More than 20 million years ago, organic material like algae and plankton turned into natural gas in the absence of air. It is said to have been extracted from a well in the Chinese province of Sichuan as early as the 3rd century BC. Since the middle of the 19th century, natural gas has been used in private homes and by businesses, and since the 1960s it has become one of the most important energy sources in Europe. Gas import contracts were concluded with gas producers for the supply of gas, and new transport routes were created. Shortly after the turn of the millennium, liberalization brought fundamental changes to the gas supply system, which is now highly complex. Here we explain how an invisible and odorless molecule gets from the natural reservoir to your own home. You can also meet the most important players on this journey and learn about their tasks and responsibilities.
From the depths of the earth: Producing natural gas
Natural gas has been produced on a large scale since the 1960s. Two countries in particular have considerable reserves and are considered the most important producers in Europe: Norway and Russia. OMV has had gas supply contracts with both countries for many years –with Russia since 1968 and with Norway since the mid 1980s. However, OMV also produces natural gas itself:
OMV produces natural gas in the core regions of Central and Eastern Europe, the North Sea, the Middle East and Africa and Asia-Pacific. As a rule, investments in the oil and gas industry are extremely time-consuming and cost-intensive. Finding and developing new gas fields and connecting them to the existing pipeline network takes several years.
Gas trading – selling and trading the invisible molecule
Up until the late 1990s, most national markets for natural gas were still dominated by (regional) monopolies and the gas price was tied to the oil price. Then the European Union decided to gradually open up the markets to competition. A separate market was created, gas exchanges were established and natural gas got its own pricing building mechanism. Since then, multiple suppliers along the value chain, from production to transport, trade and storage, multiple suppliers have been around ever since. Business clients and private customers can choose their gas and electricity providers from a large number of providers. The upshot? Europe’s economy and people have benefited over the past decades from an increase in competition and favorable gas prices while retaining high standards of security of supply.
In Austria, the markets for grid-based energy, i.e. electricity and gas, were liberalized in 2001 and 2002. Clear rules are needed for every market participant in order for competition to exist and flourish. Each country has its own regulatory body that oversees the establishment of and compliance with these rules. Added to this is the European regulator ACER. In Austria, the regulatory authority E-Control has taken on this task since 2001: It strengthens competition and ensures that the requirements governing secure supply and sustainability are met.
Gas trading markets
In the course of liberalization, several so-called virtual trading points were created. Today they form the wholesale trading points for natural gas. As liberalization progressed, trading was bundled on fewer and fewer trading points. The liquidity and therefore also the tradable volumes are now concentrated on a few trading hubs. Together with the Dutch TTF and the British NBP, the Trading Hub Europe (THE) with its headquarters in Leipzig is now considered one of the main gas trading market for Europe. It came from the two German market areas NCG and Gaspool on October 1, 2021.
In Austria, gas for the market area East, which accounts for more than 90% of total Austrian consumption, is traded at the virtual Central European Gas Hub (CEGH). It is the leading hub in Central and Eastern Europe. Tyrol and Vorarlberg, in the west of Austria, are not connected with the network of the other federal provinces and this is why they are supplied via the German natural gas market area THE. Supply and demand result in different pricing for each market area or each trading point. This means that there is no uniform price for a megawatt hour of gas – it changes by the hour or day and varies from market area to market area.
At OMV, the team of OMV GAS Marketing & Trading GmbH takes care of gas trading as well as of booking transport and storage capacities. Among other things, the employees trade natural gas on the CEGH and other major trading hubs and buy and sell gas volumes via the exchange or the OTC market (over the counter). In this OTC form of trading, volumes are traded directly between two parties, i.e. the buyer and seller. There are no intermediaries.
“Our customers comprise, for example, large natural gas distributors from Austria and abroad as well as municipal utilities, reputable industrial and commercial enterprises as well as Austrian provincial energy suppliers – private households are not among our customers. The contracts are usually limited to one to three years”, says Jörg Weissgerber from the OMV GAS team. In 2021, OMV sold about 167 TWh of gas.
From A to B: Gas logistics and transport
The individual market areas are connected by a transit system, i.e. pipelines, that ranges across Europe. Gas traders book capacities with the pipeline operator and pay a transport fee. In the course of liberalization and as part of the 3rd EU energy package, network operation is separated from competitive market activities such as production and distribution. This means that gas producers and traders are not allowed to operate pipelines within the EU.
The demand for gas transport results from long-term import contracts, the predicted sales to customers at home and abroad, and natural gas trading on the various European trading hubs. Access to existing pipeline infrastructure is transparent, explains Jörg Weissgerber: “Short-term and long-term transport capacities are allocated at regular intervals under transparent best-bidding procedures and on the basis of a specific auction calendar.”
In Austria as well, the area of gas trading and distribution is completely separate in business terms to that of transport via pipeline. At OMV, colleagues from the logistics department of OMV GAS book transport capacities with bodies including the two Austrian transmission system operators Gas Connect Austria (GCA) and Trans Austria Gasleitung (TAG for transport from and to Italy). “Just like other market players, our team books capacities almost daily, sometimes even hourly, in order to meet customer demand and the needs of our diverse portfolio in the most economical way”, says Jörg Weissgerber. “We ensure that gas imports can flow into Austria or reach neighboring countries”. OMV an is active shipper in Great Britain, the Netherlands, Belgium, France, Germany, Italy, Hungary as well as in the Czech Republic and Slovakia – Austria plays an important role as a transit country due to its geographical position.
The gas station in Baumgarten, Lower Austria, is Austria’s largest import and transfer point for natural gas – it is the central, physical hub in the European natural gas network and makes a significant contribution to the supply of Austria and the neighboring markets.
The gas station is operated by GCA, while TAG also operates facilities here. The two transmission system operators also take care of the operation of high-pressure natural gas pipelines. The natural gas is transported to the Austrian provinces but also to Germany, Italy, Slovenia and Hungary. In addition to operations, other important tasks include maintenance and servicing, as well as the market-oriented and demand-oriented expansion of a modern pipeline network in Austria.
This expansion is coordinated by Austrian Gas Grid Management (AGGM) – the market and distribution area manager, which regularly prepares network development plans. These include those for conventional natural gas as well as the expansion of infrastructure for renewable gases, biomethane and hydrogen.
Another part of AGGM’s remit is to reassess natural gas transport needs every two years, to summarize and document projects in this area and to have them approved by the regulatory authority E-Control with the transmission system operators GCA and TAG.
It is AGGM’s job to coordinate the technical conditions for gas transport in Austria, thereby maintaining, expanding and thus safeguarding supply”.
Michael Woltran, Director AGGM
“Thanks to its comprehensive knowledge of Austria’s topography, pipeline systems and transport technology, AGGM has evolved over time from a mere fulfiller of the legal mandate to a service provider for market participants. For example, when it comes to bundling gas procurement or purchasing optimizations for network operators. Or, like most recently, the procurement of state gas reserves”.
Current trends in network expansion and the role of LNG
The following trend is currently visible in the expansion of the transport infrastructure: Whereas in the past it was mainly market interests that determined expansion projects, now states are also increasingly taking steering measures to secure their energy supply. The expansion of strategically important interconnectors is being prioritized. In order to be able to transport more gas from Germany to Austria, GCA is proposing the expansion of the existing West-Austria gas pipeline.
Germany is now working on building several LNG regasification terminals. LNG, Liquefied Natural Gas, plays a key role in the diversification of gas supply. Although it takes several years to plan, build and connect LNG terminals like this to the existing pipeline network, this is still faster than opening up new gas fields and then building many kilometers of new pipelines. The LNG for the new terminals will probably come by sea, mainly from the USA, Australia, Qatar and North Africa.
OMV has LNG capacities at the LNG Terminal Gate in Rotterdam that were booked many years ago in the interests of diversification.
For the gas year 2022/2023, OMV has secured additional European transport capacities to Austria amounting to 40 TWh. This corresponds to almost half of Austria’s annual demand and covers OMV’s supply obligations to its customers.
This allows us to bring the gas we produce ourselves in Norway, the gas from contracts with other Norwegian producers and also purchased LNG volumes to Austria as needed and supply our customers”
Jörg Weissgerber, Department Manager Logistics
Gas storage – and why we need it
Mother Nature has the best gas storage facilities: When it comes to storing gas, it is best to return it to where it came from. Gas storage facilities usually involve underground gas reservoirs that have had their gas extracted, or more precisely, porous rock into which gas is injected again. Gas storage facilities traditionally have an economic function: Since gas demand is lower in the warm season, and the gas price is usually lower too, gas traders buy gas at more favorable conditions in the summer and use underground facilities as interim seasonal storage. However, this rule of thumb is holding true less and less: “The price for storage capacities is increasingly determined by the price fluctuations in the different regions”, explains Jörg Weissgerber.
In any case, the gas stored in the storage facilities belongs to those gas traders who have booked and paid for the respective storage capacities. OMV is one of four gas storage operators in Austria. OMV Gas & Storage GmbH sells storage capacities to gas traders and operates two storage facilities in Austria and one in Germany. OMV Gas Marketing & Trading GmbH is also a customer of the OMV storage company and stores its own gas here.
Looking ahead: Storing natural gas for times of crisis
The strategic gas reserve is a state-controlled stockpiling of natural gas in gas storage facilities; a corresponding law was passed in March 2022. With a second tender for the purchase of natural gas, a further 12.3 terawatt hours (TWh) of gas were purchased in summer 2022 and the corresponding storage capacity was secured. This means that a total of 20 TWh of gas will be available for Austrian consumers from November 1, 2022. This quantity roughly corresponds to Austria’s average gas consumption for two months of winter. The contract for the purchase of the natural gas was awarded to Austrian Gas Grid Management (AGGM). Besides the strategic gas reserve several natural gas companies store gas on their own accounts and so does OMV.