Crude prices in Q2 followed an upward trend, averaging 113.8 $/bbl during Q2’22, (68.8 $/bbl in Q2’21 and 101.4 $/bbl in Q1’22) mainly as a consequence of a continued tight supply situation, exacerbated by the geopolitical tensions and increase in global demand, as the world comes out of the COVID-19 pandemic.
Refining margins increased during the quarter, with Cepsa’s average margin at 19.1 $/bbl in Q2’22 (4.5 $/bbl in Q2’21 and 2.3 $/bbl in Q1’22), mostly driven by acute supply shortage due to sanctions imposed on Russia, combined with a decreasing refining capacity in Europe over the last few years.
With the Ukraine crisis leading to significantly reduced natural gas volumes coming into Europe from Russia, gas prices rose dramatically in the period peaking at €227/MWh (TTF) with continued heightened pressure on alternative supplies such as US LNG volumes. Gas prices are forecast to remain high as tensions between Russia and the rest of Europe continue.
Spanish pool prices for electricity continued an upward trend with marked volatility, registering an average of 182.8 €/MWh in Q2’22 (71.8 €/MWh in Q2’21 and 229.4 €/MWh in Q1’22).
Cepsa’s three main businesses had a positive performance during the quarter. The company registered a significant EBITDA improvement on the back of higher crude prices and healthy refining margins, counterbalanced by high natural gas prices which impacted the profitability of the refining and chemicals businesses. By division:
- Energy. (Energy Parks, Commercial & Clean Energies, Mobility & New Commerce and Trading). CCS EBITDA for the segment during Q2 stood at €620m (€190m in Q2’21 and €143m in Q1’22), mainly as a consequence of the improvement in the Energy Parks business. Refining margins during the quarter averaged 19.1 $/bbl, following challenged margins over the past decade, and utilization rates rose to 90% vs 83% in the previous quarter. Commercial sales also performed positively, increasing by 8% versus Q1’22 on the back of improved Spanish fuel demand post the COVID-19 pandemic, and thanks to the extraordinary discounts offered by Cepsa and other market participants. However, mandatory fuel discounts had a negative impact on the service stations business, resulting in a lack of profit for this business in Q2.
- Chemicals. Continued to deliver resilient results thanks to sustained solid margins, especially in the surfactants segment, with CCS EBITDA of €106m (€132m in Q2’21 and €110m in Q1’22). LAB volumes increased during the quarter compared both to the same period last year and previous quarter, with healthy demand in home and personal care applications. Intermediate segment (Phenol/ Acetone and Solvents) volumes decreased versus the same period last year due to the extraordinary high demand registered during 2021, and declined versus the last quarter mainly due to a maintenance turnaround at the Palos de la Frontera plant together with certain scheduled shutdowns of a number of customers also for maintenance reasons.
- Upstream. Sustained improvement in results, with CCS EBITDA of €438m (€217m in Q2’21 and €384m in Q1’22) on the back of higher crude prices (+65% vs Q2’21 and +12% vs Q1’22) and sustained production of 81.3 kbopd (72.8 kbopd in Q2’21 and 81.5 kbopd in Q1’22). Despite the improvement in results, the Upstream business had a modest cash conversion rate during the quarter due to the extraordinary high tax environment linked to the high crude price scenario.
In May, Cepsa announced that it will invest up to €5 billion in Andalusia by 2030, representing nearly 60% of its total investment planned for this decade. The investment will generate 17,000 direct, indirect and induced jobs in the region during the construction and operation of these projects. The Company is focusing on Andalusia as a strategic location to lead the production of green hydrogen and biofuels, in order to decarbonize the industry and specifically sectors such as aviation, heavy transport or maritime.
Also in May, Cepsa began the dismantling of its non-operational Santa Cruz de Tenerife refinery, the oldest in Spain, another important milestone demonstrating its commitment to lead the energy transition in Europe. The Company remains committed to the Canary Islands, where it announced plans to invest €400 million to ensure security of supply, lead electric mobility and promote decarbonization through an alliance signed in June with the rental car company CICAR for electric rental vehicles.
Also during the quarter, Cepsa launched a program called “Sumamos Energías” to promote the integration of renewable energy projects in conjunction with local municipalities. The program involves collaboration with local government authorities and citizens, as well as the creation of a local sustainable development fund aimed at fostering job creation, training and environmental protection in each area.
During Q2, Cepsa completed its strategic review of options for its Chemicals division. Following the announcement in November 2021 that the division would have greater operational autonomy, Cepsa Chemicals is delivering a solid operational and financial performance. The shareholders of Cepsa have therefore concluded that the best way forward for the business is for it to remain within the Cepsa Group.
Cepsa and Vueling signed an agreement in June to accelerate the decarbonization of air transport by researching and producing sustainable aviation fuels (SAF). Both companies are prioritizing the development of these sustainable fuels as a tool to further reduce the carbon footprint of air transport and contribute to the goals of the 2030 Agenda and the fight against climate change. The partnership will also work on the development of new energy alternatives such as renewable hydrogen and the electrification of Vueling’s ground fleets, which includes supply vehicles, baggage loading and unloading operations and aircraft assistance.