Focused on the margin

Abu Dhabi

Ramon Areitio Toledo, general manager of CEPSA Petroleum Operations Middle East, talks to TOGY about potential in the downstream sector, possible opportunities with ADNOC, and geographical shifts in the market.

CEPSA, 100% owned by Mubadala Investment Company (MIC), is a Spanish energy company with operations that span the complete oil and gas value chain. CEPSA has been in Abu Dhabi since 2013, when a subsidiary was established in the country.

• On breaking even: “The current price is enough for integrated companies, but we’re expecting it to stay around USD 50–70 for the next five years. Breaking even doesn’t always depend on the price of the barrel, it really depends on the price of the downstream products. It’s essential to have a good balance between the refined products you’re buying and the oil you’re refining.”

• On the shift east: “CEPSA has begun our shift eastward in Southeast Asia and China, but our shareholder is focused in the UAE too, so we have a very good foundation on which to build. The European market is mature, so it’s very difficult to grow there. Many refineries are closing down. Here we have an open market, and the market in East Africa will grow as well. I think we’re currently very well situated, in the centre of a promising market.”

Areitio Toledo also discussed the recent creation of Mubadala Investment Company, and ADNOC’s plan to triple petrochemicals production. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Ramon Areitio Toledo below.

How can CEPSA support ADNOC?
We have a wide experience in the oil and gas value chain. We built our first refining project 86 years ago in the Canary Islands (Spain). At that time refining activity was forbidden on the Spanish mainland. So, our background is primarily refining, but we have a very well-developed relationship between our refineries, petrochemicals plants and the downstream business.
Integration, efficiency and continuous technical improvement has lead us to a very good position in the market. Raw materials for petrochemicals are supplied directly from our refineries, which makes us very competitive. ADNOC has its own refineries, and they’re now focused on developing their value chain, which means developing petrochemicals products. CEPSA may support ADNOC in this area.
CEPSA has a lot of experience in the trading and retail sector too (we supply and manage 1,500 petrol stations in Spain) and these are another area in which we may collaborate with ADNOC.

What brought the company to the Middle East?
Since 2009 IPIC, (now Mubadala Investment Company) is the sole share-holder of CEPSA, so we have to work closely with it. Furthermore, as our traditional western markets are saturated and mature, we’re looking to the east for the long term.

Will ADNOC’s plan to triple its output of petrochemicals provide opportunities for CEPSA?
Yes, we will have opportunities together. CEPSA has begun our shift eastward in Southeast Asia and China, but our shareholder is focused in the UAE too, so we have a very good foundation on which to build. The European market is mature, so it’s very difficult to grow there. Many refineries are closing down. Here we have an open market, and the market in East Africa will grow as well. I think we’re currently very well situated, in the centre of a promising market.

How important to the company is upstream activity?
As long as we are an integrated company, that depends on the oil prices. Last year, prices went down and refining and downstream activity generated 40% of revenue, while petrochemicals generated 20%. This mix has been different in previous years, but when refining activities go down petrochemicals go up, so it balances out.

Is there a growing demand for downstream products?
In Europe not really, but from time to time particular movements in the market have an effect on margins that counteracts the low demand. This year the refining margin is doing quite well compared with the first months of last year. Thus, we see potential in downstream.

What would the price have to be for you to break even?
The current price is enough for integrated companies, but we’re expecting it to stay around USD 50–70 for the next five years. Breaking even doesn’t always depend on the price of the barrel, it really depends on the price of the downstream products. It’s essential to have a good balance between the refined products you’re buying and the oil you’re refining.

What other projects are you targeting?
We’re considering getting into concessions for offshore operations, possibly to stay ahead of the influx of other foreign competitors. We’re very concentrated in the UAE, but we’re also looking for opportunities outside the country. For example, we may enter into Africa in some of the businesses in which we are, if there is an opportunity for it.

What will the price of oil hit this year?
It shouldn’t exceed USD 55-60. But we have to see, in the short term, what happens with the OPEC agreements and in the medium term what will happen with shale oil producers. Areas with shale oil decline very quickly, requiring more investment after a few years. Everyone is waiting to see what will occur at that point, because the oil price forecast for the next years will also impact the investments of traditional oil companies.

For more information on CEPSA in Abu Dhabi, including the company’s research centre and its work with its partners, see our business intelligence platform, TOGYiN.
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