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Thursday, 05 May 2016 15:00

Pipeline gas has the edge over LNG – both economically and ecologically, - Mario Mehren, Chairman of the Board of Executive Directors, Wintershall Featured

About the company: Wintershall is Germany's largest internationally active crude oil and natural gas producer. It explores and produces oil and gas in Europe, North Africa, South America, Russia, and the Middle East. Wintershall has been active for over 85 years and has a workforce in excess of about 2,000 employees from more than 50 nationalities.

As a wholly owned subsidiary of the chemical group BASF, Wintershall bases its success on technical know-how and strong international partnerships.

 

Caspian Energy (CE): Mr. Mehren, which new opportunities do you see for Wintershall in today’s crisis in the oil market? What do you think about a long-term “ice age” in the global market for traditional energy resources, since in late March even the Rockefeller Foundation refused to invest in the global upstream market?

Mario Mehren, Chairman of the Board of Executive Directors, Wintershall Holding GmbH: The market environment is tight owing to the oil and gas prices, which are currently quite low.

However, the oil and gas market has always been turbulent. And it will remain so. Continued low oil and gas prices will, quite naturally, be reflected in our 2016 balance sheet. Nevertheless, we are sure of one thing: oil and gas do have a future! 50 percent of the world’s demand for energy will still be met by oil and gas in 2040.

And if you look at Germany in particular, the country will have to increase its use of natural gas because the Energiewende, Germany’s restructuring of the energy landscape, has developed into a costly undertaking over the years – placing a burden on consumers and industry. Taxpayers are paying 25 billion euros to expand the use of green energies – every year! Yet we don’t even have in place sufficient infrastructure like networks or the necessary storage technologies to accommodate this. Natural gas is a climate-friendly and comparatively low-cost form of energy and must finally be given the status it deserves as the ideal partner for renewables. Long-term natural gas will replace the other fossil fuels, especially coal, and will therefore be crucial for the success of the Energiewende in Germany and increasing the use of green energies worldwide. 

 

CE: What are the company’s expectations from the year 2016? Which new projects will be launched? Will the company enhance its assets of traditional energy resources?

Mario Mehren: We know that 2016 will be a difficult year. Overall, the planning basis in the oil and gas business has become more instable as turbulence in the global market has grown. That affects us too. We must face up to this challenge. On the one hand, we have to make savings and further optimize our cost structures. On the other, investments for future growth are vital. We are now continuing these investments with moderation and careful planning. We cannot allow the current low oil and gas prices to prevent us from laying important foundations to meet the global competition in the future.

Our company intends to further expand oil and gas production in the coming years: to 190 million boe in 2018. Specifically, we will do so by further developing the Achimgaz project in Siberia, our Norwegian activities as well as the gas project Vega Pléyade in Tierra del Fuego off the coast of Argentina, which began production in February 2016. Overall, we are planning to invest around 4.8 billion euros in expanding our oil and gas activities in the next five years.

 

CE: The decommissioning of nuclear reactors in Germany, Sweden, France and the UK along with the depletion of reserves in the North Sea and a growing use of gas as a fuel could lead to a deficit of energy resources in the EU in the next 10 years. What are your expectations of the free market for LNG, the Transatlantic Partnership that envisages a significant expansion of US LNG to the European market?

Mario Mehren: Countries like the USA, Australia and Qatar liquefy their gas and ship it worldwide as LNG. However, at the moment the Asian market is sluggish and LNG supplies are thus being diverted to Europe and causing a surplus here. In the long term, LNG will primarily supply Asia.

For Europe, LNG will not be a main source of supply but an additional component. No more and no less. In general, diversifying the European energy supply is absolutely right. For Europe, however, pipelines are and will remain the backbone of the gas supply: the EU will source about two thirds of its natural gas via pipeline in future too.

In Europe, we are in the fortunate position of having a large proportion of the global gas reserves in pipeline distance. Norway and Russia have traditionally been the most important energy partners of the EU. In my view that won’t change long-term. Ultimately, that is also a geological fact. Pipeline gas has the edge over LNG – both economically and ecologically!

 

 

CE: In one of your speeches you said that the oil and gas business lacks pragmatism today. How possible is pragmatism today when all the consuming countries associate energy security with national security, while any company engaged in the export of crude hydrocarbons tends towards vertically-integrated expansion? Is there a thin line of mutually acceptable cooperation between public and private oil and gas companies?

Mario Mehren: In fact, energy has become a political subject in the European discourse. The politicization of Russian-European energy relations in particular has certainly not always been conducive to an objective debate. However, a pragmatic approach in economic cooperation has proved to be effective for us.

Take our activities in Russia: over 25 years of successful cooperation with Gazprom has created strong ties between us. The projects we operate together are going well. The trust that has grown over many years provides a stable basis for this long-standing cooperation. And let’s not forget: we need Russian oil and gas, and Russia needs the European sales market. Those are the hard facts. That is the market.

In our Achimgaz project, in West Siberia, Gazprom and Wintershall are demonstrating how cooperation can thrive despite difficult geological conditions: it is an excellent example of stability, innovative strength and effi-ciency, which can only take place if both partners take a pragmatic approach. In 2015, we were able to increase production at Achimgaz by 48 percent compared to the previous year.

Another example of our pragmatic approach you’ll find in our core region Middle East. In 2012, we took over responsibility for the technical evaluation of the Shuwaihat sour gas and condensate field in Abu Dhabi as operator together with the state-run Abu Dhabi National Oil Company (ADNOC) and another partner from the private sector. Preparations are currently underway for another exploration well. Hence, here we are bringing our internationally valued technological expertise to a challenging environment, expertise that is based on more than 40 years of experience in the safe development and production of sour gas deposits.

 

Interview made by Olga Nagiyeva 

 

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