Cepsa Embarks on Unique Transition Path

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Spain’s Cepsa is trying to leverage its industrial footprint and an advantaged location on the Iberian Peninsula as it embarks on one of the more unique transition stories in the oil and gas sector. Led by newly minted CEO Maarten Wetselaar, a former head of the Integrated Gas, Renewables and Energy Solutions division at Shell, Cepsa is trying to build a model based around green molecules — from biofuels to hydrogen. It is derived from the fact that "half of the energy system cannot be electrified," Wetselaar told Energy Intelligence in an exclusive interview. Like the US majors, Cepsa has eschewed the ambitious renewable power drive favored by many European companies due to worries about low margins and lack of competitive advantage. But its upstream approach of running the business to generate cash for transition investments, rather than adding more reserves and production, is more aligned with the philosophy of its European counterparts.

Cepsa, which is owned by Abu Dhabi sovereign wealth fund Mubadala and the Carlyle Group, offers an interesting take on how a downstream-focused oil and gas company can approach the energy transition. Its new model will be structured around two business units, Sustainable Mobility & New Commerce, and Sustainable Energy. The first will focus on electric vehicle charging, powered by a partnership with Endesa, a subsidiary of Italian multinational power giant Enel, and developing a broader business line at its large retail network. Sustainable Energy will focus on selling green hydrogen and biofuels to hard-to-decarbonize industries like aviation, shipping and heavy industry, where electrification is difficult. The company plans to develop 7 gigawatts of solar and wind power — but all of it will be used within its own portfolio. Cepsa will look to use its more than 1600 retail locations to build out non-energy offerings in things like food and pharmacies through partnerships with providers and last-mile delivery services. The company will not add to its upstream portfolio, and while it is not actively considering a stake sale or spinoff — as has been rumored at Spanish competitor Repsol — Wetselaar said Cepsa will keep its options open in the future.

But the transformation cannot happen without significant investment. Cepsa will spend between €7 billion ($7 billion) and €8 billion through the end of the decade, with 60% going to transition businesses. For the strategy to be successful, those transition businesses need to perform. The company is targeting more than 50% of its earnings (Ebitda) to come from transition activities by 2030, up from 14% today. By 2030, Cepsa plans to have roughly 2 GW of green hydrogen electrolyzer capacity as it looks to supply first its own needs and then regional demand. At the same time, it is ramping up biofuels production to 2.5 million tons per year and shifting its aviation fuels business to supply 800,000 tons of sustainable aviation fuel (SAF). Greenhouse gas emissions are expected to fall as these transition businesses ramp up. Cepsa is targeting a 55% reduction in Scope 1 and 2 emissions (from operations) and a 15%-20% drop in Scope 3 (end-users) by 2030.

CO2 Emissions, Hydrogen, Corporate Strategy , Capital Spending, Regional Integrateds, Biofuels (incl. SAF)
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