Rainer Seele, OMV CEO, the largest oil&gas company in Central Europe shared company’s plans for furthering cooperation with Gazprom and his view on sanctions and oil&gas market challenges and prospects in his interview with TASS News Agency.
— Recently Russia and Austria have celebrated the 50th anniversary of Russian gas supplies, and OMV and Gazprom have extended contract for Russian gas supplies until 2040. Are larger supplies being discussed under extended contract? What volumes are we talking about? Is it correct that supplies will be increased after Nord Stream 2 is launched?
Personally, I would have it extended until 2050. Because we would need gas for a rather long time. Gas production in Europe will be declining but gas needs will remain. It is obvious that Europe would have to import gas, and gas import requirements will be growing. My personal view is that the longer gas supplies are contracted for, the better. And 2050 as a year suits better as it coincides with the 50th anniversary.
I think as OMV’s gas sale business grows throughout Europe, it is likely that we will increase supplies under the document you referred to, if volumes are growing. And Alexey (editorial comment: Mr Miller) understands that we will buy more gas from him after some time. It depends on the European market and market development trends whether we will buy additional volumes transported through Nord Stream 2. OMV is taking part in the financing of Nord Stream 2 because we wanted to diversify our supply channels as in the past we only had one route, transit through Ukraine.
— Last year Austria demonstrated a remarkable growth in demand for Russian gas. Do you expect this trend to continue? Do you find building new export gas pipelines feasible, such as Nord Stream 3?
In fact, we are very glad that consumption of Russian gas has significantly increased throughout entire Europe which is due to both recent market trends and outside temperature. Santa Claus is a great friend of mine. Alexey sends him from Siberia every time when our sale targets are not met (editorial comment: laughing). I think Nord Stream 2 needs to be finalized first before we start any discussion about new pipelines. We have not been considering new gas pipelines so far. However, I am not excluding it. The more pipelines we have, the better. Every additional transit will make Europe energy market more secure.
— But Ukraine has recently stated the opposite, that Nord Stream 2, if implemented, will be a threat to EU energy security. Why it increases energy security when it goes through Ukraine and poses a threat if it is routed through Nord Stream 2. What is your view on this?
It is nonsense. This project has many opponents who accuse us of pursuing our political aims by building this pipeline. In fact, the politicians who criticize this project are pursuing their economic aims. Let’s be open, Ukraine just does not want to lose profit from gas transit and is trying to use European politicians for its own aims. Of course, it wants that Gazprom continues to use their gas transportation capacities and facilities. All those who criticize it are fearing competition, while this pipeline supports it. There is no reason for us to fear competition. Someone wants to keep these transit revenues because tariffs are not competitive. There are also those who want to sell their expensive LNG in our market, because of noncompetitive prices. But our consumers in Europe need competitive gas. Because they compete with other market players who have access to cheaper gas. In order for Europe and European industry to stay competitive, and for the region itself to remain attractive for investments, we need to supply competitive, cheaper gas. Therefore, all these arguments against the pipeline construction are merely to distract attention. In reality, it is all about competitiveness.
— President Trump, during his recent visit, made a hard statement on the project. How are sanctions’ negotiations between Nord Stream 2 EU member states and the US Government going? Are you taking part in this process? How would you describe the feedback?
I talked to some members of the US Congress and Senate in order to explain them what Nord Stream 2 is about. I think that we need to do this. We need to clearly state the arguments in favor of this project so that people understand how we look at it. But whether it will help, I have some doubts about it… The arguments that we are hearing are irrational, they are mainly emotional political statements. And we do not want it to be a subject of politics. We have business, we are investors. But we also have economic ties with the States, we import LNG when the price is right. But I must admit that these LNG volumes are tiny as compared with Gazprom contract.
— What chances that EU wins Nord Stream 2 despite Trump opposition? Is tradeoff possible? May it happen that Europe’s growing demand for gas will consume both Russian and US gas supplies. And Europe will need both new LNG terminals and new Russian export gas pipelines?
I don’t think that you can force Europeans. Europe will continue to support that market drives the prices in accordance with the principles of free market economy. The market will decide what gas, which volumes and from where it should be imported. If gas is offered at competitive price, then the option you outlined is possible. There are sufficient LNG terminals built in Europe and they are unutilized. Therefore, no new terminals are required in order to increase LNG supplies. I think that if decision to impose sanctions against participants of Nord Stream 2 project is made, then it would be an unfair move. It is obvious that we will have to respond somehow. We will also need to see what reaction from European politicians will be. I personally find it unacceptable when someone is trying to punish investors despite that we have not done anything wrong. One thing is clear for me. We are financially investing in Nord Stream 2 for the benefit of Europe, not for Trump’s comfort. Our consumers are based in Europe, hence this pipeline will ensure more reliable gas supplies.
— In addition to Nord Stream 2, OMV and Gazprom cooperate on many other projects. What was the reason for postponing the construction of low tonnage LNG Plant in the Black Sea?
We have to set priorities given the projects that are being implemented simultaneously. Nord Stream 2 is of highest importance at present. Moreover, we need to finalize an asset swap deal, and of course, we keep discussing new projects.
— We have been expecting the closure of the asset swap deal between OMV and Gazprom for many years. Has a specific date for the deal closure been set?
I have been waiting for it for long time as well. We had to accept that situation in Norway is challenging. For example, we heard from the Norwegian Ministry of Energy that the asset swap deal was a headache for him. But he also made very clear that we should submit our applications. We are working hard on trying to enter into negotiations with the Norwegian Ministry of Energy. We need to understand what the Ministry is not happy about.Please don’t ask me for a specific date or deadline. I may only say that we are waiting for an outcome of the negotiations. However, both OMV and Gazprom would like the closure to take place as soon as possible, as now we need more joint projects, not less.
— You mentioned possible new projects with Gazprom. What areas and countries are we talking about?
We have one big common strategic objective. We want to enhance our cooperation in all areas of operations, throughout entire value chain, from gas production, transportation, marketing and production of high quality petroleum products. I did promise to Alexey Miller that I wouldn’t give names of specific projects. But it won’t take a full year to wait for it.
— What is your overall view of the gas market? Will gas continue to play a vital role in meeting Europe’s energy demands? Should we expect Russian gas supplies to grow?
We expect political environment and market conditions for sale of natural gas in Europe to improve. Coal production needs a replacement, and we expect natural gas to replace it. I think gas consumption will start growing slightly, and it will be a healthy growth. But this is just one side of the coin, I find the other one more interesting. We are seeing a stable and very rapid decline in gas production in Europe. As of today, 50% of gas in Europe is consumed at the place where it is produced. And in the nearest 1015 years it will go down to one third. Netherlands is a good example. One could see a production decline trend quite well. The same happened in the UK. Norway may manage to sustain the production. North Africa is unstable at present. Europe will need to import significantly higher volumes of gas. As these requirements are very high, everyone will get its portion from this big pie. And Norway will be supplying gas. If I happen to be right, you may see Alexey Miller and myself signing another contract.
— Until 2040 or after?
In 2040, I plan to work less than today. I am not sure if I want to continue selling gas in 2040. I just want to watch football world cup matches and celebrate victories with another fans.
— It is known that gas price depends on oil price. Over recent years, OPEC and Russia have taken a great deal of efforts to stabilize oil prices. Do you think it would make sense for Russia to join OPEC? What is your forecast for oil price for the next year?
I must admit that there is no need for Russia to join OPEC. OPEC+ and Russia have done a great job and have balanced the world oil market. However, there is one important thing and I would like to emphasize it. OPEC and Russia’s efforts were not to negotiate a certain price. Their purpose was not to set a specific price but to maintain the balance for those who needs to have their oil requirements met. Now we are having a different situation. The entire oil industry has realized that investments had not been funded properly over recent years, and now there is a risk of having an oil shortage, an oil deficit in the market. Now we started talking how to increase oil supplies, where to find spare capacities, what investment projects need to be accelerated and implemented quicker in order to keep this balance and satisfy the oil demand. And current situation in the oil market makes me convinced that our oil price forecast is most likely to be true.
We assume that oil price will be in the range from USD 70 to 80 per barrel. However, oil industry is seeing another trend. In future, oil will be used differently. As far as oil refining is concerned, we see that middle distillates or oilbased fuel (petrol, diesel) are under serious pressure. The demand for these petroleum products is declining long-term. It is obvious that refineries will switch to those products which they are capable of producing and selling in larger volumes. What is in the demand now? Most of all, kerosene/aviation fuel and petrochemicals. Therefore, I am convinced that we will need to be actively engaged into petrochemistry in the future.
— And current oil prices allow us to state that investments into production have recovered after the 2014 decline? Or oil majors are still more focused on paying dividends to shareholders?
I think that oil companies will do both. I think that they will continue to be interested in getting something out of this success for their shareholders. And on the other hand, they will use this increased cash flow in order to invest more in new projects. However, I am not expecting any huge growth in investments in the oil industry. Companies have understood that oil price may go down. I expect investments to grow but moderately because prospects for oil demand growth are not bad. But we also need to understand that risks are still present, and situation has not improved. Take, for example, investments into Iran, which may be subject to sanctions. I doubt there is someone ready to invest into Venezuela now. And Russia has also disappeared from the investment map. See what is happening. The regions and countries with low investment and production costs are the ones suffering from sanctions and disappearing from the market. Whatever I have said about gas is relevant for oil too. We don’t need just to increase production, we need to ensure that production is economic and at comparably low cost. This is also important. This is why I love coming to Russia so much. As I can produce here at very good cost.
— So what projects do you find interesting for investments now?
Of course, OMV does have business outside Russia. For example, recently we have invested USD 1.5 billion into two oil fields in AbuDhabi. If we are talking about the Gulf region, this region needs to be kept in mind as it has got the highest concentration of oil reserves.
— Following the oil market subject. How do you think will end the opposition between Donald Trump and OPEC? Will he succeed in destroying OPEC agreement?
I think OPEC will continue to act independently and keep looking for the way forward. Now the balance has been disturbed because the demand has significantly increased, and supply is gradually declining due to announced sanctions imposed. And now OPEC countries are trying to engage the reserves available to them in order to keep the oil market balanced and supply oil to those who need it. However, no one including myself, can say how production will be declining in Iran. And that’s why there are so many speculations in the oil market now. This has made oil prices hugely volatile.
— Iranian President Hassan Rouhani has recently visited Austria. Have you discussed possible sanctions against Iran with the Oil Minister Bijan Zanganeh during this visit?
No, I haven’t met him.
— Has the US Government requested you to cut Iranian oil imports for your refineries?
OMV is continuously monitoring risks. At present, Iranian oil import risk is very high. Moreover, we will see if any protection measures will be done by the EU Commission. An ultimatum has been set, we will see how it is going to end up. We may have to somehow revise the sources of oil supplies to our refineries.
— So you will be cutting Iranian oil imports?
I can’t say for sure at the moment. We will see how things unfold and what measures Europe will be taking. Look, the document on lifting sanctions from Iran was signed exactly in Vienna. US are the only ones which withdrew from the Iran deal, Europeans are still in. We will keep watching how Europe’s stance is changing and what actions it is taking. And then closer to November we will make a decision.
— Some market players have proactively requested the US to permit them to continue importing oil from Iran. Do you see it as an option?
I haven’t seen similar measures being put in place in Europe. There is a different problem here. Now many transport companies owning tankers refuse to enter Iranian ports and transport oil. This is what the problem is about. Financial aspect should also be kept in mind. Even now when nothing has happened yet, many financial market players are not ready to sign any deals or make any Iranrelated transactions. One can order and buy oil, but is unable to pay for it and transport it.
— Are we right in understanding that you have already given up on your production projects in Iran?
Even in football, when the score is 4:1 and not in your favor, one should never give up! But yes, we have put them on hold.
— You mentioned the demand growth and upcoming supply shortage. Does OMV have spare capacities available and ready to increase production within a short time?
If you help me to achieve peace in Libya, then we will be able to double the production. Or if peace comes to Yemen, we will consider increasing production there as well.
— May we go back to a sanctions question? You are aware that latest US sanctions on Russia were imposed against specific companies and business professionals. What lessons have you learnt from Russian businessmen’ experience? Have game rules for business been changed?
At the moment, we are not affected by sanctions introduced by the US administration. But the lesson I have learnt is that you need to have spare capacities created well in advance in order to be able to respond to sanctions quickly as they change the market in a split second. And another lesson is never refuse friendship and partnership even during sanctions, you should always stay by your friends. Even in hard times we are good friends and reliable partners, and we should stay faithful to our projects. .
— Recently you have purchased a gas asset in Australia and stated that Australasia would become a core region for OMV in the future. Any plans to build LNG capacities there?
No, all gas produced in New Zealand will be used for the domestic needs. The volumes are too small to start talking about LNG capacities there.
— How do you see OMV in 5 and 10year time?
We have a clear strategy. We want to double oil and gas production. If two years ago we were producing 300,000 bbl/day, then by 2025 we want to reach 600,000 bbl/day. OMV is pursuing a growth strategy, and it is a challenging one. And of course, we keep an eye on how business is growing in Russia. Currently, we are producing 100,000 bbl/day from our share in YuzhnoRusskoye field. And I am confident that Achimgaz will contribute to further production growth.
— What share will Russian projects have in OMV’s portfolio by 2025?
At present, 10% of our capital is in the Russian projects. And, of course, as the market grows, this share will either remain or grow.
— What is a key trend in the current oil market? What advice to Russian O&G CEOs would you give? What projects are to invest at present?
Given how market is developing, it is quite obvious that more oil will be needed. I think I can advise my Russian colleagues to increase production. My advice is as follows: open an oil tap on full flow and enjoy the prices you will get. The conditions are right as the market needs Russian oil. And one more advice is always keep in mind the production cost, never forget about it even in a high oil price environment. Advanced refining continues to grow in importance, and this trend should not bypass Russia.