Mariano Marzo – Professor, University of Barcelona, Spain
Mariano Marzo, an industry expert and professor at the University of Barcelona, shares his extensive knowledge of the energy sector in Spain, including recent trends seen within the industry as well as steps he believes are necessary to ensure a secure and prosperous future for the energy sector in Spain. He also shares his thoughts on the prowess of Spanish energy companies as well as the qualities that have allowed them to expand internationally.
As an introduction for our readers, could you provide us with a brief overview of your professional responsibilities?
“Here in Spain, we have the possibility to connect the Atlantic to the Mediterranean and North Africa, and in the future the Caspian could be interesting as well.”
I am a professor at the University of Barcelona where I teach Petroleum Geology and Energy Resources, which is where both my technical and academic background is focused. Additionally, I have been involved in a number of advisory roles with regards to energy policy for both central and local governments as well as the private industry, as I am not only interested in my technical subject but also on energy policy and strategic thinking around issues that the industry is currently facing – for example sustainability. Lastly, I also work frequently with the media, focusing mainly on energy issues.
From a European standpoint, how strategically important is Spain’s gas industry, and what potential do you believe the industry has?
Here in Spain we have historically had a very strong dependency on just one provider, Algeria, through pipeline, which accounted for roughly 60 percent of our energy supply. Due to this fact, as a country, we developed a substantial amount of LNG infrastructure, and in fact I believe that we are quite a power in that sense. The infrastructure is here, and it is something that can benefit the rest of the EU in terms of diversifying their supplies. That being said, we know that there are a lot of Mediterranean countries that are competing to play the same role. What is positive in Spain is that we have already developed the infrastructure and we have a lot of experience in this area, and this will be key moving forward, as LNG is going to become a bridge during the transition that we are going to need to address decarbonization issues.
In many respects, Spain is currently an energy island, but has potential to develop into an energy hub. What progress has been made in this regard?
The EU is quite keen on making progress on this issue, as after all we are moving towards becoming an Energy Union. Of course, we know from the French side, there are some worries with regards to financial considerations, however, I believe that this also has to do with competition and it will take some time for France to set up all of the necessary infrastructure. Regardless, I believe this is absolutely crucial, not only for energy security reasons, but also for the competitiveness of the European industry. This is key, and we should not forget that natural gas prices in Europe are more than twice as expensive as in the United States, and we need to address this.
The longer there is a delay in developing these connections, is there not a greater possibility for other players to emerge?
Along the entirety of the Atlantic there are many possibilities for players to emerge and for me it is difficult to see why this is not already active. Here in Spain, we have the possibility to connect the Atlantic to the Mediterranean and North Africa, and in the future the Caspian could be interesting as well. We are a peninsula that has the potential to connect many important markets, and we should take advantage of this.
In addition to the excellent infrastructure that Spain boasts, refining is very competitive too. What role do you see for Spain’s refining industry in the future?
When you look at the trade balance of the energy sector in Spain, it is important to note that we are importing most of our oil and gas supplies. Of course, we are strongly dependent on that, yet at the same time we are managing to export, which is a big achievement in itself. Our refining margins are much better than most of Europe, as we have made investments in this sector, and we are prepared to face this future, even though it will be dominated by low margins.
What do you believe are the main obstacles for further domestic exploration for hydrocarbons here in Spain?
The social perception of drilling here in the country is terrible. For some reason, I think we have lost the upper hand with regards to communication on this issue, a problem that persists even outside of Spain. The social perception is that the industry is old fashioned, dirty, and bad for the environment, and this is especially important considering the importance of the tourism industry to the country. Because of this, it is becoming difficult to even explore for hydrocarbons, due to the conjunction of the touristic lobby and the green movement. This has hit Spain especially hard, as we do not have a history of being producers, meaning that people are not used to living alongside the oil industry. We saw this for example with recent efforts to explore around the Canary Islands. There is the perception that tourism and oil & gas are not compatible. Emotions are very important, and the emotional sentiment in that area was against the idea of even exploring for hydrocarbons. It was viewed as being dangerous for the economy of the islands, and this is what halted the efforts to explore.
Public opinion on this is something that we, from the academic perspective, need to work to improve, and this is something that we are doing. We are working to explain the basics of the industry, something that the energy industry has not done enough to accomplish in the past.
What do you believe needs to be changed within the regulatory framework of the country to encourage the development of the E&P scene, and what progress have you seen on this front in recent years?
I am very critical of the current regulatory framework. In this country, politicians are relying on the emotions of the public, and we have seen how that can sway things in the past, for example with fracking onshore. If emotions are on one side, politicians are more interested on not losing any single vote than on facing the problem. We are one of the few countries in the OECD that does not have a prospective view on energy in the long term. Fortunately, we belong to the EU, and the EU does have some energy goals. However, our regulatory framework is not benefitting us as our regulations are changing and evolving too often.
In terms of progress, I do believe the current government is trying to implement some change, and for the first time in the history of this country we have a Ministry that includes the word energy, which is good news! We are starting to learn that energy is a very strategic issue, especially for a country that is so dependent on energy imports. Our current deficit on energy imports represents nearly two percent of our GDP, which makes it clear that we should focus more on our indigenous energy sources.
How has Spain managed to reduce their cost burden in energy, and what role do you think diversification can play in reducing this burden further in the future?
Obviously, the plunge in oil prices has helped in this regard. Today, with the oil price hovering around 50 dollars a barrel, we have a 20-billion-dollar trade deficit. If this price increases, so does our deficit, and we need to be aware of that fact and diversify our energy supply, which includes switching to gas as much as possible.
In terms of diversification, specifically with regards to gas, this is clearly an area where there is room for improvement, especially in terms of domestic consumption and the transportation industry. I say this because nearly 50 percent of our final consumption of energy in Spain is oil, and this is due in many ways because of road transport. There is therefore obvious room for improvement, and this is true in the industrial sector as well.
What do you believe are the driving factors behind the trend we have seen in more recent years of Spanish firms expanding their operations abroad?
Currently, we are seeing a wave of Spanish companies that are becoming international and growing their operations outside of the country. In fact, when we talk about exploring in the peninsula, we should be aware that we do not expect, from a technical point of view, huge findings, so these are operations that should be completed by smaller actors. Due to this fact, the bigger players in the industry must not operate solely here in Spain, but all around the world, and this is an area where Spanish firms have accomplished a lot.
For our international audience, what would you say are the key strengths of Spanish firms, what makes them such great partners to work with?
We have seen many Spanish companies spread overseas, and they have managed to survive in very difficult countries and environments. They have survived everywhere from South America to North Africa, and this provides them with a great depth of experience. Our management in the oil industry is balancing quite nicely all of the risks and opportunities that working abroad offer you, and in this aspect, we have gained great experience.