Galp Energia SGPS S.A. SWOT & PESTLE ANALYSIS

Strength

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Weakness

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Opportunity

1. Enhance geographic diversity by expanding into U.S. LNG:To enhance geographic diversity, Galp Energia has taken a step towards expanding into the United States liquefied natural gas (LNG) market. Galp recently signed a long-term Sales and Purchase Agreement (SPA) with NextDecade Corporation, granting them access to 1 million tonnes per annum (mtpa) of LNG from the U.S. This agreement is significant as it allows Galp to procure LNG from Next Decade's Rio Grande LNG project, located in Texas. The commercial deliveries from this project are anticipated to commence in 2027. By securing this agreement, Galp strengthens its access to competitive U.S. LNG supplies, complementing their existing arrangements with Venture Global, set to begin in 2023. In addition, this move enhances the company’s sourcing portfolio by providing more flexibility and increasing its geographic diversity.

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Threat

1. Profitability is highly sensitive to fluctuations in crude oil, LNG, electricity, CO2 & others: Galp, like many companies in the energy sector, faces significant challenges due to the fluctuating prices of various commodities. The profitability of the business is highly sensitive to changes in the prices of crude oil, natural gas, liquefied natural gas (LNG), electricity, carbon dioxide (CO2), and other raw materials. These fluctuations in prices can be influenced by factors such as macroeconomic conditions, geopolitical events, and technological advancements that impact the global demand and supply dynamics. The volatility in commodity and financial prices poses a risk to its assets, financial results, and overall performance. Changes in interest rates and exchange rates further compound this sensitivity. Its business portfolio is directly exposed to these price fluctuations and economic factors. The company must carefully monitor and manage these risks to mitigate any adverse effects on its value and financial performance.

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Political

1. Closure of Matosinhos refinery due to impact of COVID-19 pandemic & regulatory environment: The closure of the Matosinhos refinery was influenced by two primary factors: the impact of the COVID-19 pandemic and the regulatory environment. As the pandemic continued to unfold in 2022, the company made the decision to proceed with the decommissioning activities of the refinery. This was a result of the challenging market conditions and reduced demand for refined petroleum products during the global health crisis. In response to the closure, Galp, along with the Matosinhos City Council (CMM) and the North Regional Coordination and Development Commission (CCDR-N), entered into a cooperation protocol. The purpose of this protocol is to facilitate the reconversion of the site previously occupied by the company’s industrial unit. They are working together to explore and implement solutions for the redevelopment and revitalization of the area. The reconversion process aims to densify, develop, and analyze various options for repurposing the site. Through this collaboration, they are actively seeking ways to transform the former refinery location into a productive and beneficial asset for the community and the region as a whole.

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Economic

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Social

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Technological

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Legal

1. Fined by ERSE for supply interruptions, invoicing errors & contract delays, impacting profits: The energy services regulatory authority (ERSE) imposed a fine of 752,000 euros on Galp Power for a total of 125 offenses. These offenses included multiple instances where the company violated regulations, such as disrupting supplies without lawful justification, terminating contracts improperly, and failing to issue final settlement invoices within the required timeframe. ERSE initiated proceedings based on complaints and grievances received in December 2018. The company compensated affected consumers and chose not to contest the charges, resulting in a reduced fine of 376,000 euros, which has been paid. It was also penalized for billing based on estimated readings rather than actual consumption and for delays in initiating supply contracts on behalf of customers. Throughout the proceedings, the company acknowledged its negligence and offered compensation of 5,620 euros to the 83 affected consumers. By addressing the infringements, compensating consumers, and paying fines, the company aims to rectify the situation and uphold its commitment to providing reliable energy services to its customers. It recognizes the importance of complying with regulations and ensuring the smooth functioning of its operations to maintain trust and protect its profitability.

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Environmental

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