Repsol upbeat over 'profitable' low carbon transformation after COVID-19 trauma

London — Repsol believes it has the recipe for a swift but profitable transition to cleaner energy after the COVID-19 crisis accelerated the Spanish oil company's push towards a carbon-neutral target, according to a top executive.

The Madrid-based producer, the first oil major to set a net-zero emissions target in late 2019, recently laid out a more ambitious shift in focus to renewables away from oil and gas which it hopes will transform the company in the coming years.

Although already in motion, Repsol's low-carbon drive was beefed up after reassessing the global upheaval from the pandemic, head of technology, resources, and sustainability, Luis Cabra, said.

"It is not just decarbonization, it is the way of making our company sustainable and profitable in the future," Cabra told S&P Global Platts in an interview.

"COVID has not been the reason for us to put the strategy in place but, definitely, it is not going to be COVID that will make us rethink and go back."

Under the plan, Repsol expects to add 1 GW of renewable power per year to 2030, targeting a 10%-plus internal rate of return with Spain the initial focus, Cabra said. "To reach that level we need to be an early entrant in the process, rather than a buyer of projects that are advanced in the pipeline."

This would make growth a little slower but, by taking on execution risk and pursuing both merchant and auctioned capacity routes to market, the rewards would be greater, he said.

The company targets 12.8 GW of renewable capacity by 2030 of which 7.3 GW would be in Spain, 1.3 GW in Chile and 4.2 GW elsewhere, with a fairly even split between wind (5.4 GW) and solar (5.7 GW) plus 1.7 GW of hydro.

Meanwhile, plans to expand the Aguayo pumped storage plant in the north of Spain by 1 GW would allow Repsol to capture peak prices and balance its growing wind and solar position, Cabra said.

"This is the cheapest form of storage you can get, but we do need some regulatory contribution. We have made progress on environmental permitting and hope to see the plant in service by 2026."

The surge in spending on renewable power and other clean energy projects will see Repsol's low-carbon spending jump to 40% of total capex by 2030 up from 2% last year. Over the same period, the upstream sector will absorb 30% of total capex, down from 55% in 2019.

Refining, biofuels

Led by Europe's renewable energy directive, Repsol plans to triple its biofuels production to more than 2 million mt/year by 2030 when premium-quality, renewable hydrotreated vegetable oil (HVO) will make up 1.4 million mt of the total.

Up to 250,000 mt/yr will come from a new plant at its Cartagena refinery, set to process industrial waste and recycled oils as raw materials to produce advanced HVO, biojet, bionaphtha, and biopropane.

The investment means Repsol can be profitable producing biofuels, Cabra said, promising a "very healthy level of return...above 20%."

A key plank in the expansion of advanced biofuels will be renewable hydrogen plants to create synthetic fuels at its existing refineries, Cabra said.

Despite industry concerns over the higher cost of producing green-hydrogen, Cabra said Repsol was banking on a multi-technology mix of hydrogen sourced from biomethane and electrolyzers to give it a competitive edge.

"I believe we may have some 20%, 30% cost benefit or cost advantage as compared to a stand-alone producer, and this is because the integration of production and consumption in our refineries," he said.

Cabra said he did not expect Repsol's future refining crude slate to change, however, as different crudes would not "move the needle" of Repsol's carbon intensity at the company level.

"We have invested in the past a lot of money in our refineries in order to make them ready to be able to process any sort of crude oil, including the heavy ones, which are cheaper in the market. And that is why our refineries are very competitive, and we enjoy higher margins than others."

Upstream oil, gas

With Repsol targeting an ambitious 25% reduction in its carbon intensity by 2030, part of the transformation relies on paring back of its upstream footprint and a tighter exploration focus.

The company now sees production around 650,000 boe/d over the coming decade, in line with its 2020 output target but below the 730,000 boe/d 2019 exit level.

The company, which took a $5.7 billion writedown last year after lowering its long-term oil price assumption to $50/b, sees exploration and production as a "cash engine" in the coming years to help fund its clean energy transition, Cabra said.

The new upstream focus will be on short-cycle projects such as shale and a smaller geographical footprint, he said. Repsol wants to exit from some non-core countries to invest in that capital in North America, including Mexico and Alaska able to add production at break-evens below $36/b.

Repsol plans stay in Libya and Venezuela but "narrow the risk", Cabra said, and also continue in the US, UK and Norway where it benefits from fiscal credits due to past losses.

"Our number one priority is profitability and quality of assets and fiscal synergies," he said.

Although Repsol is targeting "flexible" upstream spending in the coming years, Cabra said its shift to renewables will remain on track even if the oil price recovers to $60-$70/b in the future.