Klaus Schäfer: generation and transport will drive demand for gas

Among the line-up of keynote speakers at this year’s Flame 2016 was CEO of newly-formed Uniper, Klaus Schäfer. Uniper was created early in 2016 when E.On split its upstream electricity generation business from its downstream retail and distribution arm.

Mr Schäfer was speaking to Jonathan Stern, Chairman, Natural Gas Research Programme and Senior Research Fellow at OIES.

The Uniper Rationale

First Mr Schäfer explained the rationale behind the creation of Uniper: “Those two [parts of the company] have very different dynamics in terms of strategies, investment behaviour, financing, regulatory exposure, political drivers and both externally and internally discussion became more difficult, with people focusing on their own parts of the business.”

Gas is very much a focus for Uniper – both in terms of raw gas as part of its portfolio, but also in terms of the large share of its power generation that is gas-fired, currently a figure of around 50%. “Gas as a topic, and as a strategic driver for Uniper is obviously crucial and I would put a very strong emphasis on the gas part both in the more traditional midstream parts of the business as well as on the generation side.”

Mr Schäfer pointed out that a company such as Uniper has different dynamics and drivers to some traditional ‘gas’ entities as it has an interest in both raw gas and power generation and therefore sees a benefit in the generation side of the business when gas prices are low.

Growth Potential

For the next few years, Mr Schäfer believes that, across the entire gas sector, there will be some element of preparing platforms and taking costs down; that’s already been seen in the E&P sector, among shale gas producers in the US and across various energy companies in Europe.

“I think costs will be a key focus; cash flow will be a key focus, as is driving investments down to a certain extent because of the current insecurity around where the market is moving.”

He also pointed to increased regulation as an ongoing challenge. “Is right now not the time to prepare for the rest of the decade and look for new growth drivers? I would place the growth topics more towards the end of the decade, but then I do believe that in Europe and also beyond Europe there are enough opportunities in the energy space.”

On the question of pricing and carbon pricing as a whole, Mr Schäfer strongly believes that there should be an increase in CO2 pricing to change the energy system in Europe.  “Do we have a great system with ETS, yes? But any muddling around and trying to influence the system each times make it weaker.” He warns.

Drivers for growth

When pressed on the outlook for the future, Klaus Schäfer outlined two major demand drivers – generation and transport. Schäfer believes that, especially for heavy transport, there is a big market opportunity in terms of both on-shore and marine transport.

“I’m much more sceptical on the CNG topic – I think that was a chance for the industry a couple of years ago to go for that but I think we’ve lost that to an extent due to immobility and the entry of hybrids in there.”

And on the subject of long term contracts, Schäfer was clear that there needs to be a radical reform: “I still believe we need them because our industry is about long-term investments and you can only shift risks and returns between various players on the value chain if you put that into a framework… but they need to be flexible and must reflect the market realities.”