Alvaro Mazarrasa – Director General, Asociación Española de Operadores de Productos Petrolíferos (AOP), Spain
The Director General of the Asociación Española de Operadores de Productos Petrolíferos (AOP), Spain’s leading mid- and downstream association, explains how Spain has developed since the abolishment of the monopoly in 1993 and highlights how the country has become the most sophisticated refining platform of Europe.
Could you please explain the role the AOP plays within the Spanish hydrocarbons arena?
“Today, the Spanish refining platform is one of the most sophisticated in existence and we export about 22 million tonnes per year, with the main destinations being the EU, North Africa and North America.”
The AOP is a trade organization which was set-up by the companies operating in the Spanish market after the monopoly ended in 1993. Next to the Spanish refiners, the oil companies–some of them supermajors—which had operations on the Canary Islands where the monopoly did not exist, took part in establishing our organization as well. Today, we are responsible for representing the common interests of our members in the refining, distribution and marketing side of the hydrocarbons business and as such, we are focused purely on the downstream sector.
You have been Director General of AOP for 15 years and you have surely witnessed some tremendous changes during this time. Over the recent years, what would you say have been the most notable changes affecting the sector and your members?
One of the major changes was more of a pan-European phenomenon. The supermajors and large oil companies left the countries where they lacked profitability or in which they deemed not to have enough of a significant presence. In Spain, Shell was the first to decide to sell their assets and leave the county. DISA at that time had marketing and distribution operations on the Canary Islands and bought the relevant assets of Shell and found an agreement to also use their brand. Thus, DISA became the leading company in the distribution of petroleum products in the Canary Islands, the fifth largest operator of service stations in Spain and the biggest independent operator within the country. This happened in 2005 and the agreement found for the facilities and branding–mainly for the retail sites—was later replicated in other countries and by other larger operators across Europe and the world. Another large company selling their Spanish assets was Total which sold to IPIC, a sovereign fund with a long presence in Cepsa, although they kept their lubricants business, and ENI, which left as they deemed their market share as no relevant and sold their assets to GALP. Another example was Exxon which also sold to GALP. These companies leaving Spain was one of the most notable changes in the country’s industry. That being said, it would be fair to mention that similar scenarios were happening in other EU nations.
Another impactful development was the change the 2008 crisis brought to the national industry, in spite of a substantial drop in the local market demand , the three refiners in Spain, namely BP, CEPSA and Repsol, decided to invest in modernizing their refining park and create one of the most sophisticated and complex refining platforms in Europe. They aimed at gaining the ability to get more sophisticated derivatives of higher quality. The previous years were really the golden years of the industry with capacity running at nearly 100 percent. Demand was growing year-on-year and in 2007 we still had to import about 35 percent of domestic middle distilates demand. At that time, the market consumed about 75 million tonnes per year and the domestic output was at about 65 million tonnes. Thus, the decision was taken to invest–mind you, nobody was talking about a crisis just back then—therefore the crises hit the Spanish sector quite painfully, as the market demand decreased by 25 percent from 2007 to 2014. Investments in refineries take a long time from shareholder approval until the final commission is in place. Of course, these decisions were heavily criticized during the downturn, however, were successful in the end! The landslide of commodity prices has been good for the business, as refining margins rose and more consumer products were sold in the market. This meant, that having a healthy and modernized refinery was highly positive for the Spanish integrated companies; scrutinizing the results of Repsol, for instance, you will see that their profit and cashflow is generated in the downstream side of the business in this time of low barrel price.
What would you name as the special characteristics of the Spanish market?
Today, the Spanish refining platform is one of the most sophisticated in existence and we export about 22 million tonnes per year, with the main destinations being the EU, North Africa and North America. Geographically we are quite lucky to be at the crossroads to the three continents placing us in the natural centre of these.
Moreover, the Spanish market is open and transparent. The Compañía Logística de Hidrocarburos, S.A (CLH), for instance, is the result of the spin-off of the commercial assets belonging to the former Compañía Arrendataria del Monopolio de Petróleos, S.A. (CAMPSA), that occurred in 1992 as the culmination of the oil sector deregulation process that took place in Spain after it joined the European Common Market. This entity has the obligation to work with any operator in Spain and provide services to any wholesaler wanting to use their facilities, storage tanks and pipelines, which is a significant difference to other countries around the world. Moreover, they must offer the same rate to all the different operators and not have any conflict of interest. Today, for example, about 16 million tonnes of gasoil are still being imported and CLH place a vital role in this process.
What are the challenges the Spanish refiners face today?
Today, ten refineries are operating in Spain. The first refinery of Spain, established in 1929 on Tenerife by private entrepreneurs as the mainland was hold in a monopoly, is idle at the moment. Tenerife has 80,000 barrels of throughput. The rest of the refineries are running at high rates of utilization, in 2016, the average capacity use of the remaining refineries increased to about 90 percent, a considerably high rate. In the beginning of the last year, business for the refineries was not as good, however, it was picking up as the refining margins improved in the second half of the year and more crude was imported as data from CORES–the leading information source for the hydrocarbons sector in Spain under the aegis of the Ministry of Industry, Energy and Tourism—confirms. The data in particular shows that the refiners in Spain are taking full advantage of the currently reasonable margins in the refining business and that most of them have already completed the annual maintenance work.
Moreover, as the country’s GDP is growing, demand for refined products is growing as well. The CORES data shows that the economic upturn significantly benefits our business, also due to increased activity in the automotive sector.
Nonetheless, comparing these internal drivers with 2007, we are still 16 percent down. The external factors, however, are better than ever before. Due to the record breaking 75 million tourists last year, the demand in kerosene has grown by seven percent. What’s more, we exported some 24 billion tons of gas, kerosene, diesel, fuel oil and other products such as lubricants or asphalt last year due to the lack of domestic infrastructure investments.
Our members are a main export driver; 60 percent of exports go to other European countries, 21 percent to Africa and even four percent to the Middle East. Overall, our current account l deficit has been reduced to about USD 10 billion, which is largely due to the stringent restructuring and modernization programs of the different companies in Spain’s hydrocarbons arena and their ability to export. Overall, EUR 6,500 million (USD 6,880 million) were invested in new hydrocrackers, coke ovens and more in order to improve Spain’s refining efficiency and quality, fostering its competitiveness and thus securing its leading position in Europe.
How would you describe the specificities of the marketing and distribution business in Spain?
One of the specifics is the CLH model, which I regard as highly successful. At its inception, companies such as my members were the major shareholders but today it is a pure financially minded entity with its main shareholders being the big international infrastructure funds.
What makes this model unique?
First and foremost, the fact that it is open to anybody is unique, it is the only genuine open system without any restrictions across the EU. As all the Spanish refiners sold their stakes and the shareholder structure changed, CLH is expanding abroad which–again—is unique. Moreover, CLH today owns and operates the complete infrastructure build in Spain during the monopoly and due to the new sophisticated model of management acquired through the knowledge of the new shareholders, they are even able to expand domestically and move and store more products. Overall, this is done in a highly efficient matter, supports all industrial stakeholders and increases competition.
You have worked for Shell for a long time, what did they value in the Spaniards?
I worked a total of 18 years for Shell, which of course gives me more of a Big Oil company perspective on Spain, at least professionally. As such, I can say that the Spanish managers, engineers and legal professionals are outstanding in international comparison. We are genuine team players, where tolerance towards individual lifestyles is embedded in our cultural DNA.
Repsol, for instance, is just one of the success stories born out of Spanish teamwork, having started during the monopoly times and then developed into a fully integrated energy company with international exposure. Of course, Repsol had to learn from mistakes as well. The Argentinean expansion, for instance, was a big bet! However, in Libya and some other North African countries they were quite successful. And at the end of the day, even the agreement with YPF in Argentina was quite a good deal for Repsol, as they managed to obtain their compensation in bonds, which they sold within 24 hours.
Joining the EU has helped Spain going forward quite a bit too. Spaniards are highly educated and well trained, however, prior to joining the EU, we had been disconnected from international business; fishing was the only real international Spanish business sector. Today we have many Spanish MNCs across a multitude of sectors, we really rediscovered the world…
A few words to conclude?
The Spanish market has been thoroughly modernized and sees plenty of competition today. My members still enjoy a superior market share, however, every single actor in the market welcomes new competition as it is clearly understood as beneficial for every stakeholder involved.