08_Transición Energética, Sostenibilidad y Digitalización Luis Cabra. REPSOL #santander36

Good morning everyone. First, I want to thank Meetic Pedro and the whole team for the invitation. I'm going to share some brief reflections on a very current topic, but we need to be able to combine a long-term vision with tackling short-term problems related to energy supply in a world that must transform towards an energy transition where we can produce CO2-free energy. CO2 emissions are the main cause of climate change, along with other sectors, but fundamentally the energy world is the cause of the climate change problem we have to solve in a relatively limited number of years. I'll start with some general reflections, then talk about how digitalization in a company like Repsol is helping us on this journey we call the energy transition towards zero net emissions. Right now, structural problems are converging with cyclical ones, which are happening now for specific reasons but are also giving us many clues on how to approach the structural energy transition: being able to reach, as experts tell us, by 2050 an energy mix that can supply the world without net CO2 emissions. The problem has been with us for a long time; we started talking seriously about it with the Kyoto Protocol at the end of the last century, and more than twenty years later, our energy mix looks very similar to what it was at the start of Kyoto. Still, more than 80% of energy supply comes from high-carbon sources: hydrocarbons, coal, etc. We have made little progress globally because we haven't reduced CO2 emissions; instead, due to increased energy demand, CO2 emissions have risen by 30%. The problem is enormous. Here I'll present simpler things than the sophisticated ones Alberto showed us—he gave a fantastic presentation. But here we have a graphical representation of the scale and structural nature of climate change. We have to solve it, or at least mitigate it, and we will have to adapt the world to some effects we are already noticing. We need to ensure that the planet's average temperature, as experts request, does not exceed 1.5 degrees above the net effect of human activity before the industrial era. Right now, this is intersecting with a series of elements that we might think are temporary, like the war in Ukraine, the crisis in raw material supply and logistics chains, which are announcing possible problems we also have to solve to address climate change, and the pandemic itself, from which we fortunately seem to be emerging. But these temporary and cyclical elements are giving us clues about the sensitivity of the energy supply-demand balance in the world and how periodically there are temporary, cyclical, occasional effects that unbalance that balance. We have to take that into account going forward in the goal of transitioning to a zero net emissions energy mix. In the end, we return to something we were forgetting, which was also in the political and social discourse many years ago: the so-called energy trilemma. Ultimately, it's about finding a solution for an energy supply that is sustainable—now incorporating the climate change dimension—but at the same time stable, secure, and affordable in all parts of the world that will need energy in the coming years. Our conviction is that we cannot talk about revolutions and think that in ten years everything will be renewable and we will be free of hydrocarbons and fossil fuels. We realistically think that the ways to solve the problem cannot fool us about the pace of the energy transition. We have to make it much faster than we have in the last 20 years, because we have done almost nothing. We need to start doing things that have effects now, not in 20, 30, or 40 years, though we also have to work with a long-term perspective. So we are in this transition, not a revolution, an accelerated transition that presents notable challenges. For our part, Repsol modestly took a pioneering decision in December 2019: we were the first oil and gas company in the world, and among the large ones, to announce our commitment and how we would achieve zero net emissions by 2050, starting from a position as an oil and gas company that supplies the energy the world needs today but is contributing to the CO2 emissions and climate change problem. Some reflections on the keys to decarbonization that Repsol and the world pursue with a new energy mix: first, technology, innovation, and entrepreneurship. This cannot be solved without technology, innovation, and entrepreneurship around technology. There must be enablers for that entrepreneurship to flourish, for innovation to work, and for technological development to occur more quickly. Industrial activity is another absolute necessity, particularly in a continent like Europe, where we have been deindustrializing for 20 years. The reduction in CO2 emissions in Europe—about 30% in the last 20 years—while the world's emissions grew, is largely due to the relocation of industry from Europe to other parts of the world. That does not solve the climate change problem at all, because CO2 emissions are the same whether produced in Madrid or Beijing. So we have to think and find opportunities not for deindustrialization but for reindustrialization around solving the climate change problem. We also have a responsibility as citizens and consumers: we must be required to behave responsibly in energy use, saving energy, etc. At the same time, we have the right to have sufficient, stable, secure energy at a price we can afford—in the developed world and in the developing world with growing energy needs. So the challenge is broad. Technology and the industrial implementation of technologies will be the solution, but we need enabling and facilitating regulation. I am often critical of what is happening in Europe regarding regulation of the energy transition. Europe's position as a pioneer and leader in dragging the world toward an accelerated energy transition is admirable, but I am more critical of how we are incorporating it into regulation. We are being too prescriptive. We talk a lot about technological neutrality, but to a large extent Europe tends not to prohibit CO2 emissions or limit them, but to prohibit certain technologies and promote others, based on the regulator's and its experts' best common sense about what the future solutions will be. But the future is not written, and we all know that decarbonization solutions are already within reach, but we need to make it easier for innovators, entrepreneurs, and industrialists who want to bet on certain decarbonization solutions—regulation should enable them now, not be a barrier to the development of new solutions. So, very simply, here is our vision of the decarbonization solutions the world has at hand and that a company like Repsol will use going forward to transform its energy mix. First, we all agree on renewable electrons: renewable electricity from solar, hydro, etc. Repsol already has a growth line in this area, and we are creating a new business with very ambitious targets: to have 20 gigawatts of renewable energy in production by 2030, with an intermediate target in 2025. But also, and this comes from the chemical DNA of this company, we believe in molecules as well as electrons. Renewable molecules: liquid fuels like synthetic fuels that can work in internal combustion engines with zero emissions—and we can link that to European policies banning the internal combustion engine in a few years. We have advanced biofuels that can come from agricultural and forestry waste, not from feedstock that competes with food. We have hydrogen from biogas, hydrogen from electrolysis—a good part of the solution will come from there. For Repsol in Spain, this will allow us to transform five large industrial centers that are currently refineries and petrochemical complexes into something different, gradually replacing oil and natural gas with renewable components and raw materials. The alternative is to close those industrial complexes, close those petrochemical and refining plants, and deindustrialize the country instead of reindustrializing it. So we want to bet very strongly on this renewable molecules solution, but we need regulation to support us. Then there is CO2 capture: after producing renewable electrons and molecules, we need to remove CO2 emissions from points where they are still being emitted or from the atmosphere itself through new technologies. We have already emitted too much to think we don't have to start removing CO2 from the atmosphere—CO2 we emitted in the past and will not emit in the future. So we also have technology in play for the coming years in this area. Digitalization will accompany us. I want to finish by saying that Repsol believes in digitalization. Alberto presented some examples of our collaboration with Microsoft, but we have actually had a very intense digitalization program since 2018. We have more than 400 what we call digital cases in operation, each with a business plan and estimated benefits. Between 2018 and 2022, we have reduced costs or increased margins by a total of 800 million euros per year compared to our cost and margin structure in 2017. We have done this with the help of the entire digital ecosystem, and it is an impressive collaborative exercise. It requires an architecture we are creating—migration to the cloud, of course—and a platform we have called 'Area' to connect each digital case to a modular architecture system that allows us to continue incorporating digital solutions across our entire value chain. You can see it in exploration and production, industrial plants, the customer world where through the Internet of Things we want to have a closer interface and interaction with the customer, understand them better, and give them better service, and in the world of renewable electricity generation. In industrial plants, all that data analytics and artificial intelligence—we handle millions of data points every day in our exploration and production operations, refineries, chemical plants. We were not exploiting that data with enough power, but now we have the tools to do so. Some examples: we have reduced energy consumption in our refineries and chemical plants by 4%, which is a lot, through digital solutions. Similarly, we are improving efficiency and optimizing our operations, and also very importantly, improving the physical safety of our workers because they can work at a greater distance from assets that always have safety risks. In terms of customers, we have mobile applications that already have a lot of data analytics and artificial intelligence behind them. In mobility, we have an app called Waylett with which you can pay at service stations, receive personalized offers, compensate for CO2 emissions from the gasoline or diesel you are loading, find parking, electric charging points, etc. That's mobility. And in the new world for us of electricity supply at home, we are also working with applications focused on helping the consumer be more efficient in energy use. It's impressive how, simply through data on the electricity consumption of a home and through a lot of artificial intelligence, we can infer consumer behavior and give online recommendations on how to better use their appliances, etc., to have a better electricity bill and consume less energy. A little further ahead, we are working on solar communities. Ultimately, the idea is that each of us becomes a producer and consumer of energy in our home, and through digital tools we can create a kind of virtual asset of generation, production, and consumption of electricity, so that what we call 'disobedient energy'—like the sun and wind that produce when they produce, not when we want—we can better adjust supply and demand points by adapting our consumers' demand to moments when energy supply is cheaper or more abundant. For my part, I simply wanted to thank you for the opportunity. Thank you.