Austria's OMV: "We need feasible solutions"

Austria's OMV AG is forecasting an oversupply of natural gas in Europe for the next couple of years, according to Hans Peter Floren, Member of the Executive Board responsible for Gas & Power, OMV, who spoke at the European Gas Conference in Vienna, Austria.

While Western Europe had more stagnant demand, Mr. Floren noted that in Eastern Europe (Southeastern Europe) there was a trend towards growth. "Turkey is the most dynamic growth market offering a lot of opportunity.

"These developments put the European gas sector under pressure," he noted, "and we are facing these economic, political and regulatory challenges which cause additional pressure and headaches."

The industry, he explained, was also facing tremendous changes like major gas flows and import dependency. He said that according to the IEA major global gas flows would change significantly with in the next decades; inter-regional trade should increase by 80%, from 675 bcm to 1,200 bcm in 2035. He added, "It is expected that a much larger share will be taken by LNG in global trade.

In terms of exporters, he said Russia would continue to be the largest gas exporter with volumes of 310 bcm by 2035, as well as gas from Azerbaijan to Europe, and Turkmenistan to the Asian markets, increasing from 44 bcm to 144 bcm in 2035.

"We will face new exporting countries like East Africa and North America," he said. "So we can see a significant re orientation of global trade towards markets all over the world, especially to the Asia-Pacific region."

Mr. Floren noted the decrease of indigenous production in Europe, and the increasing import dependency.

Was it a "Golden Age" for gas? He responded that there was a huge range of uncertainty and it was difficult to make a prognosis given all the uncertainties.

Pricing, for one.

"We see the decoupling of pricing from long-term, oil-indexed supplying. And to top everything, there is this big question mark: how to achieve, maintain or re establish competitiveness for natural gas in a competitive energy market?"

Within the constraints of a tough EU regulatory framework, he said the natural gas business was facing restrictive energy policies. "We don't see a coherent European plan for the future with pan European support, and we see a lot of market distortion caused by unbalanced subsidies and that' what we definitely don't need: more market regulation or market distortion.

"We need feasible solutions," added Mr. Floren, "for a viable, functioning European gas market."

One of his slides noted that natural gas had been "squeezed from the policy environment."

He commented: "Natural gas should be growing because it offers solutions for the environmentally friendly energy systems of the future - it's an ideal complement to renewables and a realistic solution."

Getting natural gas into the picture by 2035 was part of OMV's vision, the details of which he proceeded to outline.

He said that natural gas was a green energy, part of an environmentally friendly energy solution for the future.

Mr. Floren continued: "We have to support further decarbonization of the European economy, and this has to be pursued in an affordable way - natural gas in combination with renewables is a way to do that in combination with renewables and will lead to significantly reduced CO2 emissions.

"Our vision is to develop new technologies and innovative solutions, and enhance the markets in terms of liquidity, flexibility. The high potential of natural gas is to be realized and we can arrive at an increased demand for natural gas in the future energy mix," he explained.

He admitted the industry was struggling and searching for solutions.

Of OMV's strategy in that milieu, he offered: "We are going for integrated gas, want to promote the role of natural gas in Europe and will focus on our own indigenous Austrian production, and we are a producer in Romania and in the future have potential for growth."

He noted natural gas developments in the North and Black Seas, saying there was potential for more if there were additional infrastructure developments.

To make that happen a diversity of supply plus long term contracts, as well as a functioning infrastructure were necessary, he said, and sometimes the latter needed to be built, like in the case of establishing the Southern Corridor.

In the end, it would make for an "Integrated Gas" strategy stretching from Caspian area all the way to the North and Norwegian seas, according to OMV's Hans-Peter Floren, who concluded: "We need a fully functioning European gas market to really develop the potential for our product."