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Interview

Margarita Hernando – Secretary General, ACIEP, Spain

02.06.2017 / Energyboardroom

The secretary general of ACIEP, Spain’s exploration and production association, elaborates on the significant role that hydrocarbons play in Spain and Europe as well as the Spanish engineering expertise exported across the globe.

ACIEP’s core mission is to raise awareness and disseminate the strategic importance of E&P activities in Spanish society. Last July, you declared that Spain needs a hydrocarbons strategy, what is the essence of such a strategy?

“The reality is that hydrocarbons are a constant in our daily lives and we need to include them in the planning of our country’s future.”

This country needs to realize the facts as you cannot build a prosperous future while ignoring the reality. The reality is that hydrocarbons are a constant in our daily lives and we need to include them in the planning of our country’s future. Therefore, a strategy needs to be based on the resources we have as of now and then explicitly define the desired energy mix of the future. All stakeholders will declare that this energy mix must be of a sustainable nature, however, sustainability needs to consider the reality of things too. That means that hydrocarbons in some form are a vital part of a sustainable energy future for Spain. The fact that we are consuming hydrocarbons on a daily basis and the fact the we import almost 100 percent of this consumption needs to be part of the ground laying strategy.

Within the hydrocarbons discussion, our administration needs to decide whether they want to lean on the gas market or the oil market. Spain has already built a sophisticated gas infrastructure; however, we are still reliant on imports. Therefore, if we are to use natural gas as a provider of energy supply security to the rest of Europe, we need to decide what the backup source of energy to renewables domestically will be. Overall, I feel that Spain’s leaders are not clear of the role of gas on a domestic level and this needs to be clearly defined for everyone going forward. Part of the reason for this situation is that the Ministry of Industry, Energy and Tourism identifies the economy to be on the brink of a third revolution. Their argument is, that Spain missed out on the first revolution surrounding coal, that it missed out on the second which was oil and that they cannot miss out on the third revolution which is renewable energy. Although I completely agree with the former statement, one must realize that energy sustainability needs a diversified and well balanced energy mix, rather than the sole focus on only one source.

What are you doing in order raise awareness of the significance of hydrocarbons?

We are trying to raise awareness on two different levels. The first one is the general public where we try and engage through different channels. We have organized a temporary exhibition in a national museum, for instance, which is free of charge and where families can join activities which brings the industry closer to them, educating about the use of hydrocarbons in their daily life.

How to live, for example, without safe water pipelines? In each sport we practise, we use hydrocarbon manufactured objects such as shoes, soccer balls, rackets, and bicycles. Which could be the alternative facing plastics, paints, and detergents? Hospitals need sterilized and hygienic materials for treating lesions, controlling virus and bacteria: once again, hydrocarbons.

In addition, we organize and host several business events and conferences every year surrounding the entirety of the upstream spectrum, from seismic activities, to drilling, development, production and so forth.

Oil in Spain was first discovered in 1964, therefore the country does have a longstanding E&P history. However, in this time only about 700 exploration wells were drilled and the country imports almost 100 percent of its hydrocarbon demand. It seems its E&P potential was not fully exploited. What are the key elements that hindered Spain in fully exploiting its hydrocarbons potential?

Frankly, there has been only very little exploration in Spain, because 700 wells are not a lot if you consider that the industry has existed for over 100 years. The last real exploration and production activity in Spain was done in the 80s, however, companies left Spain again in times of the price drop. In 2008, when the barrel was well over USD 100, some companies applied for investigation permits. Unfortunately, there were some issues regarding the issuing of the permits and the administrative side handling the wave of companies wanting to come to Spain so that by the time the price dropped again, those companies hadn’t been able to carry out the exploration plans and simply withdrew.

What are the challenges in the regulatory framework?

The major problem was that the administration simply lacked the experience and that the civil servants in the different provinces who were directly liable in the end did not know anything about how the industry operates. A civil servant which may be held liable for environmental damage after issuing a permit will be cautious to give this permit in the first place, if that civil servant does not have the relevant experience and thus does not understand the industry it will take a long time. Moreover, this was at a time when Europe at large wanted to achieve a greener planet and legislation changes across Europe followed. As a result of legislation changes, these permits changed responsibility from being solely within the ministry of industry, energy and tourism to being shared with the ministry of environment. Needless to say that those civil servants had even less experience with the industry and on top of that now had to conduct an environmental impact assessment whenever faced with drilling of exploratory wells. While the administrative side was in the middle of a learning curve and gained momentum for the industry to work, fracking emerged as a new trend in the industry and due to public concerns awareness, the administration side backed off.

Do you think there is E&P potential on Spanish territory?

We think there is; as a matter of fact, there are many companies that think so too! Already in the 80s, a large basin in the north of the peninsula was discovered where unconventional hydrocarbons can be found. The companies, of course, wait and see how fracking in Europe evolves before they will place their investments. In Spain, for instance, we have a difficult situation. In 2013, the federal government amended the hydrocarbon law ensuring that fracking is an acceptable technique to explore and exploit hydrocarbons. However, simultaneously many autonomous communities have banned fracking. The federal government has appealed these bans in highest court to declare these bans invalid as they clearly clash with basic National law. Although the central government laid the regulatory foundation in favour of using fracking and has even been promoting it, the actual permitting at the regional level has not followed suit. Our government wanted to make sure that fracking is legally guaranteed to be a valid technology, however, has feared a regional backlash coming from the local governments, thus the actual permits and relevant authorizations have simply not been passed.

The benefits that this technique could bring to employment, economic development, and in easing our energy dependency remains unrecognized in public opinion. We have to keep informing society about the benefits that hydraulic fracture could give us.

There is also great offshore potential, especially on the Canary Islands and in the Mediterranean basin. This, however, was halted due to heavy protest from the local population. In the Canaries, for instance, permits and authorizations were not being delayed and the first wells were drilled. But the protests grew heavy.

For more than five years now, no offshore seismic campaigns have been granted approval to do any kind of exploration. One, for example, is pending from October 2013 and the government is yet to grant the relevant permits. To conclude, there is significant potential but the public perception and authorities need to turn around to allow exploring those.

Despite the lack of great hydrocarbons reserves domestically, Spain has built some great energy companies that have gone beyond the traditional Latin America reach and are today even present in Asia. What are the characteristics that allow Spanish companies to succeed internationally despite their domestic background?

Spain has excellent engineers and technical staff. This is also shown through the success of various Spanish engineering companies, also as a key element in the international oil and gas industry. The education system in Spain is highly sophisticated and the engineering skills are internationally recognized and sought after, whilst allowing Spanish companies to thrive internationally. This international success of Spanish companies is also internally driven. If you do not have, or cannot get the resources domestically, you have to internationalize and seek opportunities elsewhere. Simply importing petrochemicals is only an option for rich countries and Spain cannot afford that. Additionally, being a peninsula on the side of Europe has helped to create this situation as well. Countries closer to the North Sea or Russia do not feel as much pressure to secure a constant hydrocarbon supply. In Spain on the other hand, we are far away – almost isolated – and thus had this sense of insecurity which ultimately drove the internationalization of these Spanish companies.

Compared to other companies such as BP, Shell or ExxonMobil, Repsol and CEPSA rank lower globally, on place 34 and 47 respectively. What are the challenges for these companies to move up the ranking?

In comparison with the supermajors, Repsol and CEPSA are comparatively new and are nonetheless competing on the same playground with the supermajors. One of the major difference is also, that the supermajors typically had the domestic market to grow prior to seeking international opportunities. The Spanish E&P companies never had that chance but had to go abroad instantly. Moreover, that means that the domestic human resources such companies need to grow are limited. Nonetheless, the competition from the supermajors is the biggest challenge for Spanish E&P companies today.

Would you like to share a final message with us?

Spain has resources and we need to overcome the social pressure and enhance the regulatory framework to make use of those! This is not only a Spanish problem, all over Europe we need to recognize the significant role hydrocarbons play in our daily lives and building block of our economies. As a message to the entire world, I would like to highlight that we Spaniards are emigrants ourselves, which means we have the adventurous character and the education system to create some of the best engineers that are able to foster the industry and businesses on a global scale.

The opponents of hydrocarbon exploration and production do not provide alternatives for manufacturing essential objects. They can’t do so as in many cases there is no alternative and in other cases, the alternative material would be ecologically much worse.

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