Joanne Salih

Maarten, thank you so much for joining me. We just got off our panel discussing the future of oil and gas companies in the energy transition. A very interesting discussion. As we've seen, there are, of course, many challenges for integrated oil and gas majors and the road ahead. The question for you is, how is Cepsa differentiated on delivering on the energy transition?

Maarten Wetselaar

To me, the biggest thing that allows us to go from 100% fossil to majority green this decade is the ability to move very fast – and that's related to our structure. We are owned by two private equity funds who have contracted with us a strategy to go fast from fossil to green. We are completely aligned and with the two shareholders and myself, the three of us, we can take decisions in seconds that in other companies take months or even years.

And, we can develop a strategic conviction and stick with it, which is very, very different than if you are public markets with millions of shareholders and the press and everybody putting pressure on you. So, I think the ownership model has a big impact on our ability to move. And secondly, and almost by chance, we are the biggest industrial energy player in the south of Spain, which is the most advantaged region in Europe when it comes to producing green molecules.

And so, we kind of happened to find ourselves in the right place to push the accelerator button and push it hard.

Joanne

Absolutely. I mean, one of the points that we spoke about earlier was the issue around going from hydrocarbons, as you say, towards low-carbon and clean energy and really addressing this frozen middle of ‘olive’ projects, decarbonization projects. So, as you said, with your investor base, your two private capital entities, how has that enabled you to address that decarbonization strategy and the pathway towards eventually getting to green?

Maarten

I think, first of all, we've worked back from ‘what does the customer set that we supply today want?’ And most of them want to decarbonize, but they want to do it in a way that keeps them competitive and that makes it easier to decarbonize. And that means offering products to them that ideally are drop-ins.

Maarten

So, let's say the aviation sector, we are a big supplier of the aviation sector – they don't want to change planes or engines, and so we are heavily betting on sustainable aviation fuel, replacing kerosene over time. But of course, you can’t do it from one day to the other. And the great advantage we have is we are in the airports. We have our aviation customers today and we can simply change the mix of product that we offer to them. And the same is true for our industrial customers and for our shipping customers and so forth. Being already an integrated energy and fuels provider today gives the opportunity to simply change the mix over time. And so, in each of these sectors we thought ‘what is the easiest way for these customers to decarbonize?’ And then how can we leverage our starting point of being so strong in the south of Spain; where renewable energy is cheap, where you can produce cheap green hydrogen, and green ammonia, and green methanol., and link that into our supply chains so we can build an early customer position to match our early supply position? Because that's one of the biggest tricks in the energy transition. You can build your supply, but if you don't have any customers, you're going to struggle to make any money and the other way around. And so, combining the two is the secret sauce.

Joanne

So, you mentioned strength, both physically and I think in terms of your position as Cepsa in the Iberian Peninsula, specifically in Spain. What are some of the success factors and the learnings from Cepsa in Spain that you think bigger, integrated majors could potentially learn from, and Europe on a wider basis?

Maarten

I think the benefits of integration are very, very significant and often underestimated. We talk to a lot of people in this space, also pure play startup green hydrogen or sustainable aviation fuel companies. The synergies that we get by already consuming, as a company as a starting point, in our refineries, in our chemical plants, we are significant producers and consumers of hydrogen.

And so, if we build a green hydrogen facility next to this, there are all kinds of synergies that we can benefit from – industrial synergies – by linking this existing hydrogen production to the new one and combining for new customers and existing customers to develop the colour of hydrogen they need. And on the customer end, we have access to the airport logistics, we have access to the customers that many startups in the space don't. So, I would say the integration benefits of us already having a fuels business, a molecules business in the energy system, that you can blend the green business into is very, very significant and not available for startup competitors. So, I think that's an example that many of our classic competitors can take inspiration from.

Joanne

You referenced it earlier in terms of your access to private capital and the relative competitiveness that provides you, what do you think that means for the broader investor base? What could institutional investors begin to learn from this? And also the majors who are having to deal with the very different investor base and shareholder value proposition.

Maarten

I think that the two investors that we have, Mubadala and Carlyle are obviously attracted to the purpose of our strategy, decarbonizing, and decarbonizing fast, and leading the way in the green molecule sector. But they're also quite attracted by the value proposition of the actual financial returns that can come from this. If you move from a low-multiple fossil fuel player to a high-multiple green player, then there's a lot of value to be created that will be available to the shareholders.

And I think the lesson for the broader institutional investor base is that, yes, you can invest in green only or in fossil only, but the biggest returns are actually in the journey. If you can take a fossil base towards green, then you can buy cheap and sell expensive, which in investor territory tends to be the right way to make a return.

And that requires nuance because it requires you to be ready to invest in something that looks very fossil today but has the promise of being very green tomorrow or the day after tomorrow, and the institutional investor base is not great at taking sophisticated decisions. They quite like it black and white and simple. This is ESG. This isn't. And actually, the journey from one to the other is probably one of the biggest value creation lies.

Joanne

And is there something in the management of risk through that process that energy companies, like gas companies, need to begin to build their muscle on?

Maarten

I think there's some really interesting risk management questions here. A lot of the risk management questions we get are about what are the risks of doing it? With hydrogen technology, is the product safe and so on.? So, all kind of risks involved in doing it, and we can mitigate those in many different ways. But I think the risk of not doing it is underestimated.

Maarten

Clearly, there are good returns in oil and gas today and there will be good returns in oil and gas tomorrow. But if that’s what you're going to be doing for the next 15 years and you basically ignore the green molecules side, you will find your customers disengaging, you will find your staff disengaging, and over time, you will find society disengaging and you become the great shrinking energy company.

Maarten

And so, the risk of not doing it to me will become clearer and clearer over time, and then buying your way back in is going to be expensive – I promise you that. So, I think there are risks in doing it, but they are obvious and much discussed. The risks of not doing it are probably a bit more lurking in the shadows and will come out soon. But clearly, we have managed our risk in a sophisticated way and we believe the technology, the operation, and the commercial risk is manageable, but not zero. But that's also where having two shareholders that can actually understand that risk, can actually take the time to impede it a bit, is attractive for us rather than having millions of shareholders who, frankly, you could never expect to get that sophisticated. So, it's an advantage. It's an advantage we have. We live in Europe and our company is quite European, although we have a global footprint, and so we're in the middle of a European societal and industry debate on this. How do you see, across the pond in the US, the industry responding to this dilemma?

Joanne

I think it's a hot topic question at the moment. We’ve seen two of the largest US majors in the past couple of weeks make significant upstream investments and bring in acquisitions. I think there is a there is a surface level view, which is they’re sticking to hydrocarbons, they’re maximizing value for their investor base in the near term, and they're creating effectively a war chest for future investment, whatever direction that takes. But I think if we unpeel that a little bit, what they're really trying to get after is – they understand the molecule. As you said Maarten, oil and gas companies and future integrated energy companies understand the value proposition and technical aspects of the molecule.

Joanne

And I think that's their argument, which is ‘we understand hydrocarbons today, we believe that we can invest in CCS, CCUS, whatever version of carbon capture we want to get after, and we can measurably impact the decarbonization strategy’, which the Inflation Reduction Act reinforces. I mean, 40% of total net-zero load comes from decarbonization. And in doing that for ourselves, whether it's in the upstream assets or the refineries, we can also do that for our customers over time.

Joanne

And I think beyond that, there are remarkable strategies in the adjacent fields of biofuels and sustainable aviation fuel, and also in hydrogen in some respects. So, there are further layers underneath all of this. I think what is supportive, as we’ve discussed before, is that they do have a regulatory structure whereby they can say, ‘okay, well, this is the fiscal impact of investments’ and from a state level as well as at a North America level, they have some certainty around what the future holds for them in terms of general investability.

Joanne

And I think that's going to be a bit more difficult for the European majors because, in reality, Europe is a very wide space. They are very different, I would say commercial cases, the different types of carbon energy, and frankly the regulatory model is not yet there to support them. So, it's a challenge, it's an opportunity. I do think the US majors have been helped a little in that sense, and that's why they have some of the premium they do.

Maarten

So last week's IEA report told us that in 2023, the world is investing $2.8 trillion in energy, $1.7 trillion in green and $1.1 trillion in fossil. So that feels like real progress. But still, there's a lot of unrest. Also the IEA says more should happen and there's a lot of societal unrest. What in your view does it take to really accelerate the energy transition?

Joanne

I think there are a few different buckets, and some of it is certainly on the supply side, some of it is on the demand side, and then we have the regulatory aspects. So, there is a broad issue which we've already discussed around investor willingness to allow for capital deployment. So, ‘if I don't understand this, if it is odd to me’ then it feels a bit uncomfortable, and the risks are unknown. Generally, investors don't like that. So, I think there is a level of education that needs to take place. I mean, take one of the companies that we know well in the market who is participating in renewable natural gas as an example, their investor base has concerns. What does this mean? What kind of exposure does this create for us?

Joanne

That's certainly one aspect. I think the other aspect is, ‘is there enough opportunity for us? Is there a pipeline for us to get after?’ So, if we look at the renewable space and very specifically at the UK, okay, there are potential solar and offshore and onshore wind projects, but without access to the grid you effectively have no impact.

Joanne

So, we need to address permitting and licensing and make sure that is in place as well as the infrastructure investment. And this goes way beyond the oil and gas sphere to really get after. And then as you mentioned, there's a demand aspect of all of this. We invest, of course, to impact our overall net-zero ambitions, but we need to have a commercial case and profitability in place without the demand structures, whether we're talking about subsidies, offtake agreements, a carbon market – it is very, very difficult to be certain in your final investment decision as to whether this makes commercial sense or not. So, we need to begin to build that. And part of that is partnering with the downstream sectors, and regulators, of course, have a part to play across all of these fields. And I think the faster that regulators understand the challenges that the industry has, the faster companies like Cepsa and others will be able to deploy capital, whether it's from an institutional investor base or private capital.

Joanne

So, with that said Maarten, I know there are a number of exciting things on the horizon for Cepsa, any lighthouse projects and activities that you'd want to highlight for us that we should be looking out for?

Maarten

Yeah, absolutely. I'd say the whole area of green hydrogen, green ammonia, green methanol, but also to some extent sustainable aviation fuel. You see so many announcements you kind of stop reading them, but the real projects are a bit like the Yeti, the terrible snowman – much talked about but never seen in real life.

Maarten

And it is our mission in the coming year to really start moving from the design phase that we've been in – and the orchestration phase – to starting construction. Next time that you and I meet, we can actually sit on a construction site where Europe's biggest hydrogen project is being built – where one of Europe's biggest sustainable aviation fuel projects is being built.

Maarten

It’s that going from design, going from orchestration to actual construction is what I think will give a lot of people the confidence that this industry is really, really happening and that is has potential. So,that's the next step for Cepsa? To get more than half of our income from green and sustainable sources and become the green molecule champion in Europe.

Joanne

Fantastic. Maarten, I look forward to that and we will all be watching out for the many activities I'm sure that Cepsa will be getting after. I’ll get my hard hat ready for the visit. So, thank you so much and look forward to the rest of your time at the FT event.

This transcript has been edited for clarity.