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Mark Wiedman: Welcome to The Bid miniseries, The Real Leaders of Net Zero, where we talk with CEOs about what they and their companies are doing to move the world to net zero. I'm your host, Mark Wiedman. On this episode, I'm joined by Josu Jon Imaz, CEO of Repsol, a global multi-energy company based in Madrid, Spain. In 2019, Repsol was the first oil and gas company in the world to announce its commitment to be net zero by 2050.

Why did they make that decision? What's their plan to get there? We'll talk upstream and downstream, electrification versus decarbonization, and why technology is the biggest ally in this ambitious effort. Josu Jon, welcome.

Josu Jon Imaz: Thank you, Mark.

Mark Wiedman: Could you give us a quick overview of Repsol and explain upstream versus downstream in your operations?

Josu Jon Imaz: Repsol is an energy company, based in Spain. We were an oil and gas company that six years ago started a journey moving towards a multi-energy view, providing to our clients all the energies they need: either hydrocarbons, gas and also renewable power either for electric mobility or to be used at home. We were from the very beginning a company with more downstreamers, let me say, than upstreamers. Downstream in our sector means all the industrial activity, in our case it is: refining, chemical plants, LPG plants (and so on) and all the distribution and commercialization businesses we have to be very close to our clients. That means our service stations and also the retail power business. We have our main downstream activity in Iberia, (Spain and Portugal), also in Peru. When we talk in our business about upstream, we are talking about the exploration and production activity of hydrocarbons, so that means oil and gas. Because Spain is not an oil producer country, we have, of course, an international footprint that is mainly based in North America, United States and Canada, and Latin America, where, because of our historical language, linkages, etc., we have a strong presence. We have an exploration and production activity in the North Sea (UK) and Norway, and also in Northern Africa, Algeria and Libya. On top of that, we are also in South Asia, producing gas in Indonesia. Let me say that we are mainly gas producers, that means that two thirds of our total production in what we call the upstream, the production of hydrocarbons, is gas. Natural gas is a really important fuel at home in terms of security of supply as we are seeing today, but also in terms of transitioning and reducing the carbon footprint in the world. We were the first oil and gas company in the world committing with a 2050 net zero target. We launched that commitment in 2019. We have a clear pathway to get these targets.

Mark Wiedman: So today you're about 2/3 in oil and gas. You expect that number to drop as you've made that commitment to get to net zero by 2050. Why is decarbonization part of your business and part of your strategy?

Josu Jon Imaz: First of all, because we know that we are part of the problem, because hydrocarbons (they) are CO2 emitters. We want to be part of the solution, that means that the world has an important concern related to the emissions of greenhouse gases and this kind of emissions have to be reduced, so we have a clear commitment to do that. It's important to measure this effort, so to know what we have to do, we have defined an indicator. (We are in some way, engineers, chemists, and so on). That is called the carbon intensity index. That is some way of measuring the total CO2 emissions we produce, not only in our operations, also taking into account the CO2 emissions of our products that is produced by our clients, divided by the total energy we produced, including here, oil, gas, renewables and so on. Talking about 2050 is easy, because it's far, but it's also important to have clear milestones and targets to evolve year after year. That means that by 2025, we are going to reduce by 15%, this carbon footprint and 28% by 2030. By doing that, we are going to be aligned with the effort that the world needs to fulfill the Paris Agreement targets.

Mark Wiedman: From a public policy perspective, I completely understand why we need to shift under the Paris Agreement, but as a CEO, as a steward to your shareholders, why do you care about reducing your carbon emissions?

Josu Jon Imaz: Because I don't want to have a profitable Repsol in 2021- 2022. I want to guarantee that we are building a company that could be profitable in 2030, 2040. Being profitable in the short term, having profits in a quarter, is quite easy. In some way, the dilemma of a CEO is to try to combine both targets. I mean, being profitable today, delivering today, but at the same time, paving the way to be profitable in the long term. To do that, you need, in some way, first of all, to have a clear vision about what to do. Second, to build, let me use the term, some kind of coalition, where you have to include your employees, the high management of the company, your board that has to support this view, because sometimes you are going to suffer in some metrics in the short term to get these targets. And, of course, your shareholders, they have to be part of this narrative, saying that today at 40% of the current institutional investors of Repsol are investors sharing these ESG targets. That means that they want to invest in companies that are not only focused in having profits in the short term, but also building the foundations for being profitable in the long term. So, let me say that we are doing that also to make money today, but mainly to be able to make money in the future.

Mark Wiedman: Why is decarbonization the key for oil and gas companies for making money in the future? 

Josu Jon Imaz: We have to gain the license to operate. The world is changing. We have to think that the world is going to develop a great effort to reduce the CO2 emissions in the future. I mean, otherwise we are not going to have a solution in terms of temperature increasing, climate warming and so on. That means that we have to think that the oil demand, not now, not perhaps in five years, but in 20-30 years, is going to be lower than what it is today. New forms of energy are appearing and these forms of energy are going to be part of the energy basket that our clients are going to use, so I think that it makes sense, first of all, to leverage in the current client base we have to build this new business. I'm going to put you an example, I don't like to be very theoretical sometimes. If we have 24 million clients in Spain and Portugal and we are selling them today gasoline, diesel, LPG at home and so on, it makes sense to start offering not only the diesel they need for a car, but perhaps the electric recharging service that they need for an electric car that is starting to be part of the current car fleet in Spain or in Portugal. We launched, for instance, 13 years ago this electric vehicle recharging service in Spain. We were the first company starting with this service. We are today the company that is growing the most in the number of clients we have in the retail power business, because we are starting to offer bundle offers to our clients to refill or to fuel your car, but at the same time, offering the possibility to have a full, renewable power consumption at home, so that is part of our business. We have this competitive advantage and at the same time, we are paving the way to be competitive in the future.

It doesn't mean that oil is going to disappear from our world, because even in a world with no emissions, (zero emissions), we are going to see that a part of this whole production is going to be used to produce fibers, asphalts, fertilizers, plastics, and so on. All that is going to be needed, but probably a part of these energy demands is going to be fulfilled. You’ll see some other forms of energy that could be renewable that are going to be part of the basket, but then let me say that sometimes we try to make a confusion between electrification and decarbonization and it's not exactly the same. I mean, electrifying is important. It's an important part of this effort, but we are going to need decarbonizing liquids to decarbonize a main part of the economy. For instance, planes, the maritime sector, trucks, chemical companies, cement plants and so on are not going to be electrified knowing the current technologies in the short term, so we are going to bet also in favor of decarbonizing liquids.

Mark Wiedman: You're making an important point when most people think about decarbonizing, in their minds, what they really mean is electrification. Because they're talking about basically driving an electric car and using a heat pump to heat and cool their homes. That's what they're thinking. But what you're also saying is that, actually, huge parts of the carbon intensity of our economy come today from industry, from agriculture and from things that cannot be electrified easily, like heavy trucking and long-distance airplanes. So what are the technologies and businesses that you are driving at Repsol to actually capitalize on the transition?

Josu Jon Imaz: We have a quite a unique refining business in Europe in terms of competitiveness. We have five refineries in Spain. If you analyze the in net cash margin terms of all the European refineries, you will see that our five refineries are in the first quartiles in terms of competitiveness, so we are investing hard in this refineries and we are transforming, in some way, this concept of refinery and trying to shift them towards what we call multi-energy hubs. What does it mean, is that oil is going to be a part of the feedstock of these refineries, but on top of oil, we are starting to use a feedstock of vegetable oils, recycle oils, animal fats, products coming from urban waste, products coming from plastic pyrolyzing, etc. to produce fuels or hydrogen, we are going to use CO2 industrial streams plus renewable power. All that is starting to be part of the feedstocks of our refinery. So, what is the output of all that? That the products we are producing, sometimes diesel, sometimes jets, sometimes gasoline, are more and more decarbonized and their total carbon footprint, it’s scope three, is going to be reduced because a part of the CO2 they are emitting has been previously fixed, because they come from wastes, vegetables and so on, so that is part of this industrial transformation. From our point of view, that is going to be fully needed, because otherwise we are not going to be able to decarbonize all these sectors you mentioned before.

Mark Wiedman: I want to capture this point. You've got lots of work to do to replace, gas and petroleum for electricity generation for mobility, but what you're saying is that for a long time, we will be using fuels that come in liquid form. What you're talking about is decarbonizing the production and the carbon content of those fuels, so that airplanes will continue to fly without magical electric batteries, that ships will continue to go the oceans, but the fuel that we'll use will have a lower carbon content. What’s the biggest challenge in making that happen?

Josu Jon Imaz: Let me first of all say the advantages, because the first advantage is that that is going to allow us to decarbonize these sectors, because otherwise we are not going to have solutions in decades to decarbonize then. Second, that we, as a society, are saving a lot of money, because the infrastructure is there. The plane is there, the engine is there, and the challenges, of course. There are a lot of challenges in this journey. The first one we have is to develop some technologies. We have to invest more in these refineries. We have invested in Repsol, 400, 500 million euros per year in this business to decarbonize these plants. Today, for instance, we have a project that is going to be in operation next year, in 2023, that is going to produce 250,000 tons per year of sustainable biofuel, coming from waste that is going to be used either for biodiesel, biojet as a sustainable addition fuel and so on. We are launching another investment in Tarragona, in the Northeast part of Spain, that is going to use urban waste (400,000 tons per year, more or less) to produce methanol that could be used either to feed the chemical cracker to produce plastics or to be combined with gasoline to decarbonize these gasolines. We have technological challenges. We have to invest higher in that, as perhaps the unknown part of all is that technology has to be developed for some of these applications, but, I think that on top of that, we need a more open mind from regulators, because sometimes when regulators are, in some ways restricting the view about the technologies that could be used to decarbonize the world, they are reducing the incentive we could have to invest in these new technologies that are going to be fully needed to decarbonize the world.

Mark Wiedman: When you think about the technologies that exist today and the business models associated with those technologies, what's most attractive for you in investing today, towards a decarbonized world? 

Josu Jon Imaz: Short term, what is profitable today? Clearly speaking, biofuels, advanced biofuels, but in products where we could guarantee today, the feedstock supply, power generation produced with wind and solar energy and of course, all the areas related to the materiality supply to our clients in commercial terms. The first one is hydrogen, but from my point of view, we are fully committed with this pathway, because we think that we have a unique position in the Iberian peninsula to boost this business and when we enter in new advanced biofuels, (in some cases coming from biomass, coming from urban waste) and when talking about what is called e-fuels or synthetic fuels that are going to be produced (I'm talking about hydrocarbons that are in molecular terms, diesel and gasoline molecules or jet molecules, but that are produced using as feedstock, CO2 streams from an industrial stream that is going to be reduce a carbon monoxide, CO, and hydrogen produced with renewable energy that in combination with carbon monoxide is going to produce these hydrocarbons). I mean, that is not science fiction. It's something that we are starting to launch, so I think that we have to invest in what is the short term, what is going to give us profits today, but at the same time, we have to pave the way to some technologies that could be in some years, part of our business. And, uh, let me say that as an oil and gas company, it is part of our business also to combine risks and having a basket of investment work, we are taking different degrees of risks in our portfolio.

Mark Wiedman: Let's imagine that you and I start a venture capital firm together. Where would you make your biggest long-term bets on technology and business models changing?

Josu Jon Imaz: Let me say, and that is perhaps, I have a biased view of it, because not only because of my history as a chemist, but also because of my background as a refiner and in the chemical business of Repsol, but I think that it would be in the decarbonization of liquids, which is perhaps one of the most hidden parts of what we are going to need in coming years. We could have a unique opportunity to boost this business and we are in the right place to do that, because Spain, I mean, is wonderful from the point of view of many things, like the style of life and so on, but on top of that, Spain is also a core country in terms of developing renewable businesses, because we have not only the resources: sun, wind, and so on, we have the talent, because we started as a country in this business of renewable energies 25 years ago, so we have the infrastructure to do that. To produce these new e-fuels, this new hydrogen, this new synthetic fuel work, we are going to use waste based in the circular economy and at the same time we are going to use renewable power as feedstock to produce these kind of products and having the right industrial assets to do all that.

Mark Wiedman: You've worked in the public sector. Now you're leading a private firm. How do you think that government, companies, other social actors need to work together to drive decarbonization?

Josu Jon Imaz: I think that the dimension of effort requires a company effort, not only from companies and from the public sector. (I think) from the rest of the society, also citizens. They have to be engaged in this effort, because we need a clear view from the public sector, defining regulatory terms, the targets and the pathways to achieve this figure. We need commitments from private companies. Private in the sense of private owners, managed companies like Repsol, and we need all (of them), because we have to invest in this new, low carbon platforms in this business. We are also going to need the commitment of the whole society, because we also have to act on the demand. I think that being able to reduce the demand from consumers and not only now, because we are in the midst of an energy emergency in Europe, but also in terms of being able to cope with the CO2 emission effort. So I think that we need this coalition, this combined action among these three actors.

Mark Wiedman: Last question. What do you think is the single most important thing that needs to happen to get the world to net zero?

Josu Jon Imaz: Perhaps, if I have to give you three answers, I would say technology, technology and technology. I think that technologies are allowing us to achieve what we are doing, I mean, we couldn't imagine 15 years ago what we have achieved as a society in terms of producing the current, cheap renewable power using solar panels, so I think that we have to invest in technology and we have, from the public sector, to allow companies in an open-minded view to incentivize this effort to invest in technology. I think that technology is going to be one of the biggest allies we are going to have to get this ambitious effort.

Mark Wiedman: Josu Jon, thank you again for joining this episode.

Josu Jon Imaz: Thank you, Mark. It has been a pleasure.