Gas: Big Changes, Big Future
How does leadership from one of Central Europe’s largest E&P enterprises see Europe’s energy future?
Gas will play a huge roll, according to Dr. Werner Auli, Former Member of the Executive Board of OMV Aktiengesellschaft, whose E&P division is active in Austria and Romania. He was the keynote speaker at the European Gas Conference 2012 in Vienna, Austria.
“I think one thing which is clear – and hopefully you share this opinion - gas is the natural energy of the future,” he said.
Dr. Auli cited the prognoses from the International Energy Agency.
“Gas is really increasing in future and will overtake coal in 2030. Personally, I believe we will see this much faster.
“We also see in all these forecasts and predictions the need for infrastructure. If we face the ‘golden age of gas’, we need all this infrastructure: LNG terminals, interlinkage of the markets, and of course also the mechanisms behind them from the regulation.”
He said the industry had seen a major change in terms of pricing, explaining that about one-fifth was linked to oil, something which could change once it was traded on liquid hubs; and one-third was sold via regulated prices.
Auli pointed out the need for development of gas-fired power plants, but with a caveat. “No one knows how much of this capacity will be needed for the future – this is mainly determined by the regulations of European energy policy. Let’s wait and see if this is happening. Of course it’s a big chance for the gas industry.”
He showed predicted increases of gas demand, explaining: “You can see that all agencies are predicting gas consumption, and the other part of the graph – green energy – renewables will determine the growth of the gas market based on the growth of gas-fired power plants.”
In terms of Europe, he said that everyone knew that production was declining, but in connection with that mentioned the prospects for shale gas production in Europe.
“We at OMV are looking to see if we can produce it. I am always requesting from my E&P colleagues that they should have this in place, but they always reply we have to wait some years and see what the cost conditions will be, because the market is the market and it must compete with other supply sources.”
Meanwhile, consumption, he showed, was increasing in the long term. He noted supplies from Russia and Qatar and said they were also developing.
According to Dr. Auli, one major development in Europe was Germany’s shut down of nuclear power and how the market would cope.
“And this means we will face a lot of changes in the power industry: how to bring the power to market, which is produced in most of Europe; the building of new overhead lines; or replacing with other, gas-fired power plants.”
Challenges from the pricing side would also emerge.
In terms of infrastructure, he emphasized that Europe would need more gas.
“Production is declining meaning we will have a change in the supply structure. Is it via piped gas from Russia or North Africa, from the Caspian region or Middle East? Is it LNG? Is it some new gas coming out of shale gas in different places in Europe?
“So, we will face a lot of challenges in re establishing the infrastructure. Is it new pipelines bringing gas to the market?”
He said the supply gap must be filled, otherwise no one would build pipelines.
The most interesting case study, according to him, was Germany, in its quest to determine which source would replace nuclear.
“Renewables is replacing it in the north of Germany. It’s amazing the effect of the wind farms – you see sometimes negative power prices.
“You have some options to make this happen: using gas-fired power plants; coal-fired plants,” he continued, saying the latter might override the renewables’ lower emissions levels. “Germany definitely needs more gas in future – 10-30 bcm in future - and you have to bring this gas to the market.”
If all of the country’s nuclear power plants were to be supplanted, he said 15-38 bcm more capacity would be necessary.
“In Bavaria – which is bigger than Austria – they need to replace 60% of their nuclear power production, and they cannot simply use wind energy from the north because the grid is not there, so you have to have different mechanisms.”
Gas had the biggest advantages, Auli contended, out of all the fossil fuel sources.
“It has all the advantages that you need. We as an industry must work to show these reflected in the business.”
He noted the greater acceptance of gas-fired plants compared to coal fired.
“Gas-fired power plants, combined cycle power plants are by far the cheapest power plants. This is not only a pricing topic – you can build them very fast. We have been lucky that these power plants bear wider acceptance among the population than coal-fired power plants.
Auli listed the many sources of natural gas.
“This is competition. Who has better prices and better sustainability for the customer will win. We will see a slight change in the supply structure, so it will be divided among more sources. Of course the market is increasing, so it’s enough space for everybody to deliver this gas.”
Never forget one thing, he said: “It’s by far the most environmentally friendly source, there’s no sulfur in it, and it’s easy to transport by pipeline.”
He said the power landscape was changing, and that Europe would see wind farms, and solar, as it was heavily subsidized.
“Wind must be counterbalanced and in future we’ll see this mainly on the gas side; it’s a question who will be paying for this. We must find a mechanism to get this done, because if this is not done we’ll have blackouts in the future,” he explained, adding that it would cost a great sum to develop the infrastructure.”
In terms of regulation, like implementation of Europe’s 3rd Energy Package, he said “It makes sense to have a modern market and hopefully this regulation’s not moving too far and too fast.”
Gas was the energy of the future, he insisted.
“For CO2 reduction, only the combination of sustainable energy – wind, solar – together with gas-fired power plants can reach the 20/20/20 targets. I think the gas industry has done a great job in the last 10 years; we will continue following the role of all these stakeholders along with our own ideas. We need not forget that we have customers and we need to focus on their needs and not only regulatory topics,” Dr. Auli concluded.
Conference Chairman, Professor Jonathan Stern of the Oxford Institute for Energy Studies played devil’s advocate, pointing out that the European Commission in their decarbonization scenarios to 2050 showed decrease of gas use in Europe. “They don’t seem to have the same confidence that the industry has, that gas will play a larger role in a decarbonized market.”
Mr. Auli replied, “Nobody knows the future, the forecasters are always wrong. Energy, in the past, was driven by industry. We think it’s wrong to come only from the consumption side. I would doubt that forecasts from politics come to be – maybe it’s somewhere in between. I’m always optimistic and I think that the change will come much more fast than anyone expected.”