OMV eyes Asia's growing gas demand

Tuesday 19th February 2019

Multi-national OMV is reorganising its regional activities to better meet increasing energy demand in South-East Asia, which may spin out an export opportunity for New Zealand.

New Zealand’s biggest oil and gas producer, which has operated domestically and in Australia for almost 20 years, has partnered with Malaysia’s Sapura Energy to create an Asia-Pacific business of sufficient scale to foot it with the group’s other core regions like Russia, the Middle East and central Europe.

Gabriel Selischi, senior vice president of the firm’s newly-created Asia-Pacific region, says the move was driven by increasing demand for gas from countries like Japan, Korea and China.

And that’s a potential market he believes New Zealand could be looking to once its own gas needs are met.

Few countries have the hydro, wind and geothermal resources that New Zealand has, he says. Many also don’t have natural gas – with half the emissions of coal – and their “desperate” demand is driving a growing global trade in liquefied natural gas.

“The whole south-east of Asia is hungry for LNG because they recognise the role of gas as a low-emission fuel,” Selischi told BusinessDesk.

“So would you decide not to give them the opportunity to use gas, which you could produce but they don’t?

“Saving the world is good, but I think this question needs to be seen from a global perspective, or a regional perspective.”

The International Energy Agency is expecting global gas demand to increase by about 1.6 percent a year for the next five years and by close to a third by 2040 as countries look for ways to meet rising energy demand while reducing emissions by displacing coal use in power generation, heavy industry and chemical production.

A third of that near-term demand will come from China’s 'Blue Skies' policies and it and the broader Asia-Pacific region will account for most of the increase in LNG volumes out to 2023, the agency estimates.

Selischi is a fan of LNG – and methanol – as low-emission fuel options for the world’s heavy industry and transport needs.

Under the new structure, the Malaysia-based OMV-Sapura JV will focus on Asia and north-western Australia and will operate independently. The New Zealand business – now with about 350 staff – will run the local operations and will be responsible for any interests off south-eastern Australia.

While it’s early days, Selischi expects there will be scope for collaboration between the two businesses. He is also keen to draw on Sapura’s extensive heavy engineering expertise, particularly in gas platform and pipeline construction and decommissioning.

OMV, which took over operatorship of the Maui and Pohokura fields in December, is now ramping up efforts to improve domestic gas supplies from those fields.

But the company remains keen to drill the acreage it has spent the past 12 years exploring in the Great South Basin, south-west of Dunedin.

OMV, which bought out partner Shell last year, now owns almost 83 percent of the 16,700 square-kilometre permit.

It has been seeking a new partner among other major players and would like to retain a 40 percent interest, Selischi says.

He says any discovery off the South Island would need to be “very significant” to get developed. Even if the major South Island industrial players like Fonterra didn’t want gas to replace their coal use, there would be a good case for an LNG development, he says.

“In the case of a big discovery, there is a huge potential for an LNG train or a floating LNG train.”

While the weather conditions in the basin are challenging, Selischi says drilling would be lower cost and have less technical risk than in the waters off Brazil, or in the Gulf of Mexico. Rapidly evolving technology may also enable a cheaper “LNG-in-a-box” type-development in the event of a smaller discovery.

But he said the project’s remoteness and the absence of an established gas market on the South Island will make it harder for it to compete against other international projects potential partners are considering.

“They appreciate the work that has been done on GSB, and they see the potential,” he said. “We will try. We think it’s a good case, but again, we are searching for the right partner.”

The Labour-led government has stopped issuing offshore exploration permits and has not committed to continuing onshore exploration offers in Taranaki beyond 2021. At the time of the ban, OMV held more exploration acreage than any other operator.

The government argued that the country’s proven and probable gas reserves – equivalent to about 10.5 years of demand – and the 100,000 square-kilometres of exploration acreage then in place was sufficient to maintain security of supply.

But about 80 percent of that acreage comprises OMV’s GSB permit and other permits off the South Island and off the east coast of the North Island that are years from drilling. None of it has any connection with the country’s gas distribution base in Taranaki.

Selischi says New Zealand has come to take its gas supplies for granted. And he says policymakers and the public often forget that reserves – proven, probable and possible - are only estimates and that exploration and development is needed to actually deliver them.

In a fishing analogy, he likens proven reserves to the catch already in the boat. Probable reserves would include fish you can see in the water and those you expect to catch because you’ve fished those waters before. With possible reserves, you know there is water but there may be no fish.

“It’s like assuming that there will be other oil and gas because we have permits of 100,000 square-kilometres.”

OMV this month kicked off the first element of a $500 million-plus investment programme to restore production at Pohokura and extend the life of Maui out to the late 2020s.

Selischi’s glad to have the Pohokura and Maui fields in his portfolio. Their use of electric compression and other operating initiatives puts them among the lowest-emitting fields in the group, he says.

And that matters to Vienna-based OMV, which has set a 2025 target to get the carbon intensity of its operations 19 percent lower than it was in 2010. The firm, which has a Leadership A- rating from CDP – the former Climate Disclosure Project – already hosts one of Austria’s largest solar arrays in its fields in the country’s north and is looking for additional ways to integrate renewables into its operations globally.

OMV also has a two-well exploration campaign planned here in the coming summer.

Selischi says the unplanned production cuts at Pohokura last year demonstrated the country’s reliance on gas and the cost and strain when supply flexibility is lost.

Restoring that flexibility, and then providing the greater flexibility that will be needed in future as the power system absorbs more variable wind and solar power, will need on-going exploration and development work “across the board,” he says.

“If not, this 10.5 years may not be met.”

And he warned that people should not be banking on the multi-year exploration programme OMV sought approval for in its Taranaki permits last year. That approval was sought to cover all the potential wells required by those permits; how many are actually drilled will depend on the success of the first couple of wells.

“If there is no significant new discovery that will more or less be the end of exploration in New Zealand.”

(BusinessDesk)

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