Gas-fired Generation: Empathy & Ideas from OMV

Hans-Peter Floren, Member of the Executive Board, OMV, can feel the pain of its customers operating gas-fired power plants, as he told Natural Gas Europe in an exclusive interview at the European Gas Conference in Vienna, Austria.

He says it is a headache that the market for gas-to-power in Western and Central Europe collapsed and thus some of OMV's customers are not buying gas for power generation, but OMV is using it for such purposes.

“We ourselves are also operating two gas fired power plants, one recently invested in Romania fuelled with gas from our own Romanian production, and one in Turkey that started its operation in mid 2013,” reports Mr. Floren, who adds that the two plants are high efficient, very flexible combined cycle power plants. “Fortunately where we operate our plants the situation is somewhat better than in central Europe, especially in Germany and Austria. Our plants are running, we are producing power there, albeit less than originally anticipated,” he says, recalling that there were significantly better expectations when the final investment decisions were made.

Romania, where OMV made the acquisition of the state-owned Petrom in 2004, is a very traditional country for oil and gas production, according to Mr. Floren. He comments: “It is one of the backbones of our oil and gas production. We are producing about 5 BCM natural gas in Romania from our production there. We have about 40% market share in the Romanian market and we have even perspective to grow because of the recent discovery at the Black Sea and the expectation to get more equity gas now from offshore Romania into the picture for us. So it’s really the core gas country when it comes to our gas marketing and gas production.”

OMV, he says, is trying to improve the competitive situation of natural gas in Central Europe – a topic that speakers and delegates grappled with in Vienna.

Mr. Floren offers, “Our recent progress on long-term contract negotiations will contribute to that. And when it comes to the overall market development we expect that greater awareness of the effect of the heavy distortion of the market environment by the big (renewable) subsidies and the resulting impact on the competitiveness of the industry as well as the social economics effects resulting from them means they are no longer acceptable. The news that the German government is giving clear signals that it will tackle the issue and look for improvements - that is good news.”

However, he says, that in the short run the effects will not be felt over the course of 2014, but at least the awareness and the willingness to address that problem is an improvement.

One speaker in Vienna suggested floated the prospect of not actually changing the carbon price but letting market forces work – a sentiment Mr. Floren agrees with.

“Exactly,” he says, “and one of the problems really is that there is a big push for renewables, to increase the share, but they were completely decoupled from the price developments in the market. So the bigger the difference between the guaranteed price for renewable power and the real market price for power is, the higher the subsidies are. And this system is not to be retained - they will adjust and modify that at least for new installations and that will help to improve the picture over time.”

He notes that the increased focus on increasing the share of renewables in Germany didn’t lead to lower CO2 emission but to the contrary, “because lignite and hard coal recovered and got an even higher share in power production. And when it comes to that point I find some of the allegations by our friends from the UK justified, many of them pointing with their fingers at Germany, saying 'okay this is a wrong development, this is bad - you didn’t achieve your goal,' and that, unfortunately, is very much the case.”

For its part, Mr. Floren says that Europe should push for a low carbon environment or renewables, but believes the fact that renewables have their weaknesses cannot be ignored: “The lack of backup, lack of storage and the transmission. And as a natural gas industry, we have a comparatively clean product. It is the ideal complement; efficient, clean by nature, and not to forget our logistics system in transportation, storage and distribution.

“This is the most powerful transportation, storage and distribution system for energy in place and it has the benefit of not being visible, so there is not public discussion on accepting it or not – in contrast to high voltage transmission lines,” he adds.

Part of the big problem in the push for renewables, he explains, is that the areas of production (offshore, North Sea, Baltic Sea) are so far away from the focus areas of consumption, and in between there is a big lack of transmission capacity. “And our industry really offers a solution when it comes to regional demands of flexibility to step in and we are also focusing on new technology to store, the power to gas technology that allows us to convert it to H2 which is a clean fuel for modern technology cars. Also, H2 would be a good solution for renewables.

“We are open to new developments,” he says.

Meanwhile, Mr. Floren says that most people are not sufficiently aware of the importance of natural gas as a clean fuel. “They don’t see the advantages of natural gas,” he explains. “Most of the public sees our natural gas in the same basket as of all the other fossil fuels; they are not aware that natural gas is by far is the cleanest one and has natural advantages so we have to focus more actively in publication, in advertising and really promoting modern gas technology, modern gas appliances to maximize the implication of natural gas and making its marketing more attractive.”

According to him, that means, for example, people investing in new technologies like for heating.

“The cheapest alternative to old heating equipment is a gas-fired condensing boiler installation - by far the cheapest, most efficient way, the best you can do for the environment. But people want to see more, so they like the idea to have decent realized combined heat and power generation in their own dwelling or to combine that with solar thermal installations to have something sexy you can talk about to your neighbor because you are a really at the forefront. And that is what we really have to promote to bring gas into the recognition and promote it,” he says.

Strengthening gas in the competitive environment, says Mr. Floren, is one of OMV's key milestones for 2014, as is the struggle for further improvements on the supply site.

“We have managed to adjust our long-term contract with Statoil,” he reports. “We achieved something in last year and that was Gazprom, in terms of an interim agreement and that stretches until the end of March this year. We are in continued discussions on the adjustment for this.”

The increased marketing of equity gas from the North Sea into OMV's portfolio is also on the agenda, following the company's big deal in 2013. “That started in November, starting with the Gullfaks field. And 2014 will see the Gudrun field starting production, getting us additional equity gas volumes arriving at the north-western North Sea coast of Germany, and from there we will take it to the market to the benefit of our customers, improving security of supply at a competitive price from a well - diversified portfolio.

“I think that is the message thus we create an additional value for our long term suppliers, for our E&P division and for our customers,” says OMV's Hans-Peter Floren.