Interview Gazprom Journal Questions to the Chairman of Wintershall, Mario Mehren
1. How do you assess Wintershall’s collaboration with Gazprom?
We have been working successfully together with Gazprom for more than 25 years. Our joint projects are successful. Russia is our most important core region. This will also remain the case in future.
Our collaboration began in 1990 with an agreement to market Russian natural gas in Germany, which we then expanded to cover transport, storage, exploration and production. For the past ten years we have jointly operated the Achimgaz and Severneftegazprom joint ventures. The latter company is developing the Yuzhno Russkoye field.
Production is going well. The work together in the team is collegial and efficient. Having previously been the Wintershall executive board member with responsibility for Russia, I know that the chemistry is right on both sides and behind the scenes.
2. Please tell us about the current situation and the future plans for recovering hydrocarbons in Russia.
We are investing in our existing Achimgaz and Yuzhno Russkoye projects in Russia as planned.
We are proud to have been able to increase production in our Achimgaz joint venture by 48% compared with the previous year! These are very good figures and we very much hope that we can move forward in future at a similar speed. The natural gas produced each year by our joint ventures (around 30 billion cubic meters) would be enough to supply a third of all German households.
The developments at Wolgodeminoil, one of our other joint ventures in southern Russia, are also highly promising: we recently discovered three new fields there that seem very promising and which we are further developing.
Despite the rather challenging underlying conditions at the moment, Russia will remain central for us.
3. What are the prospects for developing the Turonian formation at Yuzhno Russkoye and the Achimov formation in the Urengoy field?
The prospects are good for both projects and we are really delighted about that.
Since 2011, we have been carrying out test drilling in the Turonian formation at Yuzhno Russkoye. We are currently running a pilot production from two wells – to date we have recovered about 400 million cubic meters of gas here. We have also drilled another well. The production data from the three different wells are helping us to determine the potential provided by the Turonian formation. For example, this will enable us to best decide how we are going to economically develop the Turonian formation. The Severneftegazprom joint venture is developing excellently. This year we have broken the 200 billion cubic meters mark. This is an important milestone.
In the Achimov formation our course is clearly set for growth: through our asset swap we have received 25% plus a single shareholding in blocks IV and V of the Achimov formation in the Urengoy natural gas and condensate field. It is estimated that up to 274 billion cubic meters of gas and 74 million tons of condensate lie there.
This therefore offers quite considerable potential. We now want to quickly develop this with our partner Gazprom Dobycha Urengoy.
4. What is the situation with Wintershall’s oil production projects in Libya?
The political and social situation in Libya is worrying. We are deeply concerned and sad about the current developments. Our company has been closely connected with Libya for decades. That leaves an impression.
The unstable situation is also affecting our local production activities. One example: Last year we were only able to produce on 125 days and only at a low level.
Nevertheless, we are continuing to maintain our production facilities. We have an excellent team in the country who are eager to start fully working again. If the political situation stabilizes again, we can directly ramp up our production again very quickly.
5. What are the prospects for collaborating with Gazprom on the Norwegian continental shelf? Do you intend working with Gazprom in Argentina?
Gazprom is an excellent partner: with our collaboration in and outside of Russia, in the Dutch North Sea and in North Africa. However, there are currently no specific plans to also work with Gazprom in Norway and Argentina.
Wintershall is currently one of the largest license holders in Norway. Here we are committed and efficient. We have around 60 licenses – and we are the operator for more than half of them. For example, in recent years we have managed to increase our production in Norway from 3,000 to 80,000 barrels of oil equivalent per day.
However, the market environment is also challenging in Norway. Our Maria project provides an example for smart solutions. Here we are demonstrating how successful projects can also be developed in the North Sea with low oil prices. Using innovative technology, such as the subsea tie-back method that will provide an underwater connection to the already existing installations in the vicinity, we are planning with international partners to incrementally move towards production in the field by the end of 2018.
6. What are the prospects in Argentina?
Wintershall has been recovering hydrocarbons, in particular natural gas, for more than 35 years in Argentina, and is now the fourth largest natural gas producer in the country.
Wintershall is at the forefront when it comes to operatorships and shareholdings: we have had a 50 percent share in the Aguada Federal block in Neuquén Province since 2014. We already managed to increase this share to 90 percent at the end of 2015 and have now started the fourth exploration well.
We are developing Wintershall in Argentina into a competence center for unconventional resources: in March 2015 we started our drilling in the self-operated Aguada Federal block. We have already drilled two vertical exploration wells in the block under our own operatorship. Further – horizontal wells – are being worked on.
7. When could the OPAL pipeline work at full capacity? What consequences will the inability to market all of OPAL’s capacities have for the payback period for this project?
We are very sorry that the compromise for amending the OPAL exemption decision cannot be implemented.
The original two-month EU participation process has been delayed by more than a year at the repeated request of the European Commission. The parties involved therefore failed to reach agreement in October 2014 as to further extending the settlement agreement without a foreseeable decision by the EU.
The expected change in the requirements for booking OPAL transit capacities has still not been made.
This means that half of the transit capacity can effectively not be marketed at the current time.
The affected companies are still trying to enable the full use of the OPAL transit capacities and are carrying out consultation discussions. There is agreement with the national authorities; we are now also hoping to receive the final "Go" from the European regulators.
8. Which pipelines will need to be built so that gas can reach the consumers via "Nord Stream 2"?
First things first: Nord Stream 2 will also keep Europe stable and secure in future – it provides Europe with direct gas and at competitive prices.
The EU import demands will become even greater because the gap between the production quantities in the internal market and the natural gas consumption is increasing further. The two additional pipelines through the Baltic Sea will increase the security of gas supply in the EU and supplement the existing natural gas infrastructure in Europe.
About the construction of onshore pipelines:
The current draft network development plan, which the German Federal Network Agency has been checking since early April, already incorporates at the request of the regulating authority part of the additional quantities of gas from the Nord Stream extension.
The network operator in Germany is now tasked with distributing these volumes in accordance with needs and with adapting the grid in a sustainable and economically sensible manner. The Gazprom/Wintershall subsidiary GASCADE is involved in this. The unbundling regulations stipulate, however, that only GASCADE is allowed to provide more detailed information.
It is already clear, however, that all pipelines constructed onshore in Germany will be subject to the European regulations. Here there will be no exceptions.
9. Will additional underground storage systems have to be built? Will Wintershall be investing in the construction of underground storage systems?
We have transferred our storage business to Gazprom with the asset swap completed at the end of 2015. This means that we are no longer actively involved in the storage business. We are concentrating on what we can do best: exploring for, finding and producing hydrocarbons.
10. Wintershall sold its shares in the gas trading companies WINGAS, WIEH and WIEE to Gazprom. How does Wintershall now trade its gas in the European market?
Wintershall has transferred its gas trading operations to Gazprom as part of the asset swap. We merely sell our own produced volumes, in the same way as we have been doing for decades.
11. What is the reason for the growth of Russian gas imports to Germany?
Domestic production in Germany has been continuously reducing for years. This is why Germany is dependent on imports.
And natural gas from Russia has remained competitive for years. We should take quiet note of that as Europeans.
12. What are the prospects for Russian gas in Europe?
Europe buys around a third of its gas from Russia. This means that along with Norway the country is one of the main suppliers of natural gas to the continent. Pipelines are and will continue to remain the backbone of the gas supply for Europe. We are in the fortunate position that a majority of the world's reserves lie at pipeline distance – particularly in Russia. That is a geological fact. There will therefore only be secure supplies in future with Russia! In particular, an affordable security of supply.
13. How do you assess the prospects for LNG imports from EU countries?
The LNG market is weakening in Asia due to the currently difficult economic situation there, with the consequence that surplus capacities are being shipped to Europe. In the long term, however, LNG will be of particular relevance for Asia and less so for Europe. LNG complements the European supply portfolio, but will not be the basis of the energy supply.
14. Will Germany be closing coal-fired power stations?
Interesting question, which I am unfortunately unable to answer. Perhaps you should ask one of the companies active in the area or the government.
15. What are the prospects for renewable energies in the EU?
In Germany, the energy transition is losing its way between desire and reality: oil and gas will remain important for decades. With an 80 percent share of the energy mix, fossil-based natural resources form a mainstay of the energy provision in Germany.
It is correct and important to develop renewable energies in order to achieve the climate policy goals. However, we must avoid thinking in a contradictory manner. Viewed in the long term, we cannot avoid using fossil fuels. Ultimately they provide the basis of our modern industrial society. Natural gas is the most environmentally friendly partner for renewables. We will only be competitive if we can reconcile climate protection and modern economic policy. This is why we need natural gas: not only to achieve the climate goals but also to secure prosperity and jobs.
16. Is Wintershall planning to develop oil shale reserves?
he exploration and production of unconventional resources poses major technological challenges. Wintershall is ideally placed thanks to its decades of experience in carrying out environmentally friendly, efficient production from complex reserves. In Germany, we have developed years of technological expertise in the production of tight gas.
We are now demonstrating that in Argentina. The Aguada Federal block, in which we hold a 90 percent stake, also includes promising shale in the Vaca Muerta formation. Wintershall is currently drilling the first pilot wells there together with the local state-owned energy company, Gas y Petróleo del Neuquén S.A. (GyP).
Profile of Mario Mehren:
Mario Mehren has been Chairman of the Executive Board of Wintershall since 2015. From October 2011, the business graduate was previously the executive board member responsible for exploration and production in Russia, North Africa and South America. The heart of the Koblenz-born football fan beats for the "Red Devils" from Kaiserslautern. As a fair sportsman, Mehren has nevertheless welcomed Gazprom’s decision to allow its name to grace the chests of FC Schalke 04 for another five years as its main sponsor.