Cepsa is leveraging its relationship with Mubadala Investment Company and is in talks with Abu Dhabi National Oil Company and Masdar on potential co-investments and partnerships as it pursues its low-carbon energy strategy in Europe, its chief executive has said.
The Spanish oil and gas company, which is majority owned by Abu Dhabi’s strategic investment fund Mubadala, is in talks with state-owned energy producer Adnoc for a green hydrogen partnership, Maarten Wetselaar told The National in an interview.
The potential tie-up can take the form of joint investments in developing the entire hydrogen value chain from the Middle East to Europe and North Africa. Another option is Cepsa focusing on building demand and infrastructure in Spain and other parts of Europe as Adnoc remains focused on hydrogen production, he said.
“We are actually discussing exactly that question with Adnoc at the moment,” Mr Wetselaar said. “The biggest value add that we can have is to offer market access. We have customers in Spain, we can develop customers in the rest of Europe."
Both approaches can work, however, it is a “little bit early” to say how its potential partnership with Adnoc will be formed, he said, adding that Cepsa’s “unique contribution" lies more in Spain and continental Europe. "I think that’s the starting point.”
Cepsa, which also counts the Carlyle Group as its shareholder, will be “absolutely willing” to bring its expertise and knowledge to Abu Dhabi to work together with Adnoc, Mr Wetselaar said.
“I don’t think there’s a lack of capital in Abu Dhabi, although we would be willing to bring our capital … to build those value chains together from Abu Dhabi into Europe, into North Africa and from North Africa into Europe … a major opportunity that we would be very keen to work [on] together.”
Hydrogen, which can be produced from both renewable energy and natural gas, is expected to play a key role in the coming years as economies and industries transition to a low-carbon world to mitigate the effects of climate change.
Green hydrogen is produced from renewable sources while natural gas produces blue and grey hydrogen.
An investment of about $600 billion in low-carbon hydrogen will be required by 2050 to meet rising demand for the green fuel, Wood Mackenzie has said. Globally, the size of the hydrogen industry is expected to hit $183bn by 2023, up from $129bn in 2017, Fitch Solutions has said. French investment bank Natixis estimates that investment in hydrogen will exceed $300bn by 2030.
Demand for low-carbon hydrogen globally is set to surge to 223 million tonnes by 2050 from less than 1 million tonnes currently, according to Wood Mackenzie estimates.
Mr Wetselaar is bullish on Spain becoming Europe’s main hydrogen hub and said the country is ideally located to become the port of entry for hydrogen imports from North Africa and the Middle East.
“Of course our relationship with Masdar, with Adnoc and Mubadala gives us a really good opportunity to be the company that is at the receiving end of hydrogen flow that comes from Abu Dhabi,” he said.
Mr Wetselaar, who joined Cepsa at the start of this year from Shell, plans to make Cepsa a global leader in green hydrogen and low-carbon fuels. Cepsa aims to invest between €7 billion-€8bn ($8.9bn) over the next decade, with more than 60 per cent to be allocated to sustainable businesses starting next year.
The company, which plans to become net-zero by 2050, aims to lead green hydrogen production in Spain and Portugal by 2030 with a capacity equivalent to 2 gigawatts.
Developing the green hydrogen sector is also a central plank of the UAE’s energy diversification strategy, as it aims to capture about 25 per cent of the global hydrogen market, UAE Energy Minister Suhail Al Mazrouei said earlier this year.
Mubadala has described hydrogen as one of the most promising areas for investment in renewable energy. Mubadala, Adnoc and Abu Dhabi holding company ADQ last year joined hands to form Abu Dhabi Hydrogen Alliance, with focus on establishing the emirate as global hub for of low-carbon green and blue hydrogen.
Last year, Adnoc and Taqa joined Mubadala to become shareholders in Masdar, a move that will boost its renewable power capacity to more than 50 gigawatts by 2030 and help create a "global champion in renewables and green hydrogen" sector, the companies said at the time.
"Investing and partnering in the energy transition has been a priority for Mubadala since 2006 and is consistent with our commitment to responsible global investment across the sectors driving global progress," Ahmed Yahia Al Idrissi, who is chairman of Cepsa and chief executive of direct investments at Mubadala, said.
The company's sweeping pivot and the massive investment layout over the next decade will enable it to become a European leader in green hydrogen, biofuels and e-mobility. It will also help it advance its clean energy goals and deliver on its customers’ expectations, Mr Al Idrissi said.
As part of its green strategy Cepsa is looking to convert its traditional refineries into renewable energy parks. The company plans to develop a portfolio of solar and wind energy projects — mostly dedicated to its own use — with capacity of 7GW, of which 1.5GW are already connected to the grid.
Cepsa has approached several companies including Masdar to explore co-investment options to develop its renewables portfolio.
“Masdar is absolutely a potential partner in some or all of the parks. We are eventually only interested in getting green electrons as cheaply as we can,” Mr Wetselaar said.
“But we haven’t made any investments yet and at the moment it is a discussion on what terms would we make a joint investment, if we did.”
In January 2020, Masdar and Cepsa formed a 50:50 joint venture — Cepsa Masdar Renovables — which is focused on developing wind and solar photovoltaic projects in Spain and Portugal.
Cepsa can choose the option of investing alone and later selling its renewables portfolio, but it is more likely to strike partnerships.
“I would be surprised if we end up owning 7GW of solar and wind [projects] a 100 per cent at the end of the decade. With the way I currently see the industry we want to be a minority shareholders in these farms,” he said.
The green push will translate into a larger contribution of sustainable businesses to Cepsa's top line, rising from 14 per cent in 2022 to more than half of its earnings before interest, taxes, depreciation and amortisation in 2030, the company announced in March.
It can exceed its target of €8bn investment or more than 60 per cent being channelled into sustainable business, depending on the speed at which markets develop over the next few years and the pace at which the regulatory framework will mature, Mr Wetselaar said.
“If it all goes fast, than we will get to the €8bn and higher,” he said.
The company is currently designing “major hydrogen investments” and is working in parallel with the government to create an environment that is conducive to making the final investment decision, he said without giving details of the potential size of investments.
“We haven’t disclosed the number but you can imagine it would be one of the three big-ticket items in the sustainable part of our investments,” Mr Wetselaar said.
Cepsa plans to start building hydrogen production centres next year, however, when the projects will finish will depend on the global supply chain situation.
“At the moment it is quite stressed and it is possible that it impacts the timelines,” he said.