Hello, welcome to the Repsol second quarter 2021 results conference call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO, a brief introduction will be given by Mr. Ramón Álvarez-Pedrosa, Head of Investor Relations. I would now like to hand the conference over to Mr. Álvarez-Pedrosa. Sir, you may begin.
Thank you very much, operator. Good afternoon, welcome to Repsol second quarter 2021 results conference call. Today's call will be hosted by Josu Jon Imaz, 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, 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 Josu Jon.
Thank you, Ramón . 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. Thirdly, our update outlook to the end of 2021. At the end of the presentation, we'll be available to answer your questions. Let me start by reviewing the key messages. During the second quarter, 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, supported by strong oil and gas prices, exceptional chemicals performance, and the recovery of demand in Spain. The adjusted net income was EUR 488 million, 4% higher than in the previous quarter, and just 2% below the same quarter in 2019.
All divisions improved their adjusted results compared to the first quarter of the year. The cash flow from operations amounted to EUR 0.9 billion for an accumulated EUR 1.9 billion in the first six months of 2021. A 124% increase compared to the first half of 2020. Upstream continued prioritizing value over volume, improving operational efficiency and reducing its cash breakeven. Moreover, further progress was made on the rationalization of its portfolio, aligned with our strategy to concentrate operations on the most competitive and sustainable geographies and assets. The aforementioned strategy allowed the Upstream to contribute with another EUR 0.4 billion of organic free cash flow in the quarter, for a total of EUR 0.9 billion in the first half of 2021. In the Industrial Division, the Chemical Business had another extraordinary quarter, helped by record-level international margins and sound market fundamentals, despite having completed the planned multiannual turnaround of Puertollano.
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 $0.2 per barrel achieved in the first quarter. The new EUR 657 million project in Sines, Portugal, our petrochemical site, will allow us to produce new materials for highly specialized applications aligned with the energy transition and the transformation of our industrial business. In our aim to transform our legacy industrial sites into decarbonized hubs, we have defined and detailed an updated renewable hydrogen strategy that allow us to increase our strategic plan ambition to 0.55 gigawatts equivalent by 2025, and 1.9 gigawatts by 2030, from 0.4 gigawatts and 1.2 gigawatts before.
In the commercial businesses, after a challenging start to 2021, demand for road transport fuels recovered gradually throughout the quarter, benefiting from the easing of mobility restrictions in Spain. In renewables, we start production in our first solar farm in Spain, Kappa, and we acquire a 40% stake in Hecate Energy that marks our first entry into the U.S. market. The greater 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 gigawatts 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 6.4 billion as of the end of June, which compares to EUR 6.8 billion at the beginning of the year.
Moody's improved Repsol's outlook from negative to stable, 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, with the objective of accompanying and visualize our sustainability strategy, the financial position has been further reinforced with the issuance of two new sustainability-linked bonds for EUR 1.25 billion. Looking forward, we still see some uncertainties related to the spread of the Delta variant. However, considering the positive macro scenario and our delivery in the first half of 2021, we have improved our outlook to the end of the year compared to our previous guidance.
Finally, the recent developments affecting the energy transition, like the recently announced Fit for 55 package in Europe or the ambitious goals of the NextGenerationEU funds, reinforce our conviction that the strategic shift we took when we became the first oil and gas company to assume a net zero emissions target by 2050, 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 second quarter. Brent oil averaged $69 per barrel, 13% higher than in the first quarter and more than double its average price a year ago. In the gas markets, Henry Hub averaged $2.80, 4% 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 561,000 net barrels of oil equivalent per day. This was 12% lower than in the first quarter of 2021 and 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 project delays. The operating cash flow per barrel was around $0.7 higher than the first quarter. Compared to the first half last year, the negative impact of our lower production has been more than compensated by higher realization prices and a higher percentage of oil in our mix.
The rationalization of our portfolio continued with the divestment of our producing positions in Russia and Malaysia, the disposal of Block 46CN in Vietnam, the transfer of our stake in the TFT asset in Algeria, and the end of production in Spain. Development activity remained focused on the successful delivery of the 14 core projects defined in our strategic plan. We continue working thoroughly to reduce break evens to deliver on our planned schedule of FIDs. We are currently reinitiating the activity in Marcellus and the Eagle Ford with two drilling rigs in each asset. The development of Yme in Norway is expected to start production in the third quarter, contributing around 17,000 net barrels per day in 2022. The FID, the final investment decisions for Sagari North, Lapa Southwest, Acacias, CPO-9 in Colombia, and Leon Moccasin are expected before year-end.
Let me now continue with the performance of the industrial division, starting with refining. The margin indicator averaged $1.50, which compares to the $3 a year ago. Year-on-year, the increase in the energy cost 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 $1.10 premium in the unit CCS margin. 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 prioritized in plants with the higher margins. In the second quarter, margins have shown an inflection point on the path to recovery, led by the rebound of gasoline cracks resulting from the progress of vaccination strategies and 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, 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 first quarter 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 and supply constraints more than compensated the increase in the feedstock price.
Looking ahead, we expect margins to decline, to go down smoothly towards the end of the year. 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 two new plants of high value added, 100% recyclable materials for use in the pharma, automotive, and food industries. 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, and the easing of lockdown measures. Sales in our service stations were 15% below the second quarter in 2019.
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, Kappa. Kappa is the solar project in the south of Madrid in Ciudad Real. It started production. Earlier this week, we began to generate power at Valdesolar in the region of Extremadura, in the southwest part of Spain. In wind, we started the construction of the first farms in the Delta II in Aragon, northeast part of Spain, and big projects in the northern high plains in Castile. In Delta I, 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 facility towards the delivery of our renewable generation ambition to 2025, with the access to a pipeline of more than 40 gigawatts. We have made good progress, having taken this week the FID for our first photovoltaic project in the country, the project called Jicarilla in New Mexico. We now target reaching six 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 or the entry of a 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 million, which compares to our loss of EUR 258 million in the same period a year ago.
By division, the adjusted net income of the upstream was EUR 351 million, EUR 492 million 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 166 million, which compares to EUR 8 million a year ago, mostly driven by the strong performance of chemicals. The result in commercial and renewables was EUR 127 million, EUR 85 million higher than in the same quarter of 2020, primarily driven by the mobility business. In corporate and others, the adjusted net income was -EUR 156 million, an EUR 11 million increase over the same period a year ago. The group's EBITDA at CCS grew to EUR 1.6 billion in the quarter, 144% higher year-on-year for an accumulated EUR 3 billion 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 a revised outlook to the end of the year. Full year production is expected to average between 590,000 and 600,000 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. During the second half of the year, we expect 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 by EUR 0.3 billion to EUR 6.1 billion in 2021. CapEx is now expected to reach EUR 2.9 billion, coming from a EUR 0.3 billion increase in renewables. The investment in low carbon platforms during 2021 increases to one-third of total CapEx.
The net capital budget for 2021 remains unchanged at EUR 2.6 billion, as we expect to cash in EUR 0.3 billion from upstream divestments. With this assumption, we expect to end 2021 with a net debt of EUR 6.1 billion. To conclude, while maintaining a prudent approach towards the macro, looking at the numbers, the second 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 two pillars, renewable generation and the transformation of our industrial sites into low carbon hubs. The revisited renewable objective increases our low carbon generation ambition by 2025, including combined cycles and cogeneration from 7.5 gigawatts to 8.3 gigawatts.
Moreover, we will invest, as defined in the plan, EUR 1 billion until 2025 in other products that society will demand in the future, like advanced biofuels, hydrogen or e-fuels. We are developing the multi-offering to our clients with a customer-centric, digitally driven approach. When we released our strategy, we wanted to be cautious. At a EUR 50 oil price, we will be able to deliver our projects to 2025, keeping the same level of debt. The higher than expected oil and gas prices are allowing us to generate extra cash. We are going to invest part of this cash in profitable growth, this better scenario also opens the possibility of anticipating shareholder remuneration commitments if the current price level is maintained. The sustainability-linked bonds demonstrate our confidence on delivering on our emissions reduction goals opens a market for new credit investors.
I want to take the opportunity to remind you of our Low Carbon Day to be held on October 5th, where we'll showcase our decarbonization in action with ongoing projects and will outline responses to stakeholder expectation in terms of metrics and objectives. I'll now hand the call back to Ramón , who will lead us through a question and answer session. Thank you very much, Ramón .
Thank you very much, Josu Jon. In case you run into technical problems, please contact us through our email address, investor.relations@repsol.com. We will contact you immediately to try to solve it. Before moving on to the Q&A session, I'd like the operator to remind us of the process to ask a question. Please, operator, go ahead.
Thank you. Ladies and gentlemen, as we now begin the question and answer session, I would like to remind you, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, it is star one if you wish to ask a question.
Thank you, operator. Let me now move to the Q&A session. Our first question comes from Biraj Borkhataria at RBC.
Hi. Thanks for taking my question. The first one's on production volumes. Are you expecting a similar level of production into 2022? Maybe also, you could give a bit more color on the Peru LNG issues and when you expect those to be resolved. Then the second question's on asset sales and in the upstream and your decarbonization targets. I believe one of the recent asset sales in Malaysia 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, Biraj. I'm going to be very clear about production because I know that is one of your concerns in this quarter. 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. This half our budget accounted by 625,000 barrels per day, the current figure is 25,000-26,000 barrels per day below. The gap is due to these facts and unexpected shutdown in the Peru LNG plant, Pampa Melchorita, that you know that is not operated or owned by Repsol, but is fully needed for exports from Peru. 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.
Second factor, 7,000 barrels per day due to the delay of some production projects and unexpected downtimes in the BPTT asset in Trinidad operated by BP. We have 17,000 out of these 25,000 barrels per day, 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 8,000 and 10,000 barrels per day due to the PSC contract effect in some of our assets. I mean, higher prices, means less barrels to be taken. That is going to stay, as far as these prices are going to be there. We have a four factor divestment. 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. You have these four factors that are behind this production reduction. There is no any kind of, let me say, strength decline or lack of investment on 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. 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.
If we take the whole strategic period, let me say that the figure, when we talk as 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 bolt-on acquisition or something like that, or any synergistic acquisition, we could have a guidance of 620,000 barrels per day for the whole period. 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 as a consequence of the PSC contract effect. On top of that, the rationale of selling Malaysia is, of course, the rationale of, as we said, high-grading our portfolio concentrated in countries where we could make and create value for the company.
We have divested Malaysia, Russia, the TFT asset in Algeria, the ceasing of operations in Spain over the last year, Australia, Ireland, Bulgaria, the Kurdistan in Iraq, and so on. There is a rationale of concentrating in places where we could create value and having more and more efficient E&P. As you said, this Malaysian asset selling is going to have an impact in terms of CO2 greenhouse emissions in the company. The closing of Malaysia is going to be executed in the fourth quarter. The impact is going to be seen in 2022. It's true, as you said, we are going to reduce in the E&P the carbon intensity of the business in a figure that is going to be at around 70%-75% of the total emission level of the E&P. 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 zero the flaring emissions in the E&P, working in the unconventional, reducing the venting. 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, Biraj.
Thank you, Biraj. Next question comes from Fernando Lafuente at Alantra.
Hello. Good morning, everyone. Thank you for taking my question. Just one quick question on the renewables upgraded target and another one on the dividend. On the renewables, Josu , I was wondering, where do you see additional upside, or where does this upside to the target comes from? First, in terms of country, and then in terms of technology. On the dividend, I guess what you want to say here in the presentation, or as I understand it, that you could bring forward the buyback. Now I understand that the DPS targets remain the same for the time being over the strategic plan. Thank you so much.
[Non-English content], Fernando. Thank you, and good morning. In the case of the renewable business, we are now upgrading the target because we have more certitude about the pipeline we have now in our hands. 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 either in Spain or in Chile or in the U.S., thanks to the projects 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 ready to deliver in this target. We are increasing from now on till 2025. We are comfortable with this target. We see the way to create value for our shareholders developing these projects.
We have, let me say, a higher certitude about the projects and the pipeline we are going to develop in coming four years. Going to your question about the dividend, I committed in previous quarters that we were going to allocate the extra cash generated in higher price 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, our financial currency. I think that it's convenient to remember that the share buyback program will be carried out as long as the average price of the year was higher than $50 per barrel, from the end of 2022 on, over the last four years of the strategic period.
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. 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 first share buyback included in our Strategic Plan to the next annual general meeting.
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 first share buyback included in our strategic plan to the next annual general meeting. Thank you, Fernando. Gracias.
Thank you, Fernando. Next question comes from Alessandro Pozzi of Mediobanca.
Yeah. Hi there. Thank you for taking my two questions. The first one is on the entry in the renewables U.S. market, with the 40% in Hecate. I was wondering what type of strategy do you see for the U.S.? I think Hecate is more of a developer. Are you looking to buy them on 100% basis, the projects that company is developing? Also, are you looking at adding clients on the retail side in the U.S.? I was wondering, what is your strategy there? Also the 2nd question is on sustainable aviation fuel. The European Commission has set a new target, I think of 5% by 2030, in terms of market share for SAF. I think it's quite the tough target, given at the moment, I think the SAF market is not very liquid.
I was wondering, is that pushing you to invest more into this type of fuel? I was wondering what types of returns do you think you can achieve by doing more investments there? Thank you.
[Non-English content] , Alessandro. Thank you very much. Going to the rationale behind our entrance in the American renewable. Hecate, as you perfectly defined, is a developer. It's a developer where we have an stake of a 40%, as we announced some months ago, some weeks ago, we have the right to get or to have the option to take, in three years, the control of the company. In the meantime, we have options to take the pipeline of Hecate to develop our own projects. For instance, yesterday, in our board, we approved to take two projects of this pipeline in the U.S., 125 MW, all in all, two projects that are in New Mexico, in the northeast 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 U.S., but of course, we are going to build a position in the country to negotiate PPAs and so on. Let me say, that is not fully new for Repsol. We have today a 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 U.S. specialized in the power trading business in this area and so on. The strategy is step by step, to take pipeline projects from the basket of projects that Hecate could have and take this option to develop as Repsol our own projects.
This project, the Jicarilla project in New Mexico, 125 MW, technically speaking, are two projects of 62.5 MW each one, are going to be developed in coming months in the U.S., adding new projects to what Repsol is developing in our renewable business. Going to the aviation. 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 or in Puertollano, in the south of Madrid. We have a clear pathway, well defined, to invest in biofuels and eco-fuels 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 C43.
That is the eco-fuels new plant in Cartagena that was approved almost one year ago. That is going to start producing eco-fuels at the end of December 2022. That is going to be a source of a potential eco-fuel for this kind of fuels. On top of that, we are already producing almost 400,000 tons per year of HVO in our five Spanish refineries, using either vegetable oils or recycled oils in a process where we hydrogenate the oil, the vegetable oil or the recycled oil molecules, producing eco-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.
Repsol is going to play the card of being one of the European leaders in the new hydrogen market, and we have conditions 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 two-thirds of the Spanish current hydrogen consumption are consumed in Repsol's plants, and we see the way to do that in a competitive way in our refineries. Being first movers in this business and leading this business in Spain, and being one of the leading European players. Let me say that is also an optionality for this market.
Not today, because in mobility terms, the aviation sector is not there yet, but it's going to be in coming years. Same reflection for the fuels. Let me say, 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. Let me say, what we are doing in eco-fuels terms has even higher returns, as I mentioned when we presented our strategic plan. Thank you, Alessandro.
Thank you, Alessandro. Next question comes from Irene Himona at Société Générale.
Thank you very much. Good afternoon. My question is around the upstream, 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. Also in that business, given the quite material price increases we are seeing in metals and commodities, are you seeing any cost inflation pressures, please? Thank you.
Thank you, Irene. We have reduced our cost base in OpEx terms in the upstream in 5% from 2020 on to 2021. Comparing both years. In some way, operational optimization, mainly in the Eagle Ford, midstream cost reduction, G&A strong cost reduction, and procurement efficiencies. It's 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. That is behind this reduction. In terms of cost inflation, let me say that our team is working on a proper planning to secure the contracts needed for upcoming projects. In some way, having a centralized process as we have today contributes to have a better management of all that.
Today, we have almost closed all the contracts we have for 2022 in the E&P. That means that we are quite protected. About the consequences of this potential cost inflation that could arrive and could impact the E&P business in case of going on seeing the current oil and gas prices. We are protected for coming projects because we have negotiated the main contracts we have for next year. In any case, of course, let me say that the impact of the increase in prices clearly will exceed the impact of increase in cost, but we are protected for that eventuality. Thank you, Irene.
Thank you.
Thank you, Irene. Next question comes from Michele Della Vigna at Goldman Sachs.
Thank you very much, Josu Jon, for your time. I wanted to ask two questions, if I may. The first one is on your low-carbon division, which you are clearly accelerating here on the back of the Fit for 55. How are you thinking about the capital structure of that business? Are you still looking at potential industrial farm-out or IPO there to achieve the most efficient cost of capital? Going back instead to your E&P business, you have quite material short cycle investment opportunities, especially onshore U.S., the Marcellus with the rising Henry Hub gas prices and the Eagle Ford with rising gas and oil prices. Are you thinking about material 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. Going for your first question related about the capital structure of renewable business, IPO versus partner. We are today pursuing and working on this double track. That means our intention is to launch an IPO or to find a partner, or 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. The rationale for that is, first of all, to have a better visibility into this new business. In terms of, let me use the term crystallizing the value we have in this renewable business. Secondly, we want to reduce the cost of capital of this business. Both vehicles, both instruments could be a tool to get this objective.
Of course, it has to be 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 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. We are not going to take our rationale, depending the specific situation that renewables could be experiencing in market moves or terms. We work on this double track. What is more important, in the meantime, we are delivering.
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 we announced before by 2025, and so on. Going to your question. Till now we have introduced a new rig in Eagle Ford and a new one in the Marcellus. 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. Perhaps before the end of the year, optionality, a third rig in the Eagle Ford. We are going to increase in 2022 in 10,000 barrels per day the production for this new rig in the Eagle Ford, 10,000 barrels per day for because this new rig in the Marcellus.
Let me say the second rig 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 two rigs in each of these assets in coming months is going to impact positively more or less in 30,000 barrels per day in 2022. Showing the optionality, the flexibility we have to use the unconventionals in this way, depending on the evolution on prices. In Canada, we are working in the same direction because after years of depressed prices in WCS terms, we are seeing a different scenario, and probably we are going to work with two rigs in Canada in the short term, and our investment level in the unconventional in North America is going to be at around $700 million in the whole North America in 2022.
Thank you.
Thank you, Michele. Next question comes from Joshua Stone at Barclays.
Thanks, Ramón, and good afternoon. Two questions, please. Firstly, on refining. You talked about 2Q maybe being an inflection point. To what extent do you think we're seeing now a sustained recovery in refining margins? Then related to that, can you talk about the impact of higher carbon prices on refining margins? Just kind of give us an update of where we are on things like free allowances. Thank you.
Thank you, Joshua. First of all, our guidance, as I said before, we are seeing this $2 per barrel over the whole year in the margin of our system. Of course, you have to add the premium. We are showing the capacity of our system to add a premium to this margin. On top of that, both the market in the future market terms is showing, mainly for middle distillates, is a recovery this second half of the year, you have to take into account that every dollar of recovery in the middle distillate margin per barrel, or the spread per barrel, means $0.55 per barrel of increasing the refining margin of Repsol. The CO2 is included. The effect of the cost of CO2 is already included in the margin we have today, and you are seeing in our reports.
We are, of course, working over the last years, and we are going to work, as we mentioned, and we define in our strategic plan to go on reducing the CO2 emissions of our refineries. You know that we have the project that is called 25/25 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. It seems to me, I'm going to enter, let me use the term, in the speculative reflection, that I don't have a crystal ball about what is going to happen with the CO2 prices. I am, and we are in favor of having a CO2 market worldwide with clear rules to decarbonize the economy, with a levelized playing field for everybody.
The European Commission has announced that they are going to introduce a feed-in tariff system to avoid the carbon leakage of industrial sectors in Europe. It seems to me that we are not going to see, as some people are saying, carbon prices of EUR 80, EUR 90, or EUR 100 per ton in coming years in the absence or in the lack of a real European regulation to avoid this carbon leakage. Let me say that is not going to be sustainable neither for European consumers that now are seeing that a lot of costs, as the electricity cost, is highly impacted by this CO2 cost, meaning European consumers can't pay this cost, and know the competitiveness of all the European industries, including, of course, the refining or the chemical or the paper, the steel makers, steel mills, or the cement industry.
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, Joshua. Next question comes from Matt Lofting at JPMorgan.
Hi, gents. Thanks, Ramón. Thanks for taking the questions. Two, if I could please. First, capital allocation. I think, Josu Jon, when you presented Q1s, you sort of framed being more in resilience mode still for 2021, 2022. It seems that there's a sort of a change with the update today, and you're sort of shifting more towards 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. Second, just coming back on production, if I could, in the upstream. Where do you see the 2022 production forecast today?
It sort of seemed earlier that you referenced 650 as the strategic plan average being sort of potentially closer to 620 today, ex acquisition. 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 over the five-year average? Thank you.
Thank you, Matt, and thank you very much for your question. 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, new strains, the evolution of the vaccination campaign, and so on. As you said, I'm a bit more optimistic now than I was two or three months ago when we presented the last quarter results. I'm more optimistic because, for instance, now in the Spanish service station, we have seen volumes that are 15% higher than the average of the second quarter of this year. We are starting to see a new weather, a new arena.
You know that we have temporary job work restrictions in three refineries, in Puertollano, in Coruña, and in Bilbao, and over the last two weeks, we are starting to lift all these temporary adjustments or restrictions. We are seeing how the mobility is growing, how
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Okay. I think we were cut off. We will be repeating the answers to the question of Matthew Lofting at JPMorgan. Matt, are you there?
I am, yes. Would you like me to repeat the questions?
I'm sorry, Matt. No, I have the questions.
Okay.
summarize the answers. First of all, I said I don't have a crystal ball. We have seen a lot of things over this pandemic, but it's true that our mode is today a bit more optimistic than it was two or three months ago, because we are seeing a clear increase of volumes and demand in our markets. Saying that, we're going to be focused on efficiency, capital discipline, CapEx control, prudent 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 million. On top of that, we are probably, in case of having this situation at the end of this year, we will eventually anticipate one year the buyback.
Saying that, the metric we have, it's the metric we define in our strategic plan. We want to have a gearing at around 25% over the whole period, with a summit, a peak, a maximum of 30% of gearing. 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. What we have in mind, and we are not upset about production, but this is a production that is going to be at around 620,000 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.
On top of that, new projects, the new FIDs are going to increase the production in 2022. For instance, Yme is going to add 17,000 barrels per day next year. Going to the acquisition, Matt, I want to be very clear. I'm not upset, because of production, we are not going to destroy the money of our shareholders. Today, at these prices, an M&A acquisition is very difficult to be accretive for the company, for our shareholders. In case of seeing something very synergistic or with high synergies, we'll do it. It's very difficult today at this market to buy something making value. We are not going to buy to increase the production, not at all. We are going to buy to increase the value of the company and to increase the value for our shareholders.
That is very difficult at this oil and gas prices. I prefer to say that we are going to be in this 620,000 barrels per day and not in 640,000 something like that, instead of destroying the cash and the money of our shareholders. Thank you, Matt.
Thank you.
Thank you, Matt. Next question comes from Mehdi Ennebati of Bank of America.
Hi. Good afternoon, all. Thanks for taking my question. Two questions, please. One on the petrochemicals subdivision and the petrochemicals sales volumes. If I look at your report, the sales volumes on the petchem remain pretty low, meaning roughly in line with the first half of 2020, but significantly below what you realized in 2017, 2018 or 2019, while the petchem margin are extremely high. Normally you should have tried to maximize those sales volumes. My question is pretty simple. Why sales volumes are so low? Is it because of Spanish demand, or 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. You also said that then the AGM, it will be submitted to the AGM. Just would like to understand, should we expect the share buyback to really start, let's say, in January 2022 or after the AGM, meaning from the end of March 2022? Thank you.
Thank you, Mehdi. First of all, the explanation for these volumes is simple. We have a program, a planned turnaround maintenance period of 50 days in Puertollano. Puertollano, you know, is one of our three chemical sites, one of our crackers and derivative chemical sites in the south part of the Spanish High Plains, in the south of Madrid. It's the smallest one, but 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. What we are seeing today as guidance in EBITDA terms for the whole year, I talked about EUR 850 million in the last call in April. Now I'm closer to EUR 900 million in terms of the EBITDA that the chemical business is going to give us this year, 2021. Demand is very robust. Verifying the share buyback. In case of seeing this macro scenario and being in the range of net debt I mentioned as guidance.
In case of seeing this situation, Mehdi, 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 2022 by the annual general meeting. 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. 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 some minutes ago. Thank you, Mehdi.
Thank you.
Thank you, Mehdi.
Just to precise.
Yes, Mehdi.
At the earliest in January, you might start the share buyback. At the earliest, but this is just a hypothesis.
Technically, you are right that that has to be decided, Mehdi, after seeing that we are there in macro and in debt terms. Technically, of course, we could eventually, with all these caveats, buy all that before, of course, the AGM. The AGM is who has to take the eventual decision in case of fulfilling these conditions of canceling the shares, in this case, 50 million shares. I'm going to say more, Mehdi. Today, we have in our hands 36 million of shares in our balance. On top of that, we have 80 million options of shares, 50 million of them as derivatives. You know, because I mentioned in a previous call that has to be canceled by 2023. We have 50 million of options in derivative, and on top of that, we have 30 million of equity swaps.
That means, all in all, we have today 116 million shares, either as physical shares or as options. That means more or less as 60% of the total figure we are going to need over the whole period. We are going to do our best to have the whole figure of EUR 200 million, either as physical shares or as options to deliver the commitment, in case of course of fulfilling the macro scenario we defined in the strategic plan to cancel and to buy back EUR 200 million of shares over the whole period 2021, 2025. That is more or less a 13% or 14% of the total number of shares of the company. Thank you, Mehdi.
Thanks very much.
Thank you, Mehdi. Next question comes from Sasikanth Chilukuru at Morgan Stanley.
Hi. Thanks for taking my questions. I had two left, please. The first one was related to your EBITDA guidance of EUR 6.1 billion for 2021, up, of course, EUR 3.3 billion versus the previous guidance. I was wondering what the building blocks for this increase were. I see the reference Brent price was moved 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 four FIDs by year-end, but these do not include the two highlighted last quarter, Pikka in Alaska and Sakakemang in Indonesia. I was just wondering if you can provide an update on where we are with those projects. Thanks.
Thank you, Sasikanth. There are a lot of reasons, but let me mention mainly three reasons behind this EBITDA guidance. The first one, as you mentioned, is price, commodity prices. The second one is the chemical business that I mentioned before, that we are increasing in EUR 50 million the EBITDA. 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 impacting in a positive way in the commercial side. The commercial side in general terms. I am talking about guidances. It seems to me the best guidance today is that we are going to be above EUR 1 billion of EBITDA this year in 2021, in the whole client or commercial businesses in this division of Repsol.
Let me say that having an EBITDA above EUR 1 billion 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 EBITDA guidance of the company. Main factors, commodity price, as you mentioned, chemicals, and in general terms, the commercial businesses. I think that the company has been able, Repsol this year, to contain the cost we reduced in 2020 because of the pandemic, and we have been able to adapt to the new market situation, not increasing the cost of the company. Efficiency, digital procurement programs, all that is behind growth is happening. That is behind the new EBITDA guidance we are giving you today. Thank you. The second one, sorry, FIDs.
What we have now in the case of Sagari, we are going to take the FID of the development of Sagari in the late third quarter of this year. First oil is going to come in the first quarter of 2024. Before the end of the year, we are going to take also the FID in Ceiba, the CPO-9 project in Colombia. On top of that, this year, in 2022 probably, we will take the FID of South Lapa. That is going to see the first oil in the first quarter of 2023. Pikka in Alaska, where you know that we are fully focused in reducing cost, reducing the break-even of the project, increasing the concept of modularity of the project. We are going to start with a project that gross is going to be at around 80,000 barrels per day, more or less.
Reducing the dimension of the project, but trying to increase the return. Most likely, the FID is going to be taken in 2022, after the agreement, of course, with our partner. Sakakemang, where we are fully focused, and we are sure that we are going to have the support of the Indonesian authorities, that they are also very concerned and very focused on these kind of decarbonization issues. 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. 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. I don't know if I'm missing something.
I could say also that this July, we have taken the FID of the third well of the Buckskin. The spud is planned by January, the first quarter of 2022. Leon Moccasin, also in the Gulf of Mexico, we are going to take FID this year, in the last quarter. You could see that we have the rich plenty of projects, profitable projects. We have developed 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 these projects, even in a lower price scenario. Thank you.
Thank you, Sasikanth Chilukuru. Our next question comes from Pablo Cuadrado at Kepler Cheuvreux.
Hi, Ramón. Good morning, everyone. The bulk of my questions have been already answered. Probably I would like to ask about, given that the summer period, at least in Spain, it has started already a few weeks ago, and 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 June versus Q2 this year. I was wondering if you can provide us basically how you see volumes during beginning of July, basically versus, let's say, pre-pandemic levels on the commercial front. 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 mentioned that in July, the volumes are at 15% higher than the average of the second quarter 2021. Comparing with 2019, the pre-pandemic year, we are seeing a 12% of reduction of volumes in service station in July. It seems to me that is 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. Our best approach for the last four months of the year is that we could be something in 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 taking into account that we have still a lot of restrictions among European countries and starting to cross the pond, we are missing a main part of this, one significant part, let me use the term, of this international tourism. Things are improving in a dramatic way. For instance, in jet consumption, it has almost increased, has doubled, let me use the term, in the last three, four months. Today, the jet consumption could be, in our main markets, at 40% below the equivalent of the consumption in 2019.
They are still low figures, but we have to take into account that we come from a reduction of 90% in the second quarter of 2020, or 65%-75% of reduction comparing with equivalents of 2019 three, four months ago. 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 two years ago. Saying that, we are doubling the volumes we had three, four months ago. For that reason, our refineries has increased the inventories this June to be prepared for this increase we are seeing in the markets, and we are starting to open new plants in our refineries to take advantage of the new dawn of the competitive market arena we are starting to see with all the products.
Because this pandemic had a lot of waves and surprises, but what we are seeing now is a clear recovery of volumes. Thank you.
Thank you, Pablo. That was our last question. At this point, I'll bring our second quarter conference call to an end. Looking forward to meeting you virtually in our October event. Remember, 5th of October, Low Carbon Day. Thank you for your attendance.
That does conclude today's conference. Thank you all for participating. You may now disconnect.