Good morning, ladies and gentlemen, and welcome to Galp's Capital Markets Day 2020. It's a pleasure to be again in London. The world has changed since the last time we have been here, and so did Galp, as you are going to see this morning. Today, we are going to present you the strategy and financial outlook, and briefly going under the 2019 numbers. You will find as well the cautionary statement on your presentation, which I advise you to read. Before we start, we must advise you on some safety procedures. In case of emergency, please follow the instructions of the hotel staff and make your way calmly to the exits, which are duly marked. The evacuation meeting point is at the corner of Lincoln's Inn Fields, just to the rear of the hotel.
Carlos will begin today with the strategy update, and then Filipe will follow with the financial outlook. After the break, Thore will give us an update on the upstream operations. At the end, as usually, we will have the Q&A session, followed by a lunch that we invite you to with the executive team, and as well with some of our directors. I hope you enjoy this morning, that we have a lot of material to cover for you guys. Carlos, the floor is yours.
Thank you, Pedro. Ladies and gentlemen, a big welcome, thank you for joining us today. It's a pleasure to be here in London again, have the chance to share with you our achievements and also our goals for the future. Ironically, in a fast changing world, it is playing in the safe mode, the most riskiest thing you can do. Today, living in that fast changing world, we have to embrace the opportunities that world is presenting to us. There is one thing that is for sure, that during this transition, the world will need more and more energy and cleaner solutions to embrace that new era. I will divide my presentations into divisions. The first one, we will look our achievements of 2019, after that, let's look into the future.
Starting reviewing our goals and our achievements in 2019, that was performance has been consistently capturing the market opportunities and growing in the last five years. Starting by 2019, and as you can see, it was a strong and very cash-generating year, most from the financial and the operational sides. That has happened during a very macro challenging environment. The free cash flow, as you have saw, was over EUR 900 million, and has increased 45% if we compare year-on-year. As we continue to execute our strategy, that was more than sufficient to cover our 15% dividend increase. We have started three new units production, two of them in Brazil and one in Angola, and that was the keystone for the 14% production increase in our yearly average. That stays above the guidance that we have provided to you one year ago.
Our natural gas activities has also played an important role during the year, since they have successfully capturing market opportunities, namely in the trading activities. During the year, we have done an important reshaping in our organization. We have now split it in four different business units, which are more aligned with the risk return profile and the strategic challenges that every single one will have in the coming years. The most transformational change was introduced in all our commercial activities, where we have merged all together in a single unit in order to moving our mindset and our focus and our attitudes from product, which is very traditional in our industry, to service, to customer. It's a big move. It's clearly something that it's disruptive when we look to what is the tradition in our industry.
While we are delivering today, we are also investing, for the future to continue to address and to deliver profitable and sustainable long-term value growth. In line with our strategy, we have also allocated 10%-15% of our equity CapEx to renewables and new business for coming. We have recently made the announcement of an important move in this area by acquiring 2.9 GW of high-quality solar PV projects in Spain. This is completely aligned with what we have mentioned to you. For those that are following us for many, many years, we have just started to pointing this four years ago with a caveat. Once we became free cash flow positive for those that still remember what we have said, and we are complying with it. Over the last five years, and you have the chart here, Galp posts the consistent growth path.
The cash that we have generated from our operations grew steadily, reaching EUR 1.9 billion in 2019. I think this path is the result of a clear focus on execution. You may remember that we have defined for ourselves the three E's, where the first was precisely related with execution. It's something that we have take that in our hands in a very serious and committed way. Execution, execution has been the stepping stone to deliver the results. Don't forget, because we have done that during a very volatile market conditions. We are seeing and we are observing what is happening in the world every single day, every single month during the last couple of years. That rhythm, I think that demonstrates the resilience and the quality of having an integrated business model design. This growth has clearly been converted in value.
Our total shareholders' return over the last years has reached 17% per year, well above our peers. I will repeat, because it's important, 17% per year in average. I think this is outstanding by any means. Having Galp has this distinctive long-life asset base, and having the possibility to share with you what brought us to 2019 with such a strong performance, I think now we have to move and to see our investment case and also the strategic guidelines to continue to deliver sustainable value growth while we start to embracing the energy transition opportunities that are offering to all the industry. Looking to our distinctive and long-life asset base that you know quite well, it is highly competitive and truly resilient to different macro assumptions. We look at energy transition as a new era, full of opportunities.
I think it's the only way that we have to look into. The speed and the scale to take advantage of those opportunities will be the difference between the laggards and the successful companies. We will invest for growth and transition simultaneously, but we will continue to be focused on attractive returns and on keeping a strong balance sheet. Integrating the so-called energy transition into our strategy means that all our business and segments need to address the challenge. This is not only a single responsibility for any one of the four divisions that we have now organized. Looking at the four divisions and starting by the upstream.
In upstream, we will continue to develop sizable and very low-cost resources and to increase the weight of natural gas in our portfolio with the Mozambican projects, you know, which will continue to support the strong cash flow generation and also the value creation. Secondly, in refining and now the so-called midstream, energy efficiency projects will be a priority to maintain our competitiveness while we are adapting to evolving market and to stringent environmental regulation in European countries or in European zone. Thirdly, looking at to our commercial division, we will leverage on a unique, cleaner, and expanded integrated offer.
This is important because it's I think we are one amongst very few that could provide to customers a full integrated offer in our sector that will be supported by innovation, the digital transformation, and agile ways of working to provide the best in class experience. Customer experience. That's where we put our attention nowadays. Fourth, is not the last, but not the least important division. It's, I would say, our new baby, and we have to take care about our new babies. We are committed to develop a competitive and profitable renewable business, but doing that with innovative and differentiating solutions to capture new scalable and value pools. Let's now go over to, in more details, to every one of these divisions. Of course, starting with our Upstream business.
Here, you know that we have an impressive asset base that ranks the top quartile in the industry, and we plan to keep it that way. By doing so, that means that we have to ensure that we are creating value, even in a below two degree scenario where oil prices could be materially different from what are expecting today. Sometimes we don't know what we are expecting in every single day. Our Upstream portfolio of 2.4 billion barrels, I'm speaking about 2P, 2C reserves and resources, allow us to have enough resources to continue to grow. The break-even of both sanction and pre-sanction projects is below $25 per barrel, that is considering an NPV10. This is excluding potential upsides in any of these developments. I'm sure that Thore will cover that upsides in a very enthusiastic way.
I'm looking to Thore's face, and I have no doubts about that. By using the best technologies and practices, in 2019, our portfolio has reached a low carbon intensity of 9.4 kilos of CO2 equivalent per barrel. Well below the industry average of 18 kilos. This is another example of the high quality of our portfolio. Our future developments will continue to fit in our low cost and low carbon portfolio strategy. In a very summarized way, this is what we plan to do and guide in our Upstream activities. Let's now move to the production profile, because one thing is the guidelines, another thing is, and what are the results? What are you expecting to do with those assets? Production is expected to grow over the next decade at a compounded annual rate of 10%.
This is more front-loaded and this is a cycle, but all over the next decade, it is a compounded annual rate growth of 10%. Mostly from projects already being developed. Upsides to this production growth will come from, first, improvements in recovery factor and additional value extraction initiatives on the existing projects. Secondly, from exploration results in a set of promising assets such as Uirapuru. I think we should have news on the potential of this project in the coming weeks or months. We are working hard on that. With the development of Mozambique and our Mozambican projects, Coral FLNG and also Rovuma LNG, the gas weight is expected to increase significantly, reaching 30% after 2025, which is completely aligned with our strategic guidelines. Being covered the Upstream activities, let's now move to our Refining and Midstream activities. We have, at Galp, a reliable refining system.
With technical costs, and we are using technical costs just joining OpEx plus recurrent CapEx, which stands below $2.80 per barrel. There's still room to improve. We have been able to fully accommodate the change in marine bunker specifications that have just enter in force in 1st July, sorry, 1st January. We are now producing 100% Very Low Sulfur Fuel Oil. For the discussions that with some of us we have been held during the last couple of months, this is the proof that clearly we adapt, we are feasible, and we are complying with what we have said. We will continue to increase the competitiveness, the efficiency, and also the sustainability of our refining system, primarily with incremental projects. The ongoing initiatives of one additional dollar per barrel contribution will be fully captured during this year.
We are now doing some works at our Sines refinery that should be concluded during the first half of this year, which means that half of the year, we will have 100% of this dollar per barrel. We are above 80% of this today, and we will complete this by the second half in a 100% basis. We didn't stop here. We have meanwhile launched what we can call a second wave of initiatives, aiming at an additional half dollar per barrel contribution between process enhancements and, at the same time, by using digital initiatives. These actions should contribute to improve margins or to reduce our cash costs during the next years. We do think that we will implement them and having this full capture after 2022.
We entered into this process a couple of years ago for $1 per barrel, and now the second wave of an additional half dollar per barrel that will be fully captured by 2022 onwards. Taking also advantage of the circular economy potential and, of course, new technologies and digital, and the transformation applies to all the divisions. We will work towards offering cleaner, more valuable energy solutions while we continue to reduce our carbon footprint. Moving to commercial. The division that I've mentioned to you that is experiencing the most drastic and relevant, disruptive, I would say, transformation in the good and the right direction. We made this significant transformation in our commercial activities to take advantage from our large client scale, diversified proposition, and taking advantage also of a strong brand awareness in Iberia.
With a more agile and customer-driven organization, I think we will enhance our client experience, we will expand our offer through multi-product and service solutions. Having, what we can say, an holistic way of view our clients across their whole needs in everyday life experience at home, at work, on the move. We are clients, we are consumers that sometimes we don't realize different needs all over the day and in different times in our lives. It is crucial that we will be able to capture that value. We have also an important starting point. The high capillarity of our network with around 1,500 service stations and 800 convenience stores will also be at the core of a diversified and tailored to each location, taking advantage of new mobility, commuting trends, and urban space development.
This is important because the world and the way we live, the way we move, the way we behave will change. What we are doing, anticipating, it's not just adapting, it's anticipating the movements that the society, the human being behavior is taking. This commercial division is set up to generate more than half billion EUR in EBITDA by 2025, increasing at least 20% its current contribution. I think with this perspective and this visibility, you may have a more clear view of our plans, our actions, and also our commitments going forward. On new energies, we advocate for technological diversity. We listen. Some people more focused in a certain technology that could be the stepping stone to solve the human problems. We do not. We continue to advocate on technological diversity as a principle to keep options, promoting innovation and creativity.
With this in mind, we are particularly interested in what we can call the green hydrogen deployment. As we believe that it must be one of the most efficient solutions to address challenges related with the decarbonization of certain sectors, such as the industry feedstocks and high-grade heat. At Galp, we believe that this is the right way, and this is the best to keep options open. At Galp, we believe also that renewable generation will play an important role and is amongst the best opportunities to invest in the energy transition at a new, at scale business, supporting a profound transformation that will be required to achieve the targets that has been set in the Paris Agreement. Integrating in Galp's portfolio, these businesses will allow also us to develop what we can call the natural hedge to our Iberian power market exposure.
We have a set of electrical clients for which we are not having any electrons producing whatsoever. With this new approach, we will design our business in a full supply integrated, taking advantage of the existing asset client base. We see there is a clear potential upside on top of just the pure generation business model. Don't look at this as being just a pure generation renewable business model. In addition to this platform, we see that we have levers to expand our activities from Iberia to other regions where we may combine power generation, storage, and also supply. Building this renewable generation business will also allow Galp at least to four different things. First, to diversify our portfolio. Secondly, to reduce our carbon footprint. Third, to increase the client sales. Fourth, to tap new profit pools.
It is clearly one of the ways to summarize why we are embracing these new four divisions and these new businesses. We have the ambition to reach 10 GW of total installed capacity by 2030. We can say by the end of next decade. It depends when we count the next decade. Let's say by 2030. This is, of course, depending on our ability to find and to develop projects that may fit our investment criteria. In that case, we will be, and we will continue to be disciplined. By 2023, we expect to have in two countries, so in Iberia, in Portugal, and also in Spain, we intend and we plan to have, we expect to have 3.3 GW of solar projects already operating from existing portfolio in both countries.
We estimate more than EUR 200 million of cash flow from operations from these projects, when we look at them in a standalone basis. Filipe will go into details how we will plan to do this. With our recent solar acquisition in Spain, I think we have made a significant move to accelerate the strategy I have just reaffirmed to you all. Galp has become market leader in solar power generation in Iberia. I think this is one of the key milestones that we have reached. We are strengthening our position as an integrated energy provider for that region. Leading in all the segments where we are present is and will continue to be one of our key ambitions. Our portfolio of 2.9 GW of production benefits also from premium location, which is translating above average solar yields of more than 1,800 hours.
Over 900 MW are already operating. We expect by year end this year, approximately 1.4 GW of production. All the remaining projects, as I've mentioned to you, have already secured grid connection and will be developed over the next three years. All in all, you can see the quality and the profitability and the pace of development that we are putting our focus on in these developments. Finally, and to give a word, what does that mean in terms of financial contributions? Effectively, our metrics to drove this move into solar, we expect equity IRRs above 10%. Business integration with our remaining activities and other potential upsides, such as ancillary services or storage deployment, may create additional value and therefore increase the impact in our equity returns. We will work on that in the coming years.
Stepping into another level that has to do with the commitments and ambitions that we have during this energy transition, and taking in consideration this move to the renewable businesses, I would say this is just part of our future. Being energy transition a reality, we have to assume our own commitments are to embrace and to address the challenges that energy transition present to the human beings. We have defined for that five levers to decarbonize our portfolio. The first one is precisely to incorporating renewable energy. The second is increasing the weight of natural gas, and I have spoken about that with our Mozambican projects. The third one is improving the efficiency of our operations all across the supply chain. The fourth one is analyzing options to production of lower to no carbon products.
Finally, we are developing and we are studying technologies like CCS and natural offset mechanisms as potential solutions to meet the energy challenges in an efficient way. We come from, I think, a good starting point as we are growing our energy production well above industry average. Whatever we may decide to commit in the future, it should rely both environmentally and economically sustainable, and the goals that we will set up to all of us is to address simultaneously those two elements. Moving now to capital allocation. You may recognize this slide. This is exactly the same that we have shared with you back in October as our capital allocation guidelines are unchanged.
You can see that more than 40% of our equity CapEx intends to capture the opportunities coming from the future of the energy demand patterns, while at the same time, we continue to reduce our carbon footprint. Investments in renewables, as I've mentioned to you, and also in new businesses, should account 10%-15% of our equity CapEx in the coming years, and provided that the returns are in line with our investment criteria. Project returns will vary across each different business due to size, risk profile, and finance structure, as you can see in the center of the slide. The competitiveness of our future investments will remain aligned with Galp's return on capital employed target of 15%. We also renew our commitment to stay below 2x net debt to EBITDA, and we will rotate assets if required to sustain this level.
Our shareholders' distribution in that area, we reiterate what we have targeted of a dividend per share increase of 10% per year all over the three years. You may see 2019-2021. That means the AGMs that goes from 2020- 2022. I think this underpins the confidence we have in our plan's resilience. To conclude, ladies and gentlemen, let me tell you why Galp is and will continue to be a distinctive value and growth story. I would like just you to retain three key messages. Firstly, we will continue to deliver profitable growth. Our upstream production will double during the next decade, supported in projects already being developed and with low breakeven. I've shared with you below $25 per barrel. We will enhance and transform our downstream businesses.
These so-called legacy business or conventional businesses will be key contributors to the next chapter to write our story. Simultaneously, during our transition journey, we will also pay relevance and impact in the next decade. Galp will be a EUR +3 billion cash company by 2025 onwards. This is clearly a great statement and an ambition that we have set to all of us. Secondly, we will remain committed with our solid financial position and with also our clear capital allocation. Thirdly, we will balance between growth investments from one side and progressive shareholders' distribution. You may know Hans Rosling, the Swedish physician that has described as no one the secret silent miracle of human progress. Alluded to that with figures, not just with words. To say that we are living phenomenal times today with important human challenges, with unique opportunities.
In a fast changing and unpredictable world, embracing the energy transition is surely a lifetime opportunity for Galp, and to position Galp as part of the solution in the same tenable and profitable way that brought us to this day. I sincerely appreciate your attention today, and now I will hand over to Filipe. Filipe, thank you.
Thank you, Carlos. Morning, guys. Thank you for joining us today. I will start with the recap of the 2019 cash flow, and then we'll move on to the divisional cash flows going forward. The plans are very much on track. You will see very little changes from what we have told you back in October, other than we have now factored in lower refining margins. I start with my favorite slide, 2019 cash flow. This is the best slide to understand the fundamental competitiveness of the Galp asset base. It also helps to understand how we will fund our capital allocations going forward. On the left-hand side, we effectively have EBITDA plus associates. That's over EUR 2.5 billion last year. The key drivers here were much higher production in upstream, but we have lower Brent, and we had a difficult refining year, as you know.
Taking out taxes and working capital, cash flow from operations was EUR 1.9 billion. That's 7% up if you strip out the IFRS 16 adjustments. After paying for the operating leases, interests, and CapEx, we're left with EUR 922 of free cash flow. This free cash flow is quite unusual for a business that is growing as quickly as Galp. As you know, we have a very high proportion of our CapEx going into new developments that are not generating any cash, and that's the new units in Brazil. That is Carcara, now Bacalhau. We have Rovuma, and we have Coral. None of that is generating any cash but is waiting on this cash flow. Of the EUR 922 of free cash flow, about EUR 130 went to Sinopec, EUR 560 to the Galp shareholders, and the rest was to delever our balance sheets.
That is now at 0.7x net debt to EBITDA. I think this slide says a lot about how strong the cash flow is from the existing asset base, i.e., if you park for a second what's going into new projects. Now, a few words on how we will be reporting our segments going forward. This reflects our new org chart, our new priorities, and hopefully it will also help value our business more appropriately. E&P, no change. This is the entire oil and gas upstream activity, EUR 1.75 billion of EBITDA last year. Major cash cow, likely to remain a very large cash cow going forward given how long life and competitive the asset base is. Refining was previously bundled with marketing, and going forwards we have refining, as you know it, and midstream. Within midstream, we have all the cogeneration.
We have all trading of all products, be it gas, electricity, oil products, electricity. We also have within midstream all the infrastructure assets such as oil pipeline, gas pipelines, the stake in GGND. Commercial now includes all our client activities in all geographies. That's products and services. This combination went live last year, and our commercial workforce is already operating on a per-client basis as opposed to a silo-based product or service organization. In 2019, this was a EUR 400 million EBITDA activity coming from our commercial businesses in Spain and Portugal and certain African countries. This spans service stations, LPG, lubes, natural gas, and electricity. This is a low volatility, high multiple business, which was perhaps not very well understood when it was bundled with refining. Last but not least, our fourth division is renewables and new business, which includes the recent solar acquisition in Spain.
We've hired a senior experienced solar team last year to help us with this under the leadership of Susana. Easy to spot, the woman in red. This business is also very low cost of capital, low risk business. Quite different from our more traditional commodity business. As we report our numbers during 2020, we will be laying out the numbers under this new format so that you can reconcile 2019 with 2020 numbers. I now have one slide for each of these four segments on our views going forward, and I'll then wrap up with the consolidated views. Starting with upstream, for consistency, we have kept Brent unchanged from the October assumptions. We have $65 flat this year, 2020. We have $70 flat. This is nominal. In 2025, it's still at $70. This is nominal $70, flat going forward.
We know this looks a bit rich today. We have stopped changing our views on Brent every time we sit here. On this basis, the upstream cash flow from operations should be over EUR 4 billion cumulative during the 2022 period. This is supported also by the higher cash margins of the forthcoming projects in Brazil. We've also planted here what cash flow, the cumulative cash flow would have been, assuming $60 flat nominal throughout the period. On CapEx, almost all of it is going for expansion, and we should have seven to EUR 900 million per annum, and the bulk is going into phase I of Bacalhau, phase I of Rovuma LNG, and the remaining is going into the Lara areas and to exploration. On exploration, we have Uirapuru coming up shortly. We have São Tomé, Namibia, and we also have the appraisal of Sururu.
Of course, we also have CapEx going into Angola and Coral, which is ongoing. As you recall, Rovuma and Coral are project finance, so our CapEx numbers are net of that. Refining and midstream. Again, midstream, you have all the pipelines, all the supply and trading activities, and cogeneration. We have assumed realized refining margins. Galp realized refining margins of $4- $5 per barrel. This is more than $1 less than we had back in October. Refining cash costs, as alluded by Carlos, under $2.8 per barrel. Cash costs means OpEx and recurring CapEx in the refining system. Refining and midstream EBITDA is expected at over EUR 350 million per annum during the 2022 period. The midstream contributes with about EUR 150 million of that, to which you need to add the stakes in the associates, which come on top.
This is GGND, International Pipelines comes on top of the EBITDA numbers here. Cash flow from operation for refining and midstream should be over EUR 1.2 billion cumulative during the 2022 period, and this includes associates. CapEx should be on average about EUR 100 million per annum, and this is mostly centered into energy efficiency measures, incremental conversion, and maintenance. Commercial. We expect that the integration of all of the group's products and services will put us in a much stronger position to extract much more value from our B2C and B2B clients going forward. This should be a cash flow contributor to the tune of EUR 400-450 at the EBITDA level during 2022. Cash flow from operation on a cumulative basis should be about EUR 1 billion. CapEx here should average EUR 150 million per year, likely to be a bit lower than that.
This is centered around retail network upgrades, forecourts, and digital and loyalty. We're spending quite a bit of money on digital and powerful CRM tools to enhance the client's experience and also to help us optimize our own operations. Finally, on renewables and new businesses. You know we had about 400 MW of solar PV projects in our Portuguese pipeline. This recent acquisition in Spain is a step change for Galp. We have been looking at solar projects for quite some time in Iberia, but this was the very best for Galp. Given its scale, given its competitiveness, and given its pure-play nature in Iberia, where we also have our power commercial activity. The EUR 2.2 billion highlight figure considers the acquisition cost itself, including for the recently commissioned 900 MW, and the development and construction of the other 2 GW coming until 2023.
We have teamed up with the ACS Group in Spain for this, a very experienced player to build this sort of project. It's also great to see a new business generating cash flow from day one. By 2023, cash flow from operations of this business on a standalone basis should be generating EUR +200 million of cash flow from operations. Here, we are assuming EUR 50 per megawatt hour in the pool price in real terms. These projects will be levered, and a partnership is most likely for the equity piece. This will lead to deconsolidation. The net impact into the Galp balance sheet from the acquisition, the development, and the construction for the whole cash out, the impact on our balance sheet should be no more than EUR 700 million or so over time.
The transaction does not change our commitment to the overall EUR 1 billion- EUR 1.2 billion of average CapEx, net CapEx during the next two years. It does front-load it to 2020. No debate about this. Equity IRRs from this acquisition are expected to be over 10%, and this is aligned with our risk-return ambitions given the risk of this project and its geography. Bear in mind that this business also brings an economic hedge to our electricity commercial activity, which we plan to expand. On a consolidated basis, if we put it all together for this year of 2020, we're guiding towards a group EBITDA of over EUR 2.8 billion and cash flow from operations of about EUR 2.2 billion or more. For the 2022 periods, cumulative cash flow should be well over EUR 6 billion. How are we planning to redeploy this money?
CapEx, 1- 1.2 on average for the next few years. To stay within that sort of range, asset rotation is likely. Bear in mind that all this CapEx is going to high-quality new projects, 40% of which fall into the energy transition bucket, LNG included. We have two. We have distributions to Sinopec from our Brazilian subsidiary, and we have distributions to the Galp shareholders as per the 10% compound annual growth rate, which we have announced previously. This is all in line with the messages we have been delivering that we can continue to fund our projects, move and diversify into low carbon, and we can increase distributions and keep our leverage low. That was our guidance to 2022. If we look a bit longer than that, and I'll conclude with this, what do we see?
We see a very large upstream portfolio of long-life projects, which are super competitive. They sit at the bottom of the global cost curve. With half the carbon intensity of the industry today. These are very sought after assets. We see a cash-generating refining and midstream business. We see a client franchise which we will leverage much better going forward. This business commands higher multiples with a low cost of capital. This includes, again, fore court, convenience, B2B, B2C, electricity sales, EV services, and all the low-carbon offers that we have in the pipeline. We see a very competitive renewable energy platform. This is a business model where the economics work. It's also a low-risk, low cost of capital business. Overall, different businesses with different criteria for evaluation.
Now, some of our investors will think that our pace of transition is faster than they would have liked. Some will say we're not going fast enough. We know we'll have to manage this, and we will not be pleasing everyone. That's not just a Galp problem, it's a sector problem. We are taking this transition very seriously. One thing we can agree is that Galp is quite different from most of its peers. Given our very manageable size, the nature of our portfolio, and our financial flexibility, we can be much more agile than certainly more than the big guys, and we will adapt as quickly as we want. With cash flow from operations some 50% higher in 2025 compared to today, and with a lot more going on post-2025, Galp is indeed in a very distinctive place.
I will stop with this, and we break for 20 minutes or so, and Thore comes back to give us the upstream update. Thank you.
[Break]
Good morning, ladies and gentlemen, and welcome back. It's a big pleasure to be here today and to give you a little bit more insight into Galp's upstream business. I have four key messages for you here today. One, Galp holds an outstanding E&P portfolio that is of world-class. Two, this portfolio will deliver on average 10% growth over the next decade. This will be profitable growth with an NPV10, which will deliver a break-even of below $25 per barrel. This allows Galp to be really value-focused on what we do. On upstream, our focus will be to maximize the value from our assets. I think you see that we are delivering. Over the last five years, we have quadrupled the production from upstream in Galp.
Last year, we delivered a production of 122,000 barrels per day on average, which were 14% higher than the year before. We're doing this from a world-class asset base that consists of nothing less than 2.4 billion barrels of 2P reserves and 2C resources. With a reserve replacement rate that has been running over the last three years at 125%. With Rovuma phase I and Bacalhau phase I now moving soon to be sanctioned, we will move additional resources into reserves. We do this with a low carbon footprint, at 9.4 kilos CO2 equivalent per BOE, we are doing and comparing quite well with the global average of 18. Characteristic for Galp's portfolio is that this is really profitable growth. To have a breakeven at NPV10 below $25 per barrel is very competitive in the industry and clearly first quartile.
This asset base will grow with 14% from 2018- 2019. We believe it can grow with another 13%-17% from 2019- 2020. As I said, over the next decade, on average, it will grow approximately 10% per year. Truly a unique growth portfolio. This allows us to focus on value. Galp do not need to take any moves on the E&P unless we see that this is really going to enhance the value of our portfolio, enhance the value for our shareholders. Now a few words about some of the key assets in the portfolio. I have to start with Lula-Iracema, which is really is our jewel in the crown. It now runs with nine FPSOs with an installed capacity of around 1.3 million barrels per day. This is all done over a period of 10 years. This is very profitable barrels.
We see that there is a break-even at NPV10 at around USD 15 per barrel from this asset. It's been turning into becoming a fantastic cash flow generator for Petrogal. Some USD 750 million of free cash flow is this asset generating for Petrogal at this stage. As you know, we believe there are some 20 billion barrels of oil and gas in place in this reservoir, so we have a lot to work with in order to further maximize recovery on this field. Our current development plan calls for recovery of around 34%. This is still a quite conservative ambition.
We are working with our partners now to further see what are the ways to further improve this through looking for tie-back solutions, looking for further infill wells, looking for further usage of water alternating gas injection, and also possibly looking for how we can extend the field life. Our ambition for this field remains to recover more than 40% of the oil and gas in place. Let me remind you that one percentage point improvement in recovery is nothing less than 200 million barrels. This is very exciting opportunities to further improve the profitability of this field. We have more fields that are contributing in a very nice way to the Galp portfolio now. In Angola, Kaombo and the second unit, which reached plateau in December, is actually the asset with the highest cash margin for Galp in these days.
In Brazil, Berbigão e Sururu is ramping up ahead of plan, and actually with only two wells is producing around 68,000 barrels per day. 68,000 barrels per day, which is quite remarkable. The third well is expected to come into production in March, so the ramp-up of this field is going very well. In Mozambique, Coral is developing according to plan and is also on budget. Actually, year-end 2019, there was a completion rate of 63%, which means that we are really well on our way to have first gas in the second half of 2022. These are the assets that are producing and delivering as we now speak. The second wave of pre-salt fields are on its way into our portfolio. Bacalhau, which was previously called Carcará, is now moving forward to FID this year.
It will be developed with the biggest FPSO that has been used in Brazil, with an oil processing capacity of nothing less than 220,000 barrels per day. This would be a significant asset for Galp. It actually will yield us at plateau something like 40,000 barrels of equity barrels for Galp, and about $400 million in free cash flow. We believe that this field have a breakeven that is significantly below $35 per barrel. This is a very profitable additional asset to Galp's portfolio. As you know, we own 20% of this field. First oil is targeted for end 2023, early 2024. We're also now starting a phase II.
We believe that we need to do some more appraisal in order to understand what would be the optimal development of phase two, There are significantly additional reserves and resources that can be developed in the Bacalhau field. We have another really exciting opportunity in the portfolio, and that is our position in Mozambique, and more specifically in the Rovuma Basin. Mozambique LNG can really be first class. Its location and position versus serving the market is really first class. We can serve customers in the Far East, we can serve customers in Europe, we can serve customers in South America. We believe that due to the size of these resources, we think there is around 85 trillion cubic feet of natural gas in place just in area four.
The fact that it's very clean gas, no H2S, very little nitrogen, and actually the relatively benign temperatures in Mozambique makes it also cheaper to develop than, for instance, in Qatar. Makes us that we can develop this in a very competitive way with a break-even that is below $4.50 per million BTU. It will turn into a fantastic cash machine for us. We expect at plateau that this field would generate for Galp around $400 million of free cash flow, and contrary to an oil field, which typically stays at plateau for three, four, five years, we expect the plateau period for the first phase of this to last for around 20 years. The work of maturing the subsequent phases is ongoing, and there's the real possibility that we can double this performance by developing phase II and phase III in Mozambique.
We have some quite exciting exploration opportunities in the Galp portfolio. Let me highlight two for you today which can yield very interesting results over the next 12 months. First, Uirapuru in Brazil. We are drilling as we speak. This is a very interesting opportunity which And let me remind you that when ANP, the petroleum agency in Brazil, put this out for auction, they claimed there was something like 7.8 billion barrels of oil and gas in place in this reservoir. We believe that we understand this play concept quite well. This is on the trend line from Bacalhau. We are, as I said, drilling as we speak. We're getting closer to the reservoir per the minute. The team is quite excited, but this is exploration and we need to drill before we know.
Within a month or so, give and take, we should know whether this is an opportunity that will be working. Could be another world-class asset if it works. The second opportunity, which is very interesting, I find, is our opportunity in São Tomé and Príncipe. This is actually a play concept that the Galp team developed. The acreage around us now is largely taken by other super majors. Galp together with its partners, which is Kosmos and Shell in this field, I expect will be the first that will drill in this frontier area, and hopefully will be spudding during the course of this year or early 2021. This is a very interesting opportunity if the concept works, but this is truly frontier and of course with the associated high risk.
Let me round this off by hopefully confirming for you that Galp has a very interesting and globally very competitive E&P portfolio with a break even that is below $25 per barrel, and which can grow at least with 10% per year over the next decade. In addition, we have some interesting exploration opportunities that really can be disruptive in the growth patterns for Galp. With those few words, I will conclude this session and then invite my colleagues to this podium for our Q&As. Thank you very much.
Well, we are starting now the Q&A session, so if you want to make a question, please raise your hand, say your name and company, and on my indication assistant will go to you. Thank you. There's a question here on the first table.
Hi.
Hi. Sasikanth Chilukuru from Morgan Stanley. I just had a couple of questions. The first one on your ambition on the renewables side. When you talk about the 10 GW by 2030, is that an ambition on a net basis after you farm down? Also, the CapEx associated with it, is the CapEx that you have laid out for your current projects, is that any indication of what the CapEx levels will look like to scale up to that 10 GW capacity? The second question I had was on your upstream carbon intensity. You talk about having it at EUR 9 per kilogram carbon dioxide BOE. I was just wondering what it would look like on your numbers for 2025 and beyond. Thanks.
Thank you. I think I will share with Filipe the answer to your first question. Clearly, the 10 GW, as we have mentioned before, it's based on a fully integrated power approach, starting by Iberia. Effectively, and as Filipe has mentioned, we have considered in terms of net CapEx, after project financing and assuming that we will leverage these positions, we will have the intention to find a partner or partners to clearly deconsolidate this from our balance sheet and to run this business according to multiples and according the project financing that is typically his profile. What applies to the first projects, we have the exactly same intentions to do for the forthcoming additional gigawatts. In relation to the carbon intensity, effectively, I think our starting point is quite fantastic.
Looking at the quality of our portfolio in terms of profitability and at the same time the carbon intensity, it's quite amazing. We have to assume and to be aware that once we will continue to grow, effectively, our carbon will increase, our carbon exposure will increase. We have already embedded in our operations zero flaring and other initiatives that some of the industry players are now starting to set up as ambitions and targets. Effectively, we have been working on that many years ago, and that has required that we have had already invested in technologies to ensure that that is properly addressed. Filipe, I think in the renewable, you can elaborate a little bit more.
The 10 GW, bear in mind, 3.3 are kind of done from a access to the grid point of view. To 2030, the 10 GW, we're talking about six plus of extra capacity by then. Clearly, we had to pay an entry ticket to get into this one. If you divide EUR 2.2 billion by the 2.9 gigas, that's EUR 750 or so per megawatt going forward. That as the cost of this technology continues to fall, now we're looking into half a million or so as you roll out the next project. There's also a dilution effect coming. On top of the financial engineering on bringing in low cost of capital partnerships, low risk as well. The impact to our balance sheets, we've mentioned EUR 700 million for the existing portfolio, but to 2030, the equity piece is very manageable for a company like Galp.
Bear in mind, if you allow me to just to complement, bear in mind that we start by solar PV, but that doesn't mean that we will not look at different technologies and sources of different renewable sources of technologies. You should also take that into consideration.
Pedro, next table, please.
Thank you very much. Oswald Clint at Bernstein. Just following on renewables, Carlos, you said transition strategy or success depends on speed, and speed will be the difference between the leaders and the laggards. You're obviously coming up to a period of significant free cash flow expansion. We expect you to try and deploy that. You also said the deal you just did was one of the very best you could find in Spanish Solar. Just talk about the other ones you looked at, how much worse they were, and what happens if you can't find anything as good as the deal you've actually just done in terms of short term. Secondly, great chart on your upstream production. Thank you. I just wondered if you could talk about when do you start declining Lula, Iracema in that long-term exhibit out to 2030.
Also, you talk about infill wells and tie-ins, which we've heard about before. I just want to get a sense, is Petrobras an obstacle here in terms of expediting or executing those types of short-term opportunities? I get the sense they may be, talking to your other partner. You identify them, you want to execute them, but perhaps there's a little bit of an obstacle there with Petrobras. Is that true? Thank you.
Thank you, Oswald. Speaking with a geologist that is at the same time a great analyst, it's quite difficult to answer to your questions. I will start by the second, but letting Thore to elaborate. Our partner is not an obstacle. Clearly, we have identified projects to recover our factor. It seems that every year, we are expanding our production. That will require a different investment profile. I will let Thore elaborate on that. In what relates to renewables, I think the first point was to find out a sizable, economically acceptable base to set up a team to learn inclusively, to incorporate energy management skills inside of our organization, and build up a platform to look into other geographies. It has to be completely different from the profile and the strategy that we are applying to Iberia.
In Iberia, I should remember to all of you that we have a sizable base of clients, and we have done this move looking at a business that is fully integrated. Effectively it depends on partnerships, it depends on regulatory framework, it depends on the cost of capital, on the risks. Having that team that is handling a business and in geographies where we might have some strategic advantage, and you can think some of them in Latin America and also in Africa, could be the next move. It's early to start to speak about that. One step at a time. We have to digest, we have to be humble and to assume that we have done nothing. We are just starting this journey.
We have a way forward to do. This is sizable. This branch, too, has the chance to position Galp at the leading and not in the laggard side of the industry, but building step by step. I think we have a lot of work to do in the next coming years. Thore.
Yeah, I will. We in Galp are very impatient when it comes to sort of making sure that we are really extracting the maximum value out of Lula-Iracema.
The others.
The others. I think we are the most ambitious, actually, Carlos. We are pushing. That should be the role of a partner as well. Actually, we have really, and the Galp team has spent a lot of time showing the business cases for why utilizing the existing knowledge on the units is such a profitable way to use the equipment.
Would we have liked Petrobras to go even faster? Yes. Are they moving in the right direction? Also, yes. There is actually already now commitment on 10 new infill wells for the field. We are going in the right direction, and we will continue to push for that. We need to be also agile when it comes to buying new gas injection lines so that we can have more water alternating gas injection capacity, because we see it works really well in this reservoir. It's moving. It's moving in the right direction. Would we have liked it to go even faster? Yes. I think it will eventually go in the way we want it, which is to recover more than 40% of the oil in place in this field.
Here on the first table, first row.
Thanks. Good morning. It's Michael Alsford from Citi. A couple of questions from me, please. Firstly, on your newly renamed refining and midstream business. It seems like the focus is now very much on incremental investments and trying to improve the returns and margins in that business. I was just wondering whether you could talk more medium term as to whether you think the business is well positioned for the longer-term trends of oil demand in Europe. Does that mean that you're ruling out any major investments in that area going forward? That was my first question. Then just secondly, I just wanted to touch on the point you make on Brazil. On Bacalhau, what needs to be done in terms of the kind of remaining contracts for you to sanction the project?
The remaining?
The remaining contracts or anything you need to actually fully sanction the project.
Okay. Refining and midstream. Both midstream means, as Filipe has simplified, trading activities, supply and trading activities, everything that is related with our International Pipelines and refineries. In refining, we have proved to you that during the last couple of years, we have been investing in incremental projects that allows us to increase the conversion capacity and also the energy efficiency. That's our plans for the near-term future. Europe is in a fast-changing moment. The Green Deal is becoming. I think all the refining, European refining system, will be under scrutiny going forward. What we are doing today is analyzing alternatives for optimizing using different feedstocks.
The example that I have provided to you, looking at green hydrogen as a platform for new usages in industry where high heat or different feedstocks are required could be paramount for us. Effectively, we have to look at attentively because the long life cycle of the refining system is no longer as it was previously. There is no plans to invest heavily or whatsoever in our refining system, except the ones that we have shared with you. Incremental projects to continue to position ourselves in a competitive way, comparing with our European peers or competitors. In Bacalhau, the FID should be taken this year, Thore?
You are right. The biggest single item still to be decided on for Bacalhau is the cost associated with the drilling and completion.
That is being tendered as we speak. Of course then we are doing the FEED for the SURF and the FPSO as we also speak. We need to see that the costs are coming in line with what we had expected so that we are maintaining the competitiveness of this field. As I said, for us in Galp, the focus is all about value, and we need to see this delivering below $35 per barrel. That's the sort of focus we have for this field. Drilling the well is the key focus right now.
Thank you. There on the first table, please.
Hi, thanks. One follow-up on the renewables business. I think you're using a EUR 50 power price within that. Could you just talk a little bit about how you expect that to evolve over time, particularly as there's so much capacity coming online in solar, and also your views generally about taking on merchant risk over time as that portfolio builds up? The second question is going back to the upstream, is the three percentage point increase in recovery rate at Lula is quite material. Could you just let us know whether that's worked its way back into your production guidance out to 2030? Is there any change in the assumptions there? Thank you.
Thank you for your questions. That gives me time to observe my colleagues to respond to you. Filipe?
On power prices.
Power prices.
Over time, today you still see a premium for the solar capture hours. Over time, we're building a very significant discount to the average power price into our models. We actually take third- party numbers, these are not just Galp assumptions. We take market use. Key drivers in Iberia will be how fast the nuclear fleet will be decommissioned, and there is a deadline for that in the middle of the 2030s. Coal-fired power generation is being decommissioned very quickly as we speak. Most likely, the price of the pool will be marked by CCGTs. That will be complementing the renewables business. Yes, we're building in a significant discount to average pool prices in the long term.
Just to complement to you. It is important that when we speak about the fully integrated power businesses, as we do in our oil business, that doesn't mean that we will sell our own electrons. We always find out for trading activities that you know that I love it. We will continue to set up a trading team that will continue to see and to search from the energy management point of view, where are the best opportunities from our production, and also where and how we can get the supply electrons to feed our power commercial activities.
To your question regarding the recovery factor, yes, I can confirm that in our business plan, we have factored in a 34% recovery rate for Lula/Iracema in our business plan, but nothing beyond that at this stage.
Does that impact the production guidance that you put out?
The impact in production guidance.
No, that is already included in the production guidance that we have given you until 2030, yes.
With the prudence that you know Galp's profile.
Thank you. It's Joshua Stone from Barclays. Two questions, please. You've talked about the upstream being a very highly cash generative business. Can you talk about what you think about the CapEx profile longer term for that business, and to what extent you'd be willing to sacrifice things like reserve life and reallocate some of that capital towards some of these lower carbon businesses? Then secondly, on exploration, you've talked about some pretty high impact potential wells coming up. Again, if you think longer term in that business, what role do you think exploration has as we move towards a lower carbon world as well? Thank you.
I will start, but I will add to you. Just to Josh, one point that I think it is important. We were looking at the period of 2022, and we have also gave to you a flavor of what might be this company by the middle of next decade, and also what could be the company by the end of decade. You should bear in mind that we have also a lot of projects developed under different phases. Namely, it's the case of our Mozambican projects that will require lots of CapEx for the second and the third phases. Effectively, the sacrifice that we have mentioned is not really a question. We have to rebalance our position. Effectively, the weight of natural gas will increase at the same pace that we are opening new avenues into renewables as long as it fits our sizable risk profile and returns.
It's important that you get that message, because we will continue to have that profile and that discipline.
And-
Thore.
As I stated in the presentation, the key driver for Galp and Galp's upstream strategy is value.
Yeah.
Value is what is going to drive our behavior, and that also go for the exploration part. If that means that we will sacrifice on reserve lives, then so be it. It has to be barrels that are, and also Carlos said in his presentation, competitive also in a below two degree scenario world. That is why we are so adamant about value and value and value, and those are the type of opportunities that we need to find. We are screening opportunities.
In 2018, we screened 64 different opportunities. We selected three. Last year, we screened, I don't actually remember the precise now, but it was more than 50. We did not do any deals because we did not see anything that was in the market that was offered to us that could compete with what we had in our portfolio. We will be very selective and focusing on value.
Yeah. Here on my right, please. Second row.
Thank you. It's Irene Himona at Societe Generale. I had two questions, please. Firstly, Mozambique is obviously a key part of growing the portfolio in the energy transition. Can you talk a little bit about your views, your scenarios on natural gas prices going forward, given that this is a rather challenged market? Secondly, Carlos, you presented the five levers of decarbonizing the portfolio. I know these do not translate into explicit targets to reduce Scope 1, 2, 3. You only communicate on the basis of reducing carbon intensity. Is that not of concern or relevance, do you think, to you, given your scale? Thank you.
Thank you so much. We use not to have our views on going forward macro assumptions. Gas is one of the cases. Just not to cut from your question, actually, we know that in the short-medium term, the gas market is fully supplied. I would say over-supplied. There's a lot of new projects coming on stream. Mild winters, a lot of geopolitical questions, a lot of fightings between North Sea and the Russian gas. We are observing them. They are competing for putting their molecules in Europe. Effectively, in short-medium term, it seems to be a glut on that. Looking at more longer-term perspective, gas has to play an important role in combination with renewables. Renewables, as a main point that has to find out technologies and solutions for the intermittency of that generation capacity.
Therefore, gas to power is one of the possible alternatives. Of course, there are others like storage, and there are different topologies of storage. Effectively, looking into the future, we do see gas, and not only gas prices, but gas as one of the key elements to ensure that we will behave as a civilization, a smooth energy transition path. The levers of the decarbonization. We do have established for ourselves and our board and our remuneration committee has set up a KPI for the executive team related with carbon intensity index. We have that. The key point is that suddenly, everyone starts to set targets without measuring adequately and how sustainable they will be going forward.
It seems to be more a movement that comes from the buzz in the entire world community, rather than something that is organic and is well analyzed and adequately addressed. We are clearly working on that. We will come to you with targets, ambitions, and what we do think it's well-balanced between sustainability and profitability, because it's the two points, the two elements. That could be easier to us to come here and to make a brilliant statement saying that. The good directions and the quality of the assets, I think it is the key element for all of us to analyze where we are. First, the starting point is good. We are of what we see in our industry in terms of emissions. We have technologies that we are investing since the last 5-10 years to guarantee that our operations are eco-efficient.
We have introduced in our different businesses eco-efficiency initiatives to guarantee that clearly we are in that way. The renewables will play also a new important role in that perspective. Of course, addressing what could be the Net Zero world by 2050 or so, it's something that we have to address seriously. It's a big topic, and we will come with that after having a deep analysis with all the consequences, but taking in consideration that our position is much better. With the humbleness of knowing that embracing the transition means that we have also to embrace those levers with specific targets.
There on my right, on this third row, please.
Thank you. Thomas Adolff from Credit Suisse. I have three questions. I am sorry. Firstly, on net CapEx or net investments, the EUR 1-EUR 1.2 billion per annum. To stay within that range is your base case, the deconsolidation of the renewable business as you bring in a partner and selling part of the wrap business is not your base case. Is that correct? Secondly, just going back to the renewables business, 3.3 GW, and then the longer-term ambitions of 10 GW. Do you plan to bring in one partner to grow together, or do you do that with several partners depending on the geographies? What makes Galp attractive to an outsider to develop this renewable portfolio? Finally, just going to Uirapuru, obviously the ANP set 7.8 billion of in-place volumes. What if the first well is a dry well? Are there additional prospects there? Thank you.
The answer to your first question is yes. We have considered, in our base case, the deconsolidation that would imply not only to sell back parts of the assets and as well to consider, if needed, to rotate assets, and we have already mentioned to you this previously. Whether we will have one partner, two, three, or four, it depends. Partners that could be bringing valuable contribution like ship money or geographically strategic key advantage will be considered going forward. We will keep all of that at open because we have to move project by project as we have done in the past. You should remember that in the past we had also similar projects like this one, and the regulated natural gas infrastructures is one of a kind. Uirapuru. Again, Tor.
Yes, there are more opportunities in Uirapuru as well. Of course, this is a very important well for us. Actually, in the bold part of that, we're expecting that if this well works, you could prove up around 2.5 billion barrels by just this well. Given the totality of what we expect there are, there are other opportunities as well. If this was going to be dry, we would have to take a serious timeout and really rethink what is it that we have not gotten in the right way in the first well.
Yeah, please, on the right.
Mark Schmidt, KBW. To diversify the questions, a question regarding the legacy refining business. I would like to know just your summary of the IMO 2020 effects on your refining business, especially when you contemplate your expectations last year and now the reality this year. Thank you.
When we start looking at IMO 2020 one year ago, we were all, I would say the markets were anticipating that the spreads between sweet and sour crudes will increase dramatically, that the cracks of high sulfur fuel oil will decrease also dramatically, and that the new compliant fuel oil will take a place. It will be combined, it will compound with marine diesel. In diesel, due to the fact that the conversion capacity and specifically the desulfurization capacity was limited, it has to be a combination of all of these. Coming to our days, it has been completely different. The margins were not there. We have internally assumed that the margins today could be between $5 and $6 per barrel. We are telling you $4, $4.55 .
The geopolitical conflicts, what is now happening in Libya that has decreased almost 1 million barrels a day. What is going on still in Venezuela. The OPEC cuts. I can continue to elaborate a set of things that is happening. Effectively, the differentials between sweet and sours are there, so approximately $5 per barrel. It's not so different from what we have seen before. The key point is the cracks are completely different, and the Very Low Sulfur Fuel Oil, what we can call as the compliant fuel oil, became the primary alternative solution to address this. If you go to Singapore, which is one of the reference markets, more than 60% of the compliant fuel is being based on Very Low Sulfur Fuel Oil. What happens to Galp? First, we have told you that we have a compliant and feasible system, and what is the case?
What we have done, we have optimized our system, balancing between should we produce more Very Low Sulfur Fuel Oil or should you continue to have some yields on high sulfur fuel oil. With the market, with cracks in high sulfur fuel oil, that almost reached $300 per ton discount over Brent. We clearly have been optimized our system, and we are producing 100% Very Low Sulfur Fuel Oil. Effectively, instead of being blending, we are moving in that side. Even though we are based more on our supply basket crudes on sweet, mid, high range, effectively is the solution that is the one that optimizes our system. Just to give you a brief overview of what happened and what is going on in this sector.
Question here in the middle, please.
I think there's a lot of hands in that side, and you are not seeing, Pet.
No, seeing for it.
We have time.
Right. Yeah.
Hi, this is Nuno from Banco de Investimento Global. Nuno Vaz. I have a question. Petrobras has been.
Hi, Nuno. I'm not seeing you, sorry.
Thank you.
Sorry.
Petrobras has been having some strikes in Brazil. Are these impacting your assets? What's your view on these strikes? Are they going to impact the first quarter of 2020? Are they not? Just to also have a long-term question. Your production costs per barrel have been going down quite quarter by quarter. Have we reached the plateau or is there some more efficiency to be had in Brazil? Thank you.
Strikes up to now, no impact. Secondly, efficiency measures, as Thore has mentioned, yes, it has to be continuously an optimization of our system and has to be a positive impact. If you would like to comment.
Yeah, we are guiding that the production cost that you saw now in the fourth quarter is what you can expect for 2020 as sort of as reference. We have taken significant reduction, including that our logistic cost was reduced with around 20% last year. Efficiencies has been pursued. Our guidance for 2020 is that you can expect production costs to be what you saw in the fourth quarter. On the far left.
Thank you, gentlemen. Yuriy Kukhtanych from Deutsche Bank. One question really from me, please. As your production in Brazil is growing, could you please elaborate on relative pricing of your Brazilian volumes and sales structure? More specifically, whether in the post IMO world, the pricing formula has changed for your Brazilian production? On structure, how much volumes do you have contracted from Brazil if at all? Whether Portuguese refining has any contracted volumes from Brazil, and how do Brazilian volumes fit into your $4-$5 refining margin outlook? Thank you.
Once our Lula and Iracema crudes are gaining more liquidity, and when I say ours, it means the entire production. Effectively, they start to have a price that is being set in the market and is increasing over time. We are observing that sweet mid-range crudes are being well appreciated by the refining system, mainly from the Asian part of the world. We do not have any contracts whatsoever in longer term. We are always in the spot market. That applies not only for Lula and Iracema, but also for our Angolan grades. Actually, Angolan grades, and in nowadays, some Brazilian grades, they fit very well our refining system.
We are not using them often because balancing in the optimization of our entire system, we are being able to sell them better most of the time for Asian clients and doing the supply of our refining operations with different basket compounds. There is just a twist on this. In more recent times with the IMO implementation and the constraints that I have already referred previously, we do see that Brazilian crudes and also Angolan crudes become more and more fit in the European refining system. It's not just Galp's refining system. Thank you.
Here, on my right.
There's another hand over there.
There's the back. In the back as well, actually.
In the back, yeah.
Hi, it's Jon Rigby from UBS. Two questions, if I may. Well, actually, both on Brazil. The first, operationally. As you look out over the performance of the fields, what do you think is going to be the driver of the eventual decline? Is it going to be reservoir pressure, water handling, gas handling? What should we be looking for in terms of the maturity or the maturing nature of what you're seeing, just to understand the performance? The second question is obviously, and I think the market appreciated the fact that you stood back from the transfer of rights auction last year. I think there was a widespread feeling that the returns on offer were not appropriate. There is clearly a lot of logic behind alignment of joint venture partners and the opportunity to sort of consolidate positions where fields extend across different license blocks.
Is there the opportunity, or do you sense that there may be the opportunity at some point or other to revisit some of that operational logic, but at a financial solution that makes more sense for all parties? Thanks.
Thank you, Jon. Let me take the second question and let Thore to address the first one. Brazilian is clearly one of the key spots for Galp. Effectively, we were not active, even though we have been analyzing all the possible alternative solutions to participate in the auction. We were concerned because the prices were completely out of market. Even the fact that we have referred about JV arrangements is something that we have taken into consideration. Going forward, I think the unique word that we will continue to use, whether we will participate or not in future auctions, is value. That should be, with all due respect for all the partners that we have that are highly qualified and capable, but effectively, in our case, we will always drive our decisions throughout value. That might imply different asset management decisions going forward.
It will be dependent on what it will goes on in the future auctions. One thing is for sure, keep immaterial stakes or shareholding in projects makes no sense. At the same time, increasing our exposure has to be clearly value-driven. We have to balance between both of two.
When it comes to the decline and what will eventually lead to decline in the key assets in Brazil, it really is depletion. For us, it then is all about trying to keep the mass balance in an adequate dimension by trying to replace the reduction in reservoir pressure that naturally leads from the production of the crude, and then finding the optimal solution between water injection, gas injection, in order to keep up the mass balance. For now, the water breakthroughs has not been any issue at all in Lula reservoir, and it is really behaving according to the reservoir model. So far, the performance of the reservoir has really been good, and it is one of the reasons why we have also been able to increase the recovery factors, because the reservoir is really performing well.
Thank you, Jon.
One question on the left then, please, on the back.
We have some ones. Yeah. Take only from our ones.
There is one.
Okay.
Thanks. It's Jason Gammel with Jefferies. I had two questions please. The first is on the new commercial division. I wondered if you could comment on the volatility that you would expect to see in that business. I appreciate you've given an EBITDA range of EUR 400 million-EUR 450 million, but trying to think of that within the context of, say, a refining business that can fluctuate by EUR 100 million based upon a USD change in refining margins. What growth potential you would see in that commercial business. The second question comes back to the diversity of technologies for dealing with energy transition. You've mentioned a couple of times green hydrogen. You've also mentioned CCS in the presentation. Can you talk about what you think needs to happen to make those economic technologies?
If it's just carbon pricing, can you talk about a carbon price that would be necessary?
Yeah. All of us that we are familiar with the industry for many years, we know what is the beauty of the integration between refining and the marketing. Logistics plays an important role here. What we are speaking about on giving independence to our commercial division is clearly to have a focus on client journey experience. It's like to be the I will put the spot now in the lady in black, not the lady in red. It's like being the Amazon of the energy. That's what we have in our mind. The volatility on that is quite small because effectively, if you look at what is the balance and what is the frame between refining and marketing, we are quite stable and resilient. Our position in Iberia is quite strong. We are market leaders in Portugal, and we have the third position in Spain.
In our African operations, they are quite healthy and with good results. What is transformative in this is how can we, on top of what is the classic way of dealing with this, we address the new mobility requirements, the intercommuting urban solutions that will be required. Looking at our network service stations as different value pools, because we have ideas to expand the business using different business proposals. There's a set of initiatives related with digital and client journey experience that could vary across the day, across the week, across the year. That could be, in our days, saw as a surprise for a common client. Effectively, this focus will relaunch a jewel that was quite hidden within our portfolio and with a room space to increase if we have this focus and if we have this attitude.
Imagine just the upselling and the cross-selling that we might take advantage, looking at to a client with what we can call one-stop shop. It's completely different from the fact that we are doing today with different teams going there, different perspectives, different mindsets. At the same time, it's why digital is important, because we are transforming all the tools that are related with the sales force team to guarantee that the face time with clients will increase. Effectively, this is not to reduce people. This is clearly to increase the face time with clients and to allow that our sales team will be much more capable to redesign a pack of solutions that could fit and increase the profit pool from those clients. The diversity of technologies, what is going on.
Effectively, the two examples that are out of the ones that I have referred, something is going on. We are now starting a partnership in a green hydrogen project that will be set up based on solar PV one gigawatt power production plant. Which is completely independent from this, with a different partnership, with the goal, with the ambition to produce hydrogen. Hydrogen will be one of the key elements to decarbonize our products because we position ourselves as one of the key off-takers. If we will increase our products with hydrogen content, we might supply our clients as feedstocks and as well as for IET purposes, as I've mentioned to you, in a completely different way. That answers also to our carbon intensity ambitions that have been mentioned before. The other one is related with carbon capture and storage.
Actually, we won last year, and we have just registered a patent precisely that is a reactor that has been developed based on Portuguese, Brazilian, and American technology. That could be one of a kind solutions precisely to address CCS solutions. There are many others, because over time, storage capacity, alternative solutions for energy management. Things are happening, and when saying that we have to embrace the energy transition, that also represents that we have to keep our mindset quite open to guarantee that we will not close ourselves in a shell that impedes, that locks us from stepping out from the legacy traditional way of doing things. That also applies to our refining system. I have referred to you circular economy using different feedstocks from plastics up to garbage, going to used oil.
We have so many things that we can do based on our internal and existing industrial skills that could clearly be a complement and a lever to address this transition. We have to do that very carefully. Consider my response to you as an open-minded and a sharing moment rather than an action plan that we are clearly committed to you as we used to do. When time comes, we will do it.
Here on the right, on the back, please.
Just all the way in the back. There we go.
Thanks. It's Matthew Lofting at JP Morgan. Two questions, please. First, just coming back to renewables and how you think about building the portfolio towards 10 gigawatts. Could you share some thoughts on the key, let's say, investment criteria or metrics that you're using when you assess the ACS portfolio or others that you've screened? In particular, I'm thinking about the extent to which you're sort of looking at returns versus needing to take a more holistic risk/reward approach to sort of capture the differing cash flow and risk and cost of capital profiles that come with these assets. Secondly, can you just come back to the earlier question on net CapEx? There's obviously different moving parts that you're looking at in terms of introducing partners, portfolio rotation, project financing, et cetera.
Can you help us understand what the order of priority is and what the minimum is that you need to deliver over sort of the next 12 months to ensure that you stay within the upper end of the range? Thanks.
I will start to answer to you, and I've asked the support of Filipe as well. One of the key criteria is equity IRR, double-digit. Let's be frank and direct on that. Secondly is having independence of each and every single project, which means that we can have one, two, three X partners, which one that best fits our investment case. Third, to conclude, just a brief summary on this. Related with the initiatives that we have to set up during the year to comply with our net CapEx. We have committed ourselves to spend between EUR 1 billion and EUR 1.2 billion a year in terms of CapEx, we will do it. For taking that in consideration, two or three elements will be required. First, we have to resell part of the assets that we have just bought.
That means we have to find out a partner to deconsolidate and to give independence to these projects. Secondly, if required, we will also consider to have asset rotation. You know that we always mention our natural gas infrastructure as one of the key candidates for that. By the way, for doing that, we are just swapping equity IRRs that are more than doubling, coming from one to the other. Thirdly, it has to be a long-term, high-quality partnership. Otherwise, it makes no sense. Filipe, can you complement?
Not much to add, Carlos. I would say, of course, we take a view on what electricity prices will be. Key assets is access to the grid. Once you have that, access to land, how much you pay for land. There's plenty of finance today for this at very attractive rates, very long-term money. This could change in the future, of course, our views will also be adjusted accordingly. One thing I will say, this has to be deconsolidated given the nature of our mostly oil and gas investor base. This has to be seen as an equity IRR game, and we need to play the cost of capital game to make the numbers work.
I just want to follow up on the previous question because I think, I'm not sure it was clear that commercial has an entirely different risk profile than midstream and upstream, of course. Upstream takes all the commodity risk. The refinery takes all the refining margin risk. You should think of commercial almost as if it's a cost-plus activity. They buy the market, and they price it in the market, and they want to make money. It's a margin business, and we don't operate in regulated feed-in type of environment. We have to operate and price our products commercially so that we make a return. It's very stable.
Thank you, Filipe. One more.
One more question you have here. Right.
Good afternoon. It's Anish Kapadia from Palissy Advisors. I had a few questions. Firstly, on Mozambique LNG, just wondering if you could run through the delays on that project and whether it's the kind of larger number of FIDs last year and Qatar's 50-million ton ambitions that slowed down that project. Second one is going back to the solar business. It's obviously a very highly leveraged business to kind of get those equity IRRs. I was wondering what's the kind of sensitivity there of those IRRs getting wiped out by the higher CapEx, rising interest rates or downtime on the assets? If you can give some kind of idea around that. Then just the final one on the financial side. It feels like there's a few financial headwinds below the EBITDA line out to 2025.
If you could just run through kind of the impact on the associates of some of the pipeline assets coming off, the increase in the minority interests and changes in cash tax rates and interest rates out to 2025. Thank you.
Thank you, Anish. Thore, first?
Yes. When it comes to Mozambique.
The reason for why we did not take FID in October last year is the fact that we are really hunting for how to reduce costs further. We know that unit cost is going to be the alpha and omega in order to have a resilient long-term product. As has been discussed here before, there are some risks associated with gas prices. What we can do is to work with unit cost. Actually, we have shaved some EUR 1.2 billion of the project CapEx since October last year. That is what we're doing right now, finding ways to make it even more efficient.
Filipe, can you take both?
We take decisions on new projects, solar projects, other than power prices, of course, we tend to lock in for a very long term all the key drivers. We rent land for 20, 30 years. That price is fixed. We know at what price we're going to buy the panels, that is likely to surprise us. It will continue, in all likelihood, to go down. Other than power prices, no major surprises. Below the line, that's why we're so keen to focus on cash flow from operations so that we don't look at what's associates, what's EBITDA. Let's look at cash, whether we consolidate or not. EBITDA's function of refining margin and Brent prices versus production, I think that's been clear. We have this unit in Holland called Tupi BV, which has historically bought and rented out to the consortium in Brazil.
FPSO, for example, subsea systems. That's likely to be unwound over the next few years as the laws have changed in Brazil. All that equipment is being imported back into Brazil as we speak. That started last year. That part of the associates will be disappearing, will go up to EBITDA. Minorities, we're assuming we're distributing 30% of the free cash flows of Brazil to Sinopec. Whatever the free cash flow, 30% is assumed to be paid out. Cash tax 40%, no change in guidance. We're assuming 40% cash tax on profit before tax.
Yeah. Thank you. Any other question? Let me look.
Well, we conclude the session. We invite you for a light lunch and continue the discussions with the management team. Thank you very much.
Thank you so much.