On the path to a greener futureQuestions asked to Dr. Rainer Seele, Chairman of the Board of Executive Directors of Wintershall.
During the cold winter days, gas supplies in Germany were running short. But it wasn’t the deliveries from Russia that were causing problems; it was the insufficient pipeline capacities in Germany, the CEO of the largest German oil and gas company says. OWC spoke to Rainer Seele about the future of natural gas, the partnership with Russia, portfolio management, the production triangle Germany, Russia, Norway, and the lessons from the revolution in Libya.
OWC: You’re producing natural gas deep in Siberia with your joint venture Achimgaz. The temperatures there have fallen below minus 30 degrees this year. Do you have everything under control from a technical point of view?
Seele: Novy Urengoy, where we’re producing in cooperation with Gazprom, is close to the Arctic Circle and in winter the temperatures there often get much colder than that. Minus 30 degrees basically means normal production conditions for us. Production in the Siberian permafrost is nevertheless very challenging, but we have the technology to handle these conditions. We also have employees with the necessary experience. So yes, we have everything under control.
OWC: Gazprom temporarily reduced the supply of natural gas to Europe. What happens in situations like this – how did your joint venture company WINGAS cushion the reductions?
Seele: The reduced supply from Gazprom has been a challenge for Germany’s entire gas industry. We were informed early on about the scope and reasons for the reductions, so we were in a position to deal with the challenges. We were able to compensate for the shortfall thanks to the well-filled gas storage facilities maintained by WINGAS. All of our customers received the agreed quantities. However, I have learned from the situation that we need to take action with regard to Germany’s gas infrastructure. We do not have enough pipeline capacity to enable us to make use of the high storage quantities that exist in northern Germany also in southern Germany.
OWC: How far have you progressed with developing production at Yuzhno Russkoye and Achimgaz in Urengoy?
Seele: What is special about our partnership with Russia is that we are working together with our Russian partners and producing directly at the source. It is there at the source where the supply is secured.
Last year we reached the commercial production phase of the Achimov project. Six wells now deliver 3.5 million cubic metres of gas every day and 1,600 tonnes of condensate. We will continue to develop this collaboration with Gazprom dobycha Urengoy. The natural gas field Yuzhno Russkoye is our largest production project in cooperation with Gazprom. This field already reached its plateau production level in 2009. 142 wells produce 70 million cubic metres of natural gas every day, which means 25 billion cubic metres per year! That is a major contribution towards supply security for Germany and Europe.
OWC: One aspect of Russia’s modernisation strategy is energy efficiency. As an oil and gas company, how can you support the country in this area?
Seele: We’ve been working together with Gazprom for more than 20 years, and we’ve been bundling our knowledge for almost as long through our agreement on “Scientific and Technical Cooperation”. Experts from both companies work together to research and develop solutions, particularly in areas like saving energy and environmental protection. For instance, we’re working together on a pilot project that utilises waste heat at Russian gas compressor stations.
BASF is also an important modernisation partner for Russia. A good example is BASF’s involvement in the Ekaterinburg project. The aim is to increase energy efficiency in the areas of construction, building refurbishment and energy transportation.
OWC: Various scenarios currently exist for developing the natural gas market. Some experts are talking about a gas glut in Europe after 2020, but Wintershall is continuing to develop the supply of natural gas. Among other things, it is participating in a project company for developing the offshore part of the South Stream pipeline, which will supply even more gas to Europe from Russia. How is your company preparing for a possible excess of gas supply in Europe?
Seele: At the present time, we’re observing an excess supply of natural gas in Europe, for instance due to the shale gas revolution in the USA. As a result of this, an increasing amount of liquefied natural gas (LNG) is making its way to Europe. However, the excess supply is already being reduced, as the demand for LNG in Asia is rapidly increasing. Japan in particular gas been importing more natural gas since the Fukushima catastrophe.
We estimate that in Europe the demand for importing natural gas will definitely increase in the mid and long term. For this reason we need more pipelines which will firmly tie the gas producers to us. Of course, we also need reliable contracts which will ensure supply security. We must not forget that the German “No” to nuclear power is essentially a clear “Yes” to natural gas.
I have no doubt that the future lies in renewable energy. But without a safety net it won’t work. On the path to green energy, renewables need a long term and dependable companion. It has long been agreed by all parties that this companion should be and will be natural gas. Gas can be used locally and flexibly, it is affordable, extremely energy efficient and climate-friendly. Natural gas will therefore become even more important for generating electricity in the future. We are therefore firmly convinced that our demand for gas will increase.
OWC: You have expanded your operations in Norway significantly over the last few years. Where is all this heading?
Seele: We our basically increasing our production ten-fold. Next to Russia, Norway is our most important partner for ensuring Europe’s energy supply in the long term. With a total of 40 licenses, Wintershall has long been one of Scandinavia’s largest license holders. In 2011 alone we were able to secure ten new licenses on the Norwegian continental shelf! We invest around half of our global exploration budget there. By 2015, we want to increase production in the Norwegian and British continental shelf from today’s figure of around 5,000 barrels of oil equivalent to 50,000 barrels per day. As I said, a ten-fold increase!
OWC: You repeatedly advocate also having a partnership with Gazprom outside of Germany or Russia. How is the Russian gas company involved in your activities in Norway?
Seele: Gazprom has no involvement in our production in Norway. However, we are planning to collaborate together in the North Sea. We are currently holding talks on this subject which concentrate on the Dutch and British sector. I expect that we will sign contractual agreements by the end of the year.
OWC: There was recently talk of a German-Norwegian energy partnership with Russia. What form would such a model take?
Seele: Wintershall is concentrating very strongly on the production triangle between Germany, Russia and Norway, and can make a real value contribution here. In Russia and Norway, Wintershall is a sought-after technology partner.
In terms of energy policy, a partnership like this would bring great opportunities for EU supply security. We need both countries, Norway and Russia, as close partners. And in many regions these two partnerships also need to be closely coordinated. This applies, for example, to the Barents Sea. If we want to secure the energy reserves there for Europe, we are right in the middle of the Norway-Russia energy bridge. Without exchange between these countries, nothing will happen there in the future. Only if we succeed in securing the loyalty of both partners and establish a good working relationship in this energy triangle can we use these opportunities to ensure a European energy supply with long-term security.
OWC: What overall role does Russia play for the largest German oil and gas producer? Your activities in Norway imply that you would like to reduce your dependency on Russia.
Seele: You’re right; it’s a matter of portfolio management. We want to see a balanced level of oil and gas production in all of our core regions: Europe, North Africa, South America, Russia and the Middle East. However, I would not describe the situation in terms of a one-way dependency. On the contrary, our integrated cooperation along the value chain leads to interdependency. We invest in Russia and Gazprom invests in Germany. We are equal partners, and that also goes for the opportunities and risks.
We are bound together with Russia by over twenty years as investment partners. We provide gas from the Siberian gas fields via transit-safe pipelines to European customers. The commissioning of the first leg of the Baltic Sea pipeline Nord Stream last November was a milestone. This successful project has encouraged us to develop other activities with Gazprom to improve transit security. Wintershall is therefore planning to participate with a 15 percent stake in the offshore section of the South Stream through the Black Sea. This is another investment in our partnership with Russia, and another investment in European supply security.
OWC: After suspending production in Libya one year ago, Wintershall recommenced operations in autumn. In what condition are your facilities and the overall infrastructure in the area of oil and gas?
Seele: The plants and facilities are in a very good condition, thanks to the commitment of our colleagues on location. During the fighting, they showed great courage, prudence and skill in ensuring that the facilities were not destroyed. It is only thanks to them that we were already able to start oil production in the Libyan Desert at the end of October. We have already achieved an average production rate of 60,000 barrels per day there. This is an important contribution towards rebuilding the country. The new Libya needs a reliable source of income from the energy industry. We are therefore working together with the Libyan oil company NOC on logistic concepts that will enable us to further increase our daily production rates.
OWC: How do you see the future of your company in this country?
Seele: We believe in Libya. Over the last few decades, we have invested over two billion US dollars there. And I can tell you that we intend to invest more in the future. I have every confidence in Libya, and a survey conducted by ZDF in collaboration with Oxford Research International confirms my view. One of the key results was that 76 percent of the surveyed Libyans rated their present life as being better than one year ago. Given that there are still so many problems, this is a very positive indication.
OWC: What lessons have you drawn from the events in Libya?
Seele: Although this might sound a bit melodramatic, it has above all shown me that people are what really count. And what partnership means. We did not abandon the Libyans, and our employees did not abandon us.
Wintershall has been fully committed to helping the people in Libya, supporting them with emergency relief and long-term humanitarian aid. This is our way of thanking the Libyans for all the support they have given us. Above all, however, it is an expression of how deeply connected we feel with the people in this country and that we still see ourselves in a position of responsibility.
The months between February and October 2011 were probably the most intense times I have ever experienced in my career. Although it was extremely painful to experience the uncertainty of not knowing what was happening to our colleagues in Libya, looking back, I am extremely proud of what our loyal colleagues achieved. What they did for their country and for our company. Libya showed us that a real partnership can withstand crises and set-backs.
OWC: We already mentioned that you are involved in the South Stream pipeline project. But aren’t your interests in building the Nabucco pipeline as a priority?
Seele: No, why should that be in our interests? Both pipeline projects are important for increasing supply security. Nabucco doesn’t have any problems with the South Stream; it’s actually a procurement problem because not enough gas is available from Caspian producers.
The South Stream is important for us because this project means the further development of our partnership with Russia. It is also important because the transit pipeline creates supply security on a reliable basis, as the Russian gas fields are directly connected with the South-East European consumer markets. That’s why Europe needs the South Stream.