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Interview

Pedro Miras Salamanca – Chairman, CORES, Spain

Pedro Miras Salamanca, chairman at the Spanish oil stockholding entity CORES, and chairman of the International Energy Agency (IEA)’s Standing Group on Emergency Questions (SEQ), discusses his dual responsibilities, CORES’ mission and model, Spain’s potential to become further integrated into the European energy markets, and the specificities of an international supply crisis.

You have been chairman at CORES since 2012 and chairman of the IEA’s Standing Group on Emergency Questions (SEQ) since 2009. How are your time and work split between your dual responsibilities?

“[Spain has] strong potential [for greater integration withe European gas markets] and this will be interesting moving forward not only for Spain itself, but also for Europe because we have access to many gas markets that other countries do not. There is a possibility for a greater amount of Europe’s gas to come from the South.”

The key is to be very clear that when chairing the SEQ, I am not wearing the CORES’ hat or that of Spain, but trying to serve the group in order to look for the best practices in the energy community. The SEQ includes 27 countries and tries to look for agreements in everything linked to security of supply. We also participate in country reviews – giving an overview of energy policies and security of supply in those countries – and we have to be very balanced in giving advice on how they can improve their systems.

Crises such as the Libyan conflict in 2011 are very important moments for the IEA, as we have to look for solutions that strikes a good balance between the interests of every country involved. You have to be very clear that you are working for the IEA, for global energy security, and not for the specific interests of your home country.

What is the mission of CORES?

We were formed to maintain strategic reserves and take a central role in the event of a crisis. In addition, several years ago we became the official statistical body for the Spanish hydrocarbons sector. Many people are confused about our objectives, thinking that we exist to maintain stocks. However, having stocks is only a tool to achieve our main objectives of securing supply and acting in the case of a crisis.

Similar to Sagess in France, CORES operates a mixed security of supply system, with oil stockholding obligations distributed between CORES and the industry. What are the benefits and limitations of this model?

There are two main approaches that are totally different: one is the US model, where all the strategic reserves are in the country budget and are totally controlled by the administration. The other model, as in the UK, has the industry holding the stocks, with the administration checking that the stocks are ready to go to market in the case of a crisis.

Our model aims to join the best of both approaches. On the one hand, we try to attain industry practices and be highly efficient, as we understand that companies are more practical than the administration in this kind of activity. On the other hand, strategic reserves are not something linked to business, but to national and international security and should therefore be controlled by the administration.

The only challenge with the CORES model is finding the right balance between the administration and the industry. A good balance is important, as is making all stakeholders understand the specific roles that they have to play.

Currently, CORES’s income mostly consists of fees paid by your member companies; however, the organization is now attempting to diversify its funding sources. Why is CORES taking this step and what would more diversified funding mean in terms of your activities?

It is very important for us to have a good diversification of funding sources for two key reasons. The first is that it is much more secure to have a broad group of funding sources. Secondly, we have an additional role, not written in any bylaws, which is that we are a Spanish brand and represent all companies in the sector. This means that we have to be very open, transparent, and give opportunities to many organizations to work with us. We have to be absolutely clear in terms of competition rules and therefore we are obliged to work with many different banks and advisors; all of whom should be working to a high standard in their own businesses.

How would you characterize current consumption patterns in Spain? How does Spain compare to other European countries in terms of recovery of petroleum products and natural gas consumption?

We are not so different to others but what is clear is that in Spain there is a huge consumption of diesel, a trend linked to the fact that most of our manufacturers transport using trucks so our consumption here is higher than that of others.

We are very well-balanced in terms of natural gas supplies; we have many LNG terminals as well as pipelines and have a mix of different origins for our natural gas, especially compared to most other European countries that are very dependent on Russian gas. We have a very strategic geographical position, access to markets in the Mediterranean, and a good platform to go to the US. One area in which we could improve is in making more connections with the rest of Europe.

With Spain having long been considered an “energy island” within Europe, what do you see as the country’s potential to become more integrated hub for the rest of the continent?

We have strong potential, and this will be interesting moving forward not only for Spain itself, but also for Europe because we have access to many gas markets that other countries do not. There is a possibility for a greater amount of Europe’s gas to come from the South.

Despite Spain’s lack of natural resources, the country has developed an outstanding refining and logistics sector. What are Spain’s particular strengths in this sector?

We are very strong in this area. This is something that is a heritage of the monopolistic period, where the state created a strong and well-connected refining system out of necessity; a system that would have been difficult to build so swiftly and comprehensively in any other circumstances and with the contribution of a range of private companies. When this period finished and we joined the rest of Europe, we took advantage of this network.

We also developed additional regulation in order to help the development of the refining and logistics sector; most notably in promoting third party access to the logistics network; in Spain, any company, public or private, has the right to use the logistics network. If these companies have issues with access, there are bodies to which they can turn, and this is a big advantage for the Spanish system.

CLH is the only company that owns pipelines, but it is not the only logistics company in Spain; we have close to 40 such organizations. These companies operate under the same regulatory framework; they are obliged to give access to any operator in Spain. This model is very different to those in other countries where pipelines are private and the operator can refuse. The origin of this is our good network, which we took advantage of.

You were heading the IEA’s SEQ group on the last occasion in which collective action had to be taken: the 2011 Arab Spring and Libyan conflict. Can you tell us about Spain’s role within the IEA and your personal experience of an international supply crisis?

Spain has been a member of the IEA from the beginning. We signed the first treaty and our role is quite similar to that of other countries. We participate in all the groups and meetings and always try to put our own unique point of view across.

An international supply crisis is not an easy task to negotiate. What is most important is the supply crisis’s effect on the markets. At times, it is not easy to make a decision about this because, for example, during the Libyan action, there was a loss of approximately two million barrels per day. The question was that, when two million barrels per day are being lost, is the market really affected? Can this problem be solved by the market itself or should the IEA intervene? We have to understand if this special situation is something that compels the IEA to act.

These interventions have only happened three times; the first Gulf War in 1991, Hurricane Katrina in 2005, and the Arab Spring and Libyan conflict in 2011. The keys to making the right decision are to have good figures, good knowledge of the market – something that I worked very hard to attain – and then trying to decide if the situation is severe enough to force the IEA to take action.

How would you say the IEA is adapting to the current global uncertainties such as the Trump election, Brexit, Russia, and the fragile Saudi-Iran relationship?

The IEA tries not to be affected by these uncertainties; instead by figures, tendencies, and consumption patterns. If there is a movement in the market that is linked to geopolitical decisions, it is something that should be out of the analysis. I have never heard any discussion or any debate linked to these kinds of geopolitical questions at the IEA.

Of course, all individuals have their own ideas on how these things will affect the market, however, it stays out of the discussion, if not, the decision-making process would be absolutely impossible to manage. In my seven years chairing the SEQ, only once has a country tried to put a political question on the table. It was very difficult to remove this question from the discussion, although we were very committed to doing so, because the IEA must remain politically neutral.

What would you like our readers to keep in mind about the Spanish hydrocarbons system and CORES in general?

We have a very strong system. It has been suggested that it is an expensive system, but there is a relationship between security and cost. The system is very well balanced, efficient and also flexible; much more flexible than others. We have invested a lot of money into this, probably because we are somewhat of an island; we have been flexible in terms of facing crises, in how we manage the market, in our origins, and in the basket of our oil and gas imports.

Another interesting point about the Spanish security of supply system is the importance of the information. To receive information from different entities is part of their legal obligation to maintain security stocks. Consequently, CORES oil and gas databases are high quality, robust, and reliable. This is the reason why CORES is considered a key statistical hydrocarbon reference in Spain.

What can other countries learn from the CORES model?

CORES is a good model that could be studied by others. We have a good relationship with Latin American countries such as Mexico, Chile and Colombia that are working to create a similar system as ours whilst we are trying to show them the benefits of our model. The key is trying to put the advantages of the industry and of the administration into the same basket.

To strike this balance means that you need good teams that understand both worlds; most people that work at CORES have a wealth of experience in both private companies and in the administration. We know what it means to be profitable and to have excellence in operations, and we also understand the concerns that administrations have. To understand both worlds is key to making things work properly.

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