil and

gas production. Their share price went up by twenty percent, so the promised to produce more oil and gas than plant and their shurprise went up substantially, so I think the public equity markets at the moment are a bit I would say polarized. There is a large but shrinking part of the public acuity market that simply wants oil and gas production and oil and gas exposure. And then there's an even larger part of the public equity markets that wants to invest in EG compliant or related shares.

The problem that these integrated oil and gas companies have is that whenever they announced their going let's say, from five percent renewables to ten percent or five to fifty, then the part of the equity market that wants oil and gas exposure divests because that's not what they are

looking for. They want oil and gas exposure. They either don't want these companies to invest in the energy tradition or they don't believe in the energy tradition, but they're looking for oil and gas exposurem So they divest or in these apportion divest But the ESG part of the or the equity market, that's a very powerful part of the equity market, doesn't yet invest because it only wants to invest if these companies achieve forty or fifty percent

green energy penetration. So it's a very hard journey to make. So at the moment, I would say the public equity markets reward pure place. You're either in oil and gas and you develop it and then you get share price appreciation, or you are a green company and you develop that. But there are very few public equity investors that want to invest in the journey. My private equity investors don't

want anything else but to invest in the journey. I think there's a real tension there where for the large companies in the industry, it is hard to find the trajectory to lead in the carbonization if the equity markets are not willing to buy into that.

Europe and the energy crisis. Do you see that the worst is now behind us in terms of this energy crisis. We now have this oil price cap that seems to be doing its job. We have gas stories that seems like it's at a reasonable level after winter. What's your thought on kind of the prognosis and do you think we've weathered the worst of the storm.

in place, the oil and products keep flowing. The logistics are a bit more difficult, are all kinds of issues with the quality of ships that bring the Russian cruder products to their new end customers, et cetera. So so I wouldn't say it's it's completely normal, but it's kind of settled. And so to me, the liquid markets will simply going forward again be driven by supplying demand, and we do believe supply has been underinvested, so oil prices

likely to be relatively strong going forward. But that market has kind of settled, and I wouldn't expect there to be any panic moments left. I think on the gas market, Europe has been successful and lucky. It's been successful in

attracting supply from other sources and in suppressing demand. But it's also been very lucky that the winter was one of the warmest winters on record, and therefore the heating demand was so much lower than average, and those two factors have led now to quite a calm situation in the gas market. I think that it's too early to

declare victory on that. If we get resurging China demand, Asian demand for gas, which was also quite suppressed last year because of COVID and other reasons, if it all comes back into the market and we have a very cold twenty three to twenty four winter, and the gas situation could still be tied. But we still have to get through one or two winters on the gas before we can really say that that situation is also settled.

So we'll see how it goes next winter. But I think the models now in place to respond to are a lot better than nowhere a year ago, so I don't think we'll get to the very extremes that we saw last year anymore, but could still be tense, but one of the important structural points is that Europe will never again go back to depending so much on Russia when it comes to gas, and therefore it will become a structural energy importer and that will impact the long term.

Gas price in Europe will go as a result, because energy prices will be higher than the Russian sply used to be, and that will have impact on the gas market, the electricity market, and the competitiveness of Europe for industry, et cetera.

et cetera, and embedance system in that way. So I think the ambition and the targets are the right ones. What I haven't seen enough of is turning that into practice.

I would have wanted and expected more of a wartime effort to kickstart the biofuels and green hydrogen industries, to already be constructing large projects, to already be breaking ground on pipelines, et cetera, to really change the approach and remove some of the permitting blockers, but also other blockers that stand in the way of you're moving so much

more quickly to that new energy system. All those ideas exist in results about permitting zones and go to areas they call them, about moving faster by lines and only electrolyizers and on biofields, but it's taken quite a lot of time for them to be agreed at the European level and then for them to find their way down to local legislation, et cetera, in order for implementation to

be able to start. So I think most of the right ideas, correct ideas, are around, but driving them into implementation is slower than necessary in my view, and certainly slower than what Europe needs, and that still needs work.

In the meantime, of course, we've had the IRA in the US, which gives very significant supply incentives to the market there, and that's certainly a wake up call for Europe is trying to respond within its own limits, score of tools that the European Union has and the countries are allowed to have. My sense is that that could still end up in the right place because where Europe at the moment is struggling a bit to copy the IRA supply site incentives and will need to step up further.

It has very significant demand side incentives, and there's the etes the price on carbon in terms of the framework for adopting sustainable aviation fuel and hopefully maritime is sustainable maritime fuels, and that's missing in the US. The US has very significant supply side incentives and l the IRA is very clear, simple piece of legislation, well done, but it still needs demand side incentives such as carbon prices

or other ways to stimulate demand. So I think the race is still on between Europe and US internal who will actually be the quickest to develop a green energy transition industry.

jobs of the technology for the energy transition. So I'd be curious to know if you have a view on how important that piece is versus just getting on with deploying projects at the downstream. I don't know if you ever thought on how important those green manufacturing jobs really are.

a competition than a collaboration. We hope it's both, but I actually think that's probably not a bad thing because competition in general has brought many good things to society, and it can bring progress on energy transition, then then bring it up. I think the focus on manufacturing jobs is if you take a purely ecomomist few is actually not so helpful. You want to create those jobs in the places where they are most efficient and then globally optimized.

But politically it is very very important that we keep the population in Europe and the propulation in the US and elsewhere, so keep their support of the energy transition.

So I think in country that tend to lose a lot of jobs because of the energy tangition, where for example, the car manufacturing industry is a very big employer and it is in Spain and it isn't in Germany, the notion that driving that energy transition hart will create a lot of unemployment could actually cause political support for anty

tgition to fall away. And so, from a political point of view and from a political acceptance point of view, being able to sell the energy transition acceleration as something that will also bring jobs to the local economy and there will also be manufacturing activity and prosperity, et cetera, it's probably not actually such a bad idea if that accelerates the energy tangition, and if accelerates popular support for it, then I think the economic symp optimization of having manufacturing

jobs in what you might economically call the wrong place may actually be worth that acceleration, or worth that public support, so I'm I'm not too unhappy about it. I think it is one of the biggest biss to energy tangition is if it loses popular support, that people start to feel that the only thing that does for them is make energy more expensive and export jobs, and then I don't think we'll be able to get it done anywhere

near in time. So I'm actually quite sympathetic to efforts to continue to raise popular support for the energy transition, even if it is economically perhaps not the optimal thing to do.

still accelerate the energy transition. Is that how you feel that even during these complex times, that we can continue to push and continue to move faster on that journey.

and direction of the energy system. It is. It is not all easy going, of course, because if you if you summarize Europe's approach as becoming lesser even totally independent of Russian from an energy perspective, by driving the energy tradition hard, then then of course you exchange dependence on let's say, fossil fuels to dependence on materials, because the energy tradition, the solar panels, the hydrogen plants, et cetera, to biofuels are all about materials, and these many of

these materials you created dependence on China and other parts of the world. So if you in a way you exchange one dependence for the other, and will need to work through the impacts of that, and so so it isn't all clear. Sailing but I'm optimistic that the system, let's say the EU US China system, will will come to an equal equilibrium that allows those materials to flow and it allows that energy tradition acceleration to to take place.

It has been what has been clear to me is that energy security is also in Europe very very political and sensitivision. It's been quite remarkable last year to see that when energy price has got high, Europe was willing to spend hundreds of billions subsidizing fossil fuel consumption in order to keep its citizens content. And of course the European argument for a long time has been that nobody

should subsidize fossil fuel consumption. And yet when when the going got tough last year, European countries together spend hundreds of billions on it, and they also switched some co fire power plants. So that to me has been an extremely important insight last year. Although we all believe in energy tradition, and certainly in Europe and US politicians will will say that when the going gets tough, energy security and affordability quickly come into perhaps or trumpet an agenda,

but certainly going side with it. And that comes to the necessity to increase our efforts to make sure that there's not just greener energy, but there's also plentyful and affordable energy as we drive the energy transition. I don't think that was as clearly on the radar screen as before. To me, it just emphasizes the need to scale up fast than we have been doing, and indeed about the wartime approach to creating clean energy in abundance affordability doesn't drive us back into the wrong place.

of us summit's very soon. Thank you, no thanks.

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