Spain chems, energy majors must step up green efforts to keep industrial fabric – trade union

Jonathan Lopez

01-Dec-2021

MADRID (ICIS)–Some Spanish petrochemical firms are investing in decarbonisation efforts in line with the EU’s Green Deal, but the plastics sector, or the energy majors’ upstream strategic plans, lack the required ambition, according to a director at the country’s largest trade union.

Daniel Martinez, from the chemicals federation at Comisiones Obreras (CCOO), said that the EU’s Green Deal ambition of decarbonising the 27-country bloc’s economy by 2050 is a reality, and industrial firms in Spain must reposition themselves if the country is to maintain and expand its industrial base.

The plastics sector is an example, said Martinez.

In an interview with ICIS in September, Spanish trade group EsPlasticos said plans to substitute or cut down plastics use in packaging were “discriminatory” and came at the worst time, as the economy was recovering from the pandemic.

The measures are being debated in Congress. One of those measures would involve a €450/tonne tax on plastics used in packaging.

“The plastics sector is saying it is too early to implement these measures. But I am afraid they would say the same thing in 10 or 20 years, whenever these reforms were proposed. The sector would be better off adapting or reconverting their operations to be in line with the new circular reality,” said Martinez.

“Ending the use of fossil fuels is a key part of the EU’s Green Deal. This will involve a major financial effort from all petrochemical companies. In Spain, some firms have embraced this already, but many others complain about the loss of margins. This is natural.”

ENERGY MAJORS CAUGHT OFF GUARD
Cepsa, one of Spain’s energy and petrochemicals majors, has been caught off guard with the upcoming green transition, especially for its upstream operations, said Martinez.

The company is yet to publish a strategic plan for upstream, which would necessarily involve transiting from being a gas stations provider to an electric charging points one, said Martinez.

Repsol has fared slightly better, added the CCOO director, and has stepped up investments in renewables.

For both companies, in any case, their petrochemicals divisions are proving to be a profitable part of their portfolio, while upstream is still reeling from the sharp drop in economic activity Spain suffered in 2020, with GDP down by 10.8% from 2019.

For Cepsa, the necessity of making big decisions does not come at the best time. After being partly acquired by The Carlyle Group in 2019, two CEOs have already been appointed and the company would be seeking to divest its chemicals operations to cash in proceeds of up to €3bn.

“I have heard they are seeking to sell it – I am not sure who could be the buyer. Cepsa’s chemicals division is profitable, as well as Repsol’s, and they resisted the downturn much better than upstream. Cepsa is also investing in modernising its operations, like in their facilities in Andalusia [south Spain]. Its problem lies in upstream,” said Martinez.

“Before the pandemic, Cepsa had planned large investments in gas stations, which now look out of turn, and in general both Repsol and Cepsa are not clearly setting out industrial plans for the future: are they to be electric charging points providers, or remain stuck in the old model?”

Spain’s chemicals companies have generally resisted the hit from the pandemic much better than other industrial sectors.

The CCOO director confirmed statistics from trade group Feique, published in October, showing that by year-end, sales and employment would have recovered to pre-pandemic levels.

Spain chemicals 2021 2020 Change
Sales €73,631m €64,519m 14.1%
– Of which exports €41,410m €36,570m 13.2%

The industry employs around 200,000 workers.

RECOVERY?
He added, however, that the recovery has been uneven by sectors.

Pharmaceutical, included under chemicals, has pushed statistics up due to the pandemic. In addition, AstraZeneca, Janssen, and Moderna all have facilities in Spain producing their vaccines against coronavirus.

But other sectors like polymers are suffering the downturn in automotive, aerospace, or even electrical appliances as the semiconductor chip shortage is hitting several sectors, said Martinez, while upcoming legislation on plastics could dent it further.

A third caveat would be, he said, if Spain would be able to fully take advantage of the EU Recovery Fund, which could send to the country financial transfers of up to €140bn in grants and loans at low interest.

However, Martinez was also sceptical the country would seize the opportunity to change its economic model, heavily based in services. In the past, he said, Spain has used just under half of the EU funds available.

Lastly, Martinez’s scepticism about the recovery is also based on high energy prices.

While the energy-intensive petrochemicals sector is still resisting the hit, a prolonged period of high inflation could start causing financial problems for companies, he said.

CCOO and the other large trade union in Spain, UGT, agree with Feique that electricity prices are too high and consistently demand new measures from the government.

Spain’s dependence on natural gas for electricity generation has been aggravated by a diplomatic crisis between Morocco and Algeria, the source of most of Spain’s gas supply. A key pipeline which crosses Morocco has been shut.

That is adding pressure on gas prices, at record highs and likely to be passed onto consumers and business in coming months.

These factors do not bode well for the recovery, added Martinez.

Inflation in Spain stood in November at 5.6%, higher than the eurozone’s 4.9%. Inflation, in any case, is at multi-year highs: Spain had not posted such high inflation since 1992.

“Inflation could take a heavy toll on industry. High prices are also delaying wage negotiations in many industrial sectors, while workers’ purchasing power diminishes rapidly. A positive, however, is that high energy prices have not yet forced companies to go out of business: they are managing for now,” said Martinez.

“But Spain’s chemicals have a competitiveness problem when it comes to electricity prices. If you compare the electricity bill at [German chemicals major] Bayer facilities in Asturias, in north Spain, it is 20% higher than the bill at Bayer’s facilities in Leverkusen [Germany].”

Interview article by Jonathan Lopez

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