Hello, and welcome to the Repsol Second Quarter 2021 Results Conference Call. Today's conference will be conducted by Mr. Youssou John Imaz, CEO and a brief introduction will be given by Mr. Ramon Alvarez Pedrosa, Head of Investor Relations. I would now like to hand the conference over to Mr.
Alvarez Pedrosa. Sir, you may begin.
Thank you very much, operator. Good afternoon, and welcome to Repsol's 2nd quarter 2021 results conference call. Today's call will be hosted by Jose Jong Imaf, our CEO, with other members of the executive team joining us as well. Before we start, I advise you to read our disclaimer. During this presentation, we may make forward looking statements, conference call, which are identified by the use of words such as will, expect and similar phrases.
Please note that actual results may differ materially Depending on a number of factors as indicated in the disclaimer, I will now hand the call over to Yasu Jon.
Thank you, Ramon. Thank you to everyone joining us today. I hope that all of you are keeping healthy and well. Today, I'd like to cover the following main topics. Firstly, a review of the key messages of the quarter.
Secondly, the divisional highlights and financial results. And thirdly, our update outlook to the end of 2021. At the end of the presentation, we will be available to answer your questions. Let me start by reviewing the key messages. During the Q2, Our industry has remained on a path of recovery to the pre pandemic activity levels.
Repsol's solid quarterly results have reflected this improved scenario, is supported by strong oil and gas prices, exception of chemicals performance and the recovery of demand in Spain. The adjusted net income was EUR 488,000,000, 4% higher than in the previous quarter and just is 2% below the same quarter in 2019. All divisions improved their adjusted results compared to the Q1 of the year. The cash flow from operations amounted to EUR 900,000,000 for an accumulated EUR 1,900,000,000 in the 1st 6 months of 2021, Further progress was made on the rationalization of its portfolio aligned with our strategy to concentrate operations on the most competitive conference call is on sustainable geographies and assets. The aforementioned strategy allowed the upstream to contribute with another EUR 0.4 1,000,000,000 of organic free cash flow in the quarter for a total of EUR 900,000,000 in the first half of twenty twenty one.
In the Industrial division, the Chemical business had another extraordinary quarter, helped by record level international margins On the other hand, the refining environment remained challenging, negatively impacted by weak middle distillates and narrow heavy to light crude differentials. Still at low levels, the refining margin indicator recovered significantly to $1.5 from the 0 point dollars per barrel achieved in the Q1. The new EUR 657,000,000 per year in Sines, Portugal, And in our aim to transform our legacy industrial sites into decarbonized hubs, we have defined and detailed and updated renewable hydrogen strategy that allow us to increase our strategic plan ambition to 0.55 gigawatts equivalent by 2025 conference call is now open to the call and 1.9 gigawatts by 2,030 from 0.4 and 1.2 gigawatts before. In the commercial businesses, after a challenging start to 2021, demand for road transport fuels recovered gradually throughout quarter benefiting from the easing of mobility restrictions in Spain. In renewables, we start production in our 1st solar farm in Spain, Capa, and we acquired a 40% stake in Hecate Energy that marks our first entry into the U.
S. Market. The greatest visibility that we have now on our portfolio based on the project pipeline we have in Spain, Chile and the U. S. Allows us to increase our renewables generation objective from 5.2 to 6 gigawatts in 2025.
This brings our total low carbon generation target to 8.3 gigawatts from the 7.5 gigawatts defined in the strategic plan. At corporate level, net debt stood at EUR 6,400,000,000 as of the end of June, Which compares to EUR 6,800,000,000 at the beginning of the year. Moody's improved Repsol's outlook from negative to stable, conference call reaffirming their BAA2 credit rating. Repsol published its new transition financing framework that aims to progressively incorporate our sustainability roadmap into our financial strategy. In July, Looking forward, we still see some uncertainties related to the spread of the delta strain.
However, Considering the positive macro scenario and our delivery in the first half of twenty twenty one, in the energy transition like the recently announced Fit for 55 package in Europe or the ambitious goals of the next generation European funds conference call reinforce our conviction that the strategic shift we took when we became the 1st oil and gas company to assume a net zero emission target by 2,050 was in the right direction. Our increased targets for renewables and hydrogen reaffirm our path. Looking now briefly to the evolution of the main macro indicators in the Q2. Brent oil averaged $69 per barrel, is 13% higher than in the Q1 and more than double its average price a year ago. In the gas market, Henry Hub averaged $2.8 4 percent higher than the previous quarter and 65% higher than a year ago.
In Europe, the main gas price references remain at very high levels due to tight inventories and a strong demand from Asia. Finally, Repsol's refining margin indicator reached its highest level in the last four quarters. Let me now review the main divisional highlights of the quarter. Starting with the upstream, production averaged is 2021 12% lower than a year ago. Production was lower than budget mainly due to Peru LNG operational problems, the plant of Pampa Melchorita and Trinidad and Tobago gas projects delays.
The operating cash flow per barrel was around $0.7 higher than the Q1 compared to the first half last year. For producing positions in Russia and Malaysia, the disposal of Block 46CN in Vietnam, Development activity remain focused on the successful delivery of the 14 core projects defined in our strategic plan. We continue working through to reduce breakevens to deliver on our planned schedule of FIDs. We are currently reinitiating the activity in Marcellus and the Eagle Ford with 2 drilling rigs in each asset. The development, sorry, of IME in Norway is expected to start production in the Q1, contributing around 17,000 net barrels per day in 2022.
The FID, the final investment decisions for Sensi North, Lapa Southwest, Acacia's CPO9 in Colombia and LEO MOCACIN are expected before conference call, let me now continue with the performance of the Industrial Division, starting with refining. Net margin indicator averaged $1.50 which compares to the $3 a year ago. Year on year, the increase in the energy costs and narrower middle distillate spreads more than offset the stronger gasoline and naphtha differentials. Even in this environment of great demand, the flexibility of our refining allow us to generate a $1.1 premium in the unit CCS merger. The utilization of our distillation and conversion capacity in Spain was 71% and 73%, respectively.
On the face of the low run rates, consequence of the market conditions, activity was prioritizing plants with the higher margins. In the Q2, margins have thrown an inflection point is on the path to recovery led by the rebound of gasoline cracks resulting from the progress of vaccination strategies on the easing of mobility restrictions worldwide. There has been a quick rationalization of refining capacity since the crisis started. In Europe, more than 700,000 barrels have been taken out since the beginning of 2020. In the U.
S, Roughly 81% of the refining capacity rationalization expected to 2025 has already occurred. The chemical business delivered another exceptional, let me use the term quarter, driven by higher international margins, is positively impacted by the strong increase in the price of polyolefins. Repsol's international petrochemical margin indicator published this quarter for the first time was 45% higher than in Q1 and 74% higher than a year ago. During the first half of the year, petrochemical margins have soared to record levels. A combination of strong consumer demand margins to decline, to go down smoothly towards the end of the year, and we are confident that this positive outlook for chemicals will help compensate the ongoing weakness of refining.
Aligned with our objective of leading The energy transition in Iberia in Spain and Portugal, the expansion of Sines is the biggest industrial investment in Portugal in the last 10 years. The project includes 2 new plants of high value added, The new facilities are expected to be operational in 2025. Moving now to the Commercial and Renewables division, starting with mobility. Demand for transport fuels in Spain increased after the end of the state of alarm in May volumes recovered gradually throughout the quarter with June showing the strongest month of the year so far. In renewables, we continue working on our projects under construction and developing the ones in our pipeline.
In Spain, in solar last quarter, Capa, Capa is the solar project in the south conference of Madrid in Ciudad Real started production and earlier this week we began to generate power at Valdesolar is the region of Extremadura, the Southwest part of Spain. In wind, we started the construction of the first farms In Delta 1, which started operations in 2020, Repsol has launched a process to incorporate a minority partner to the project. In the U. S, the acquisition of Hecate provides a higher visibility towards the delivery of our renewable generation ambition to 20 25. With the access to a pipeline of more than 40 gigawatts, we have made quick progress having taken this week We now target reaching 6 gigawatts of renewable generation to 2025, increasing our ambition.
We keep on focusing on the delivery while exploring on different capital structure options, including a potential IPO call the entry of our partner who shares Repsol's long term ambitions for this business in line with the targets disclosed today. Let me now review briefly the financial results. The group's adjusted net income was EUR 488,000,000 which compares €492,000,000 higher year on year, mostly due to higher realization prices, partially offset by the lower production. In the Industrial division, the adjusted net income was EUR 156,000,000, which compares to €8,000,000 a year ago, mostly driven by the strong performance of Chemicals. The result In commercial and renewables was €127,000,000 €85,000,000 higher than in the same quarter of 2020, is primarily driven by the Mobility business.
In Corporate and Others, the adjusted net income was EUR 156,000,000 negative EUR 11,000,000 increase over the same period a year ago. The group's EBITDA at CCS grew has EUR 3,000,000,000 generated in the first half. For further detail on our results, I encourage you to refer to the detailed documents that were released today this morning. At this point, I want to take you through our revised outlook to the end of the year. Full year production is expected to average between 590,006 is 1,000 barrels per day.
This downward revision to our previous guidance is mostly related to the ongoing issues on the Peru LNG plant, Trinidad projects delays, divestments and the PSC effects in Bolivia. And during the second half of the year, we expect conference call is a start of increasing volumes in unconventionals coming from the ongoing drilling campaign. The expected average refining margin indicator remains unchanged at $2 per barrel. Our estimated EBITDA at CCS increased is expected to reach EUR 2,900,000,000 coming from a EUR 300,000,000 increase in renewables. The investment conference call is being recorded in low carbon platforms during 2021 increases to 1 third of total CapEx.
The net capital budget for 2021 remains unchanged at €2,600,000,000 as we expect to cash in €300,000,000 from Upstream Divestments. With this assumption, we expect to end 2021 with a net debt of €6,100,000,000 To conclude, and while maintaining a prudent approach towards the macro. Looking at the numbers, the 2nd quarter results have brought us back to the pre pandemic levels. We have continued delivering on our strategy, Facing the pandemic with a focus on capital discipline and cost efficiency. Our reinforced commitment with the energy transition drives our strategy in the long term.
Our roadmap is based on 2 pillars, Renewable Generation and the Transformation of our Industrial Sites into Low Carbon Hubs. The Revisit's renewable objective increases our low carbon generation ambition by 2025, including combined cycles and coal generations from is 7.5 to 8.3 gigawatts. Moreover, we will invest as defined in the plan, 1 like Advanced Biofuels, Hydrogen or eFuse. And we are developing the multi offering to our clients with a customer centric digital driven approach. When we release our strategy, we wanted to be cautious.
At $50 oil price, we will be able to deliver our projects to 2025 keeping the same level of debt. The higher than expected oil cash in profitable growth, but this better scenario also opens the possibility of anticipating shareholder remuneration commitments in the current price level is maintained. The sustainability linked bonds demonstrate our confidence on delivering on our emissions, reduction goals and opens a market for new credit investors. Finally, I want to take conference call is the opportunity to remind you of our Low Carbon Day to be held on October 5, where we'll showcase our decarbonization in action with ongoing projects and will outline responses to stakeholder expectation in terms of metrics conference call and objectives. With that, I'll now hand the call back to Ramon, who will lead us through a question and answer session, thank you very much, Ramon.
Thank you very much, Jose John. In case you run into technical problems, call is now available at www.investor.relationsbrepsol.com and we will contact you immediately to try to solve it. Before moving on to the Q and A session, I'd like the operator to remind us of the process to ask a question. Please, operator, go ahead. Thank you, operator.
Let me now move to the Q and A session. Our first question comes from Biras Borkhataria at RBC.
Hi. Thanks for taking my question. The first one is on production volumes. Are you expecting a similar level of production into 2022? And maybe also, you could give a bit more color on the Peru LNG issues and when you expect those to be resolved.
And then the second question is on asset sales in the upstream and your decarbonization targets. I believe the one of the recent asset sales in Malaysia is conference call is likely to have a quite material impact on your Scope 1 and 2 intensity metrics, but I haven't seen any figures on this. Could you Provide any color on what the impact is likely to be as you report the numbers next year? Thank you.
Thank you, Vigas. I mean, I'm going to be very clear about production because I know that is one of your concerns in this quarter. I mean, I'd like to underline that the production in this first half of the year has been impacted Mainly by maintenance downtimes and unexpected shutdowns. I mean, this half, Our budget accounted by 625,000 barrels per day and the current figure is 25,000 barrels per day, 26 is a balance sheet, and the gap is due to these facts. And unexpected shutdown in the Peru LNG plant, Pampa Melchorita, that is not is operated or owned by Repsol, but is fully needed for exports from Peru.
And due to this effect, we expect it's going to be solved by the end of August. We have lost 10,000 barrels per day production as average over the whole half of the year. 2nd factor, is 7,000 barrels per day due to the delay of some production projects and unexpected downtimes in the BPTT asset In Trinidad, they are operated by BP. On top of that, we have 17,000 out of these 25 1,000 barrels per day that we are going to they are going to be solved in coming weeks. We have a third factor that let me say the reason is positive because we are talking about something in between 8000,000 barrels per day due to the PSC contract effect in some of our assets.
I mean, higher prices means Less barrels to be taken. And that is going to stay as far as these prices are going to be there. And on top of that, we have a 4 factor divestment. I mean, that is not factor, of course, in our budget, neither in cashing, not in production, accounted for a reduction as average of 4,000 barrels per day in this half, mainly due to Russia. So I mean, You have these four factors that are behind this production reduction.
So there is no any kind of a, let me say, a strange decline or lack of investment and things like that because these four factors are higher than the gap we have experienced in production terms in this first half of the year. I mean, our guidance for the whole year is at around 595,000 barrels per day. That means that we are going to be in similar figures in the second half because The Peru LNG impact and so on is going to last still some weeks and is impacting hardly in this production. I mean, if we take the whole strategic period, let me say that the figure when we talk an average of 650,000 barrels per day in the whole period. Today, if you take the whole impact of the divestments in coming years, I mean Russia, Malaysia And so on, in the lack of any potential, I mean, bolt on acquisition or something like that Any synergistic acquisition, I mean, we could have a guidance of 620,000 barrels per day for the whole period.
I mean, we have to take into account that the prices are higher. We are going to have an impact of 8,000 or 10,000 barrels per day I mean, the impact the ratio of selling Malaysia is, Of course, the rationale of, as we said, high grading our portfolio concentrated in countries where we could asset in Algeria, the season of operations in Spain over the last year, Australia, Ireland, Bulgaria, the Kurdistan, in Iraq and so also there is a ratio of concentrating in places where We could create value and having more and more and more efficient E and P. But as you said, this Malaysian asset selling is going to have an impact in terms of CO2 greenhouse emissions in the company, the closure of Malaysia is going to be in the 4 quarters of the impact is going to be seen in 2022. And it's true, as you said, I mean, we are going to reduce in the E and P the carbon intensity of the business in that figure that is going to be at around 70%, 75% of the total emission level of the E and P, but on top of that, we are doing more things.
We are working hard in the methane emissions in North America. We are trying To reduce going to 0 the flaring emissions in the E and P, working unconventional, reducing the venting, I mean that is at the core of the strategy of this company and also at the core of the strategy Of the exploration and production business. Thank you, Riaz.
Thank you, Riaz. Next question comes from Fernando La Fuente at Alantra.
Hello. Good morning, everyone. Thank you for taking my question. Just one quick question on the renewals upgraded target and another one on the dividend. On the renewals, Jose John, I was wondering where do you see additional Where does this upside to the target comes from?
1st, in terms of country and then in terms of technology. And on the dividend, I guess, What you understand or what you want to say here in the presentation or as I understand it, that you could bring forward the pipeline. I understand that the DPS targets remains the same for the time being over the strategic plan. Thank you so much.
Thank you and good morning. I mean, in the case of the renewable business, I mean, we are now upgrading the target because we have more certitude about the pipeline we have now in our hands. I mean, Let me say that some months ago we could have a higher risk in terms of which country, which technology and so on. Now with the pipeline we have conference call is either in Spain or in Chile or in the United States, thanks to the breaks that are going to come from the acquisition of Hecate, the developer we acquired now 40%. Now we have the pipeline, we have technology, we have the teams and we have the people is ready to deliver in this target.
We are increasing from now on till 2025. So We are comfortable with this target. We see the way to create value for our shareholders developing these projects. And we have, let me say, a higher certitude about the projects and the pipeline we are going to develop in coming 4 years. I mean, going to your question about the dividend, I committed in previous quarters that we were going to allocate the extra cash generated in higher prices scenarios to increase the CapEx allocated to these low carbon platforms and eventually grow the shareholder distribution always of course searching the most or the best choice for our shareholders while maintaining of course financial currency.
I think that it's convenient to remember that the share buyback program will be carry out call is on the average price of the year was higher than $50 per barrel from The end of 2022 on over the last 4 years of the strategic period. So taking into account, We have improved our forecast as well as probably as I mentioned before, the net debt for the year 2021. As soon as this situation consolidates over the next few months, it could be brought forward a year. So in that case, In case of seeing this, let me use the term Fernando, this macro scenario and being in the range of net debt, I gave you as guidance by the end of the year. In that case, the decision will be taken at the end of 2021 and we will propose the 1st share buyback included in our strategic plan to the next Annual General Meeting.
So that will be our proposal respecting the framework of the strategic plan in terms of The distribution for our shareholders, seeing the cash position we have and the debt position we could have eventually at the end of the year. In that case, being in this scenario, Fernando, our decision will be taken at the end of 2021 and we will propose the 1st share buyback included in our strategic plan to the next annual general meeting. Thank you, Fernando.
Thank you, Fernando. Next question comes from Alessandro Pozzi of Mediobanca.
Yes. Hi Thank you for taking my two questions. And the first one is on the entry in the renewables U. S. Market With the 40% in Hecate.
And I was wondering what type of strategy do you see for the U. S? And I think Hecate is more of a developer. Are you looking to buy then on a 100% basis the projects that that company is developing? And also are you looking at adding clients on the retail side in the U.
S? I was wondering what is your strategy there? And also the second question is on sustainable aviation fuel. The European Commission has set a new target, I think, of 5% by 2,030 in terms of market share for SIF. I think is quite a tough target, given at the moment, I think the ASIF market is not very liquid.
And I was wondering, is that is pushing you to invest more into this type of fuel and I was wondering what types of returns you think you can achieve by doing more investments there? Thank you.
Hi, Ignacio, Mr. Alvaro. Thank you very much. I mean, going to the rationale behind our entrance in the American Renewables. I mean, Hecate, as you perfectly define, is a developer where we have a stake of 40%.
As we announced some months ago, some weeks ago, we have the right to get or to have the option to take conference call in 3 years, the control of the company. And in the meantime, I mean, we have options to take The pipeline of Hecate to develop our own projects. So for instance, yesterday in our board, We approved to take 2 projects of this pipeline in the U. S, 125 Megawatts. All in all, 2 projects that in New Mexico, in the northeast is part of New Mexico, projects that they have a negotiated PPA and so on.
That means that we are not going to enter in the retail or in the client side in the States, but of course, We are going to build our position in the country to negotiate PPAs and so on. And let me say that is not fully new for Repsol. I mean, we have Today, our position in the American market, we sell gas day after day. Utilities are our clients in the American market, we have people today in the States specialized in the power trading business to take pipeline projects from the basket of projects that Hecate could have And take this option to develop as we have sold our own projects. And this project, the Jaqueria project in New Mexico, 125 megawatts, technically speaking, are 2 projects of 62.5 megawatts.
Each one are going to be developed in coming months in the States, adding new projects to what Repsol is developing in our renewable business. Going to the aviation, I mean, your point is interesting, Alessandro. First of all, because over the last year, we have worked hard to develop the production of eco fuels For this aviation sector, either in our Tarragona, refinery in the northeast part of Spain in Puerto Liano, in the south of Madrid. And we have a clear pathway will define to invest in biofuels and ecofuels in coming years already defined in our strategic plan. The first one is what we call in our let me say the internal jargon, the Ship43, that is the EcoFUR's new plant in Cartagena that was approved almost 1 year ago And that is going to start producing eco fuels At the end of 2022, December 2022.
On top I mean that is going to be a source of a potential eco fuel for this kind of fuels. On top of that, I mean, we are already producing almost 400,000 tons per year of HVO in our 5 Spaniard refineries using either vegetable oils or recycled oils In a process where we hydrogen, the oil, the vegetable oil or The recycle all molecules producing echo biofuel that is in some way Exactly the same in molecular terms than the mineral one. On top of that, of course, this ambition of hydrogen production, where I'm going to be very clear. We have a clear ambition to lead this market in Spain, And Repsol is going to play the cards of being one of the European leaders in the new hydrogen market, and we have condition for that. We are in the right place.
Spain is going to lead this market in Europe because we have a lower cost of renewable power production than some other European countries. We have, let me say, a privileged situation in this country, either in geographical terms, natural terms or in regulatory terms to develop that. We have today 2 thirds of the Spanish current hydrogen consumption are consuming Repsol's plants And we see the way to do that in a competitive way in our refineries, being first movers in this business is also an optionality for this market, not today, because I mean in mobility terms, the aviation sector is not There yet that is going to be in coming years. I'm saying reflection for the EU fields. Let me say, I mean, this kind of projects, even in the hydrogen side, we are seeing today with the current projects we are going to launch, We are seeing a double digit profitability and return for this kind of projects.
And let me say what we are doing in EcoFuse terms have even a higher returns,
from Aileen Gimona, Societe Generale.
Thank you very much. Good afternoon. My question is around the Up stream, please, if you could update us on progress made in Q2 and in the first half On your targeted operating cost reductions, which you announced in the strategic plan. And then also in that business, given the quite material price increases we are seeing
Thank you, Arlene. I mean, we have reduced our cost base in OpEx term In the upstream, enough 5% from 2020 on to 2021, I mean, comparing both years. In some way, operational optimization, mainly in the Eagle Ford, midstream cost reduction, True that due to a lower production, we have not seen at this moment due to this Peru LNG And this Trinidad problem, we have not seen in terms of OpEx per barrel. Well, we are flat, but that is behind this reduction. In terms of cost inflation, let me say that our team is working on our proper planning to secure the contracts needed for upcoming projects.
And in some way, I mean, Having a centralized process as we have today, I mean, contributes to have a better management of all that. Today, we have almost closed all the contracts we have for 2022 in the EMP. That means that we are quite protected about the consequences of this potential cost Inflation that could arrive and could impact the E and P business in case ongoing on seeing the current oil and gas prices. So we are protected for coming projects because we have negotiated the main contracts we have for next year. And in any case, of course, let me say that the impact of the increase in prices, clearly, will exceed the impact of increase in costs, but we are protected for that eventually.
Thank you, Arvind.
Thank you.
Thank you, Irene. Next question comes from Michele Della Vigna at Goldman Sachs.
Thank you very much, just John, for your time. And I wanted to ask 2 questions, if I may. The first one is on your low carbon division, which you are clearly accelerating here on the back of the 5455 plan. How are you thinking about the capital structure of that business? Are you still looking at potential industrial farmhouse or IPO there to Achieve the most efficient cost of capital.
And then going back instead to your E and P business, you have Quite material short cycle investment opportunities, especially onshore U. S, the Marcellus with the rising is accelerating these areas and potentially filling in some of the gaps that is opening up because of this unplanned maintenance, more to be fair for next year than for this year? Thank you.
Thank you, Michele. I mean, Going for your first question related about the capital structure Of our renewable business, I mean IPO versus partner. I mean, we are Today, pursuing and working on this double track. That means our intention is to launch an IPO or to find a partner. Let me say, eventually, it could be consecutive.
That means that we could have a partner and going eventually in the midterm to an IPO having a partner within the vehicle for that. I mean, and the rationale for us is, first of all, To have a better visibility into this new business, I mean, in terms of let me use The term crystallizing the value we have in this renewable business. Secondly, I mean, we want to reduce the cost of capital of this business. And both bakers, both instruments could be a tool to get this objective. And of course, it has to be is compatible with the ambition of growing in this business we have.
We are working in this double track. Let me say Michele, I know that I mean, market and you, of course, want to have A higher clarification on that, when we presented in November our strategic plan, I said that we will have a vehicle within next 18 months, we are going to be there. So that means that we are going to have solved this new vehicle in coming months. And we are not going to take our rationale depending the specific situation that renewables could be Experiencing in market moves or terms. So we work on this Double track.
And what is more important, in the meantime, we are delivering. I mean, delivering in terms of Having new projects in production, delivering in terms of entering new geographies, delivering in terms of having the pipeline to increase the ambition Now we have introduced a new rig in Eagle Ford and a new one in Demarcellus. What we could see is that next year due to these rigs we have now plus perhaps a second one, we are going to take in coming weeks A second one in Eagle Ford, a second one in Marcellus and perhaps before the end of the year, optionality reserve rig in the Eagle Ford, we are going to increase in 2022 In 10,000 barrels per day production for this new rig of in the L4, 10,000 barrels per day for Because this new rig in the Marcellus and let me say the second rig in every or in each of these assets is going to have an impact of 5,000 barrels per day more or less in 2020. That means that having 2 rigs in each of these assets in coming months is going to impact positively more or less in 30,000 barrels per day conference call in 2022.
So showing the optionality, the flexibility we have to use the unconventionals in this way depending on the evolution on prices. And in Canada, we are working is in the same direction because after years of depressed prices in AICO terms, we are seeing conference is a different scenario and probably we are I mean we are going to work with 2 rigs In Canada, in the short term, as our investment level in the unconventional in North America is going to be at around 700
Thank you, Michele. Next question comes from Joshua Stone at Barclays.
Thanks, Ramon, and good afternoon. Two questions, please. Firstly, on refining. You talked about 2Q maybe being an inflection point. So to what extent do you think we're seeing now a sustained recovery And then related to that, can you talk about the impact of higher carbon prices on refining margins and just kind of give us an update on where we are on things like free allowances.
Thank you.
Thank you, Joshua. First of all, I mean, our guidance, as I said before, we are seeing this $2 Over the whole year in our in the margin of our system, of course, you have to add The premium that I mean, we are showing the capacity of our system to add a premium to this margin. On top of that, I mean, both the market in the future market terms is showing mainly for middle distillates, it's a recovery this second half of the year. I You have to take into account that every dollar of recovery in the middle distillate margin per barrel The spread per barrel means $0.55 per barrel of increasing the Refining Margins of Repsol, the CO2 is included, I mean, the effect of the cost of CO2 is already included in the margin we have today and you are seeing in our reports. And we are, of course, working over the last year and we are going to work as we mentioned and we're defining our strategic plan to go on reducing the CO2 emissions of our refineries, you know that we have the project that is called 2525 to reduce in an incremental 25% the current CO2 emissions we have in our refineries by 2025.
25% is all in all more or less The current emissions we are paying with no free allowances. I mean, it seems to me and that is I'm going to enter, let me use the term in the speculative reflection. That I mean, I don't have a crystal ball about what is going to happen with the CO2 prices. But conference call is on the line and we are in favor of having a CO2 market worldwide with clear rules to decarbonize the economy of industrial sectors in Europe, it seems to me that we are not going to see as some people are saying, I mean, carbon prices of €80, €90,000,000 or 100 euros per ton in coming years in the absence or in the lack of a real European regulation to avoid This cargo leakage, let me say that is not going to be sustainable neither for European consumers that now are seeing that A lot of cost as the electricity cost is highly impacted by the CO2 cost. I mean, European consumers can't pay this cost I know the competitiveness of all the European industries, including, of course, the refining or the chemical or the paper, the steel makers, steel mills, of the cement industry.
So it seems to me that we are going to see the evolution of these Allowances and the evolution of the CO2 cost within a quite rational framework that is not going to impact in any way The competitiveness of European Industry, including, of course, the refining industry in this framework. Thank you.
Thank you. Your next question comes from Matt Dostin at JPMorgan.
Hi, gents. Thanks, Ramon. Thanks for taking the questions. 2, if I could, please. First, capital allocation.
I think just as John, when you presented Q1, you sort of framed being more in resilience mode still for Optimistic scenarios. Can you just clarify perhaps and talk about the metrics that will determine how Going forward, the company allocates incremental dollars between additional low carbon spend and potential cash return upside through Buybacks. I'm just trying to understand how that will sort of play out and therefore the potential buyback sizing capacity that the company has looking Forward to 2022. And then second, just coming back on production, if I could, in the upstream. Where do you see the 2022 production forecast today?
And it sort of seemed earlier that you referenced 650 as the strategic plan average Being sort of potentially closer to $620,000,000 today ex acquisitions. So just trying to understand, as you sit today, do you now need Acquisitions or additional unconventional investment in order to get back closer to $650,000,000 over the 5 year average. Thank you.
Thank you, Matt, and thank you very much for your question. I mean, first of all, I'm going to be very humble, Matt. I don't know what is going to happen in terms of the evolution of the pandemic, because we have seen different things, newest trends, the evolution of the vaccination campaign and so on. But as you said, I'm a bit more optimistic now that I was 2 or 3 months ago, when we presented the last quarter results, I mean, I'm more optimistic Because for instance, now in the Espana service station, we are seeing volumes that are 15% higher than the average Of the Q2 of this year. So I mean, we are starting to see a new weather a new arena.
You know that we have a temporary job work restrictions in 3 refineries in Puerto Liano, in And over the last 2 weeks, we are starting to lift all these is temporary adjustment of restrictions. We are seeing how the mobility is growing, Hello. Ladies and
gentlemen, our speakers have rejoined.
Okay. I think we were
We were cut off.
Yes, we will be repeating the answers to
the question of Matt Loftin at JPMorgan.
Matt, are you there?
I am, yes. Would you like me to repeat the questions?
I mean, I'm sorry, man. No, no, I have the questions. I'm going to try to summarize the answer. So first of all, I said, I don't have At least our mall, we have seen a lot of things over this pandemic. That is true that our mode is today a bit more optimistic that it was 2 or 3 months ago because we have seen a clear increase of volumes and demand in our markets.
Saying that, we're going to be focused on efficiency, capital discipline, CapEx control, Pardon, financial policy commitment with current credit rating. I don't know if that is being resilient or not, but we are going to be very focused on that. Saying that we have increased our CapEx expenditure or investment this year in EUR 300,000,000 Eurus, on top of that, we are probably in case of having this situation at the end of this year, we will anticipate 1 year the buyback and saying that the metric we have, I mean, it's the metric we define in our strategic plan, I mean, we want to have a gearing at around 25% over the whole period With a summit uptick, a maximum of 30% of giving. That is going to be the metric we are going to use to measure what is our financial policy and the commitment, of course, we have with our credit rating. Going to your second question about production, I mean, what we have in mind and we are not upset about production, but this is a production that is going to be at around 120,000 barrels per day as average in 2022.
Why? Because we are going to see an increase coming from the unconventionals that as I said before is going to be at around more or less 30,000 barrels per day coming from the unconventionals. And on top of that, I mean, new projects, The new FIDs are going to increase the production in 2022. For instance, IMEI is going to add 17,000 barrels per day next year. I'm going to the acquisition much, but I want to be very clear.
I'm not upset by the because of action and we are not going to disturb the money of our shareholders. And today, The company for our shareholders, I mean, in case of seeing something very synergistic, very with high energies, we'll do it. But I mean, it's very difficult today at this market sound to buy something making value and we are not going to buy is related to production, not at all. We are going to buy to increase the value of the company and to increase the value for our shareholders. And that is very, very difficult oil and gas prices, so I prefer to say that we are going to be in the 6 120,000 barrels per day and not 640,000 barrels something like that instead of storing the cash The money of our shareholders.
Thank you, Matt.
Thank you, Matt. Next question comes from Mehdi Enavati of Bank of
America. So two questions, 1 on the petrochemicals subdivision and the petrochemicals sales volumes. So if I look at your report, the sales volumes on the petchem remain pretty low, meaning Raffi online with the first half of twenty twenty, but significantly below what you've realized in 2017, 2018 2019, while the pet cat margin are extremely high normally, you should have tried to maximize those sales volumes. So my question is pretty simple. Why sales volumes are so low?
Is it Because of Spanish demand, is it more linked to the issue that one of your supplier had At the end of 2019, which is still constraining your petrochemical production. Second question, just would like to come back to what you said regarding the share buyback, which might start earlier. Just to make sure I understood, you said the decision will be taken at the end of 2021, okay? But you also said that then the AGM, it will be submitted to the AGM. So just would like to understand that should we expect the share buyback to start to really start, let's say, in January 2022 or after the AGM, meaning at the end of March, from the end of March 2022.
Thank you.
Thank you, Mehdi. I mean, First of all, destination for these volumes is simple. We have a program, a plan turnaround maintenance period of 50 days in Portillano. Portillano, you know, is one of our 3 chemical sites, one of our trackers And derivative chemical sites in the south part of the Spanish high place in the south of Madrid is the smallest one has impacted in volumes of production and of course as a consequence in the sales. Demand is very robust and we say The second half of the year in demand terms at the same level, we were seeing the chemical demand in the first half.
It's true that in the first half, we have experienced some restrictions in offer terms either in Europe and in North America and so on that has increased the margins, but we see a very robust demand in the second half of the year. I mean, what we are seeing today as guidance in EBITDA terms for the whole year, I talked about EUR 850,000,000 in the last call in April. Now I'm closer to €900,000,000 in terms of the EBITDA that the chemical business is going to give us this year 2021, demand is very robust. I mean, clarifying the share buyback, I mean, in case of seen this macro scenario and being in the range of net debt, I mentioned as guidance, I mean that In case of seeing this situation maybe, I mean, the Board could take this decision after the closing of December. And the buyback formally, the redemption of the shares will be approved in the first half of twenty twenty two by the Annual General Meeting.
And I mean, we could start, of course, Buying the shares before this Annual General Meeting that could take The decision of cancellation of this the cancellation has been taken But this AGM that we could start buying the shares of course before. But always, I underline in case of seeing this macro scenario and in case of being in the range of the net debt I gave you as guidance
Just to precise, at the earliest in January, You might start to share buyback at the earliest, but this is just a hypothesis.
I mean, That will be I mean, technically, you are right that, that has to be decided maybe after seeing that we are there In macro and in-depth terms. But technically, of course, we could eventually, with all these caveats, by all that before, of course, the AGM. But the AGM is who has to take The decision eventual decision in case of fulfilling these conditions of canceling the shares, in this case, 50,000,000 shares. But I'm going to say more, Mehdi. I mean, today, we have in our hands 36,000,000 of shares in our balance.
On top of that, we have 80,000,000 options of shares, 50,000,000 of them as derivatives, you know, because I mentioned in our previous call that has to be canceled by 2023. We have EUR 50,000,000 of options in derivative And on top of that, we have €30,000,000 of equity swaps. That means all in all, we have today 116,000,000 shares either as physical shares or as options. That means more or less as is 60% of the total figure we are going to need over the whole period and we are going to do our best to have the whole figure of €200,000,000 either as physical shares or as option is to deliver the commitment in case of course of fulfilling the macro scenario we define in the strategic plan is to cancel and to buy back €200,000,000 of shares over the whole period 2021, 2025 That is more or less 13% or 14% of the total number of shares of the company. Thank you, Mehdi.
Thank you, Mehdi. Next question comes from Sasikanthi Lukuru at Morgan Stanley.
Hi, thanks for taking my questions. I had 2 left, please. The first one was related to your EBITDA guidance of 6 is €1,000,000,000 for 2021, up of course €300,000,000 versus the previous guidance. I was wondering what the building blocks for this increase were. I see the reference Brent price was up move by $5 to $65 and the guidance for the production has been reduced by 5%.
Are these the two reasons behind the new guidance? Or are there any other factors that are either contributing or perhaps offsetting this increase? The second question was related to the FIDs in the upstream. You've highlighted 4 FIDs by year end, but these do not include The 2 highlighted last quarter, Pikka in Alaska and Sakakye Maung in Indonesia. I was just wondering if you can provide an update on where we are with those projects.
Thanks.
So thank you, Sachikang. I mean, There are a lot of reasons, but let me mention mainly three reasons behind The second one is the chemical business that I mentioned before that we are increasing EUR 50,000,000 the EBITDA. And the third one is, let me say, in general terms, a better sound in our main markets, Spain, Portugal and so on of macro scenario that is impacted in a positive way in the commercial side, I mean the commercial side in general terms. I'm talking about guidances. It seems to me the best guidance today is that we are going to be above EUR 1,000,000,000 businesses in this division of Repsol, I mean, let me say that having EBITDA evolve EUR 1,000,000,000 in a commercial business, The year we have still suffered a lot.
The pandemic in our main markets is a very positive fact That is, of course, improving the guidance, the EBITDA guidance of the company. So main factors, commodity price, as you mentioned, chemicals And in general terms, the commercial businesses. And I think that the company has been able to resolve this year to contain the cost reduced in 2020 because the pandemic And we have been able to adapt to the new market situation, not increasing the cost of the company. I mean, efficiency, digital, procurement programs, all that is behind growth is happening, but that is behind the new EBITDA guidance we are giving you today. Thank you.
The second one, sorry, FIDs. I mean, what we have now in I mean, in the case of Sensi, I mean, we are going to take 3rd quarter of this year, 1st oil is going to come in the Q1 of 2024. Before the end of the year, we are going to take also the FID in the CPO-nine project in Colombia. On top of that, this year in 2022 probably we'll take the FID of South Platte Lapa Pika, in Alaska, where you know that we are fully focused in reducing costs, reducing the breakeven of the project, increasing the concept of modularity of the project. So we are going to start with a project that grows.
It's going to be at around 80,000 barrels per day more or less, so reducing The dimension of the project, but trying to increase the return most likely the is going to be taken in 2022, I mean, after the agreement, of course, with our partner. And Sakakemang, where we have we are fully focused and we are sure that we are willing to have the support of the Indonesian authorities that they are also very concerned and very focused on this kind of decarbonization issues. We are waiting call, we are waiting for CCS regulation and so on in Indonesia because you know that CCS is one of the crucial parts, The core parts of the project we are going to develop there, I mean that is going to be great in terms of minimizing the CO2 impact of this project, the FID is going to be taken likely by 2023 more or less. So I don't know if I'm missing something. I could say also that this July, we have taken the FID of the 3rd well of the Bakken that is I mean, the spot is planned by January the Q1 of 2022.
So as you could and Leon Moccasin also in the Gulf of Mexico, we are going to take FID This year, in the last quarter. So you could see that we have the fridge plenty of projects, profitable projects. We have develop a great effort to reduce the cost and the investment level of these projects and we are comfortable about the return we could have For this project even in a lower price scenario. Thank you.
Thank you, Sasican. Our next question comes from Pablo Cuadrado at Kepler Cheuvreux.
Hi, Ramon. Good morning, everyone. The bulk of my questions have been already answered, but probably I would like to ask about given that the summer period at least in Spain, it has started already a few weeks I think you mentioned during the presentation before that you were seeing very strong commercial volumes during June. I wasn't sure if you were comparing I mean, June versus Q2 this year. But I was wondering if you can provide us basically how you see volumes Beginning of July, basically versus, let's say, pre pandemic levels on the commercial front.
And likewise, with this inflection point that you have been mentioning on refining, I was wondering whether if you can provide how is the refining margin Operating so far this quarter, particularly in July. Thank you.
Gracias Pablo, thank you very much. I mean, I mentioned that in July, the volumes are 15% higher than the average of the Q2 of 2020. Comparing with 2019, the pre pandemic year, we are seeing a 12% of reduction of volumes in service station in July. And it seems to me that it's going to more or less to go on in August. Clearly speaking, I think that in Spain, the internal mobility in Spain is at the pre pandemic levels, more or less, roughly speaking, And we miss the international tourism that is still lagging to arrive.
I mean, our best approach for the 1st or sorry, the last 4 months of the year is that we could be something in between between the 5% or 10% of the 2019 equivalent figures of the last quarter of 2019. Mobility is recovering to the pre pandemic levels, but we still miss in the Spanish case and it seems to me that I mean taking into account that we have a lot Still a lot of restrictions among European countries and seem to cross the pond. We are missing main part of this or one significant part, let me use the term, of this international tourism. But things are improving In a dramatic way. For instance, in jet consumption has almost increased in has doubled, let me use the term.
In the last 3, 4 months, today the jet consumption could be in our main markets at 40% below the equivalent of the consumption in 2019. So they are still low figures, But we have to take into account that we count from a reduction of 90% in the second quarter of 2020 or 65%, 75% of reduction comparing with equivalents of 2019 3, 4 months ago. So we are seeing a clear recovery of mobility also in the aviation sector, But we are not still at all in the aviation sector in the figures we had 2 years ago saying that We are doubling the volumes we had 3, 4 months ago. For that reason, I mean, our refineries has increased the inventories this June to be prepared for this increase we have seen in the markets and we are starting to open new plants in our refineries to take advantage of the new sound of the competitive market arena we are starting to see with all the problems, see, because you know, I mean, this pandemic
Thank you, Pablo. That was our last question. At this point, I'll bring our Q2 conference call to an end. Looking forward to meeting you virtually in our October event. Remember, 5th October, Low Carbon Day.
Thank you for your attendance.