Change and Stasis: An Interview with Klaus Schafer, CEO of Uniper
Klaus Schafer is CEO of the German midstream gas, LNG and power company Uniper. In our interview with him, we took stock of recent developments in the market, discussed the progress of coal-to-gas switching in Europe, and asked how he saw the gas networks’ role evolving.
How many years have you been coming to Flame, dare I ask?
It must have been the spring of 2010 for the first time. So maybe my eighth year now.
Okay. So if you look back over the last twelve months, do you feel a lot has changed in the industry?
I think every time I’m here I’m asked that question, and I think every time – rightly – I say a lot has changed. When we look in terms of what’s the outlook in LNG, for example, or what’s the discussion around gas infrastructure across Europe, what about the pricing environment, what about the geopolitical tensions that have emerged. And again in the last twelve months, certainly some pretty dramatic changes that we’ve seen.
What about for Uniper going forward – what are your priorities now? Where would you be looking?
The gas side certainly, I think there’s an opportunity right now for a company like us to again expand on the midstream side, on the gas side, to reach outside of Europe, because now with the increasing links through US LNG of US pricing, European pricing, matching and mixing of the portfolios creating a larger presence also in the US, and again through LNG on the Asian markets. I think for us a big opportunity that definitely we will go for.
You were asked the same thing last year actually - where you saw the biggest opportunities. And you were looking at security of supply products in Europe, linking markets, huge flexibility you were saying in Europe there. And also you were saying that conventional energy was still a priority. Do you think that all of those still hold true?
I think they hold true. I mean again, some of that is obviously repeat answers in terms of the European market linking especially US and Asia, the large flexibility that the European market has and therefore providing that flexibility to the LNG markets, security of supply in Europe – if we look at last year it was maybe even a bit tougher, the winter and therefore the spirit obviously in terms of coming here. But also this year we finished the winter with about 15% left in storage. That’s normally beyond the technical minimum on the storage side, and therefore I do believe that clearly security of supply going forward is going to be crucially important. Therefore some of the topics obviously repeat topics, but especially with more and more US LNG now coming on-stream, I think that link between the US and Europe is gaining more and more momentum each year.
Although, we’re seeing the US selling into Asian markets.
It doesn’t matter. I think in the end it depends on the last vessel, or the last cubic meter of gas that’s being supplied in the market, in order to have the pricing impact, the price cap, knowing if prices would go above a certain level, suddenly we’d start to attract a lot more of LNG, and therefore it’s exactly that swing sort of thing that Europe is offering to the global LNG market, and I think we’ve already sort of seen that in action. And if prices are high in Asia, that’s a big benefit for the European consumers and the European customers in the end, and I think that’s positive as well.
What role do you think that gas is actually going to play within Europe – and I don’t know whether you want to answer that as the CEO of Uniper, or as President of Eurogas, or whether it’s the same answer?
It doesn’t matter, I think it’s the same answer. I think gas has obviously had a challenging time of the last few years, I think now especially the key driver for that is the market for CO2, the ETS, because now the rise that we’ve seen, up to 14 and possibly even much more in the future, that obviously also changes, and the question of what to use in the generation market (coal or gas), and therefore that fuel switching, that slowly starts to happen, I think therefore going forward I think gas will have an even bigger role in terms of security of supply and also in the generation mix. Again, a slow process, but one that at least has started.
You mentioned coal. Different countries within Europe have very different percentages of coal, or attitudes, or outlook towards coal – how do you see that going?
I think in a lot of European countries we have an exit discussion for coal. So if you look at France it’s 2022, if you look at the UK 2025, if you look at the Netherlands 2030, and if you look at Germany they have just slowly now started the discussion – let’s see where that leads. But I think it will be a less formal end date there, and more questions on what’s the trajectory over time in terms of reducing that. But we should not forget one topic, which is that there is a security of supply issue in there. Because today in a lot of countries including Germany it’s coal that provides the security of supply. Now that can move over to gas, but nevertheless we should also make sure that there’s enough gas generation capacity in the future, because a secure electricity supply of sun and wind will not be enough. It’s fabulous technology, and I think renewables are a key driver for the electricity market, but it will not work without dispatchable capacity, and if we don’t want nuclear to play that role – because in a lot of studies we see that nuclear is actually the swing supplier on the electricity side – if we don’t want nuclear to play that role (and I think from a societal acceptance point of view, maybe people want something different) and if we still want to exit from coal then we need to focus on gas, and actually make sure we have the necessary infrastructure, and also the necessary generation capacity for gas to play exactly that role.
Do you want to cast your mind ahead to this time next year, and wonder what is on the agenda for Flame?
Again I think it will be an evolution of topics. I cannot see that they are radical topics. I think that the question of geopolitics, especially when it comes to infrastructure in Europe, possible sanctions, topics like that, they obviously have the potential to get more pre-eminent and more in the focus of the gas industry. I think the question of technology, green gas, synthetic gas, those topics, I think also they will evolve, because in the end if we want decarbonisation in Europe – and there’s obviously an overwhelming majority for that, the Paris agreement has been signed – and if we therefore want a decarbonised energy system, it also means that gas has to decarbonise to be still around in 2050, and I think that’s also the process that now needs to be really pushed and started. And we had good discussions at Flame this year on that topic, and I would see that as an even more pre-eminent topic next year, which really drives the future of the gas market.
