Statoil:“This is a tough time for the gas industry, but it’s a necessary time”

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Lars Troen Sørensen, Head of UK Energy Policy and Regulatory Affairs, Statoil
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As part of our series of interviews with Europe’s gas leaders, we had the pleasure of interviewing Lars Troen Sørensen, Head of UK Energy Policy and Regulatory Affairs at Statoil to find out about his perspective on the European gas market. Read the transcript below.

This is the first part of a 2-part interview.

Gastech News: What are the key issues affecting your business within the gas industry today?

Lars Troen Sørensen: All energy companies are facing the same issues today: falling commodity prices, over-supply and falling demand. To come through a down cycle like the one we are in now, we need to adapt the cost levels. We need to do the same things with fewer people and we need to go through our projects to improve economics. All those processes are going on at Statoil, and in all other oil and gas companies as we speak.

Gastech News: Talking about reducing costs, how is your relationship with key suppliers, and how are you working together to maximise business?

Lars Troen Sørensen: We’ve always had a very close relationship with our supply industry. That supply industry is in close discussions with us now. We work on how to do things cheaper and more efficiently. We try to see whether we can re-negotiate the terms; whether we can work in better ways; and whether we can develop or use technology differently to cut capex. That’s one part of it; in our own company we are cutting down on staff, we almost cut 20% of our staff already. We have an improvement program that was to save $1.7 billion by the end of 2016. We have already saved $1.9 billion, so now the threshold was raised to $2.5 billion. This is, of course, a tough time for all of us, but it’s a necessary time. It’s a necessary resetting of the cost levels within our industry. We just have to go through that and make sure we become permanently more competitive. To be able to pick up the rise in commodity prices that we all believe we will see, when the cycle turns around.

Gastech News: What’s your view about policymakers in Europe and their involvement in the gas debate?

Lars Troen Sørensen: This is a long-term, strategic industry for all countries. Policymakers need to be involved in regulating the energy sector. They are supposed to make regulations around us and they’re supposed to be very interested in what we’re doing.

The issues of course for any country are to balance security of supply and affordability so that consumers get the energy they need at the cheapest price available. And the energy mix has to be sustainable. Right now sustainability is in focus - especially decarbonisation. But sustainability is more than just decarbonisation. Decarbonisation is an important part of the triangle of security of supply, affordability, and sustainability, and that needs to be balanced. There’s a political need to steer that, but sometimes politicians don’t only steer, they micromanage things. When you micromanage things, free market mechanisms don’t work anymore. So we have to be extremely careful that the regulations are around the free market and to let the free markets work. Free markets will ensure that energy is moved to where it’s supposed to be at the right price.

Regulation and politicians are here to stay, though. We can’t work without them and we shouldn’t. These are very necessary parts of the play. However, we have to be very careful that politicians concentrate on the governance and the framework, and then let the free markets work within that. For a long term industry as energy, long-term predictability for the framework and the governance are essential to attract the necessary investment.

Gastech News: With regards to small-scale, do you agree that “small” is beautiful and important for the gas market?

Lars Troen Sørensen: We have one LNG facility that is producing, we have some others we’re thinking about, but obviously, it’s a challenging time for LNG projects right now. There’s a lot of LNG coming into the market in these years and we have to be looking long-term and whether we want to launch new projects. The long-term view is that LNG is an important factor linking the different gas markets in the world, so it becomes a global market. Actually, it is already a global market; we’ve seen how the U.S. gas prices have now transferred both to Asia and Europe. LNG is a fantastic enabler to make a global market instead of a couple of regional markets that it has been so far.

Whether “small” is beautiful, is difficult to say. It’s necessary to have some size to ensure economies of scale. This will push cost levels down, the more stakeholders that are in the market, the more liquid it is. However, they can’t be so small that the cost of running each unit is too high, you have to strike a balance.

This is part one of a two-part article, the second half will be published shortly. This interview was taken in February 2016.

Lars Troen Sørensen, Head of UK Energy Policy and Regulatory Affairs at Statoil & A member of the European Autumn Gas Conference Executive Advisory Board.

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Interested in meeting senior executives and management teams from the world’s largest gas and energy companies operating in Europe? Join Lars Troen Sørensen at the European Autumn Gas Conference in The Hague, 14-16 November 2016.

More on Europe’s gas and LNG:

Image courtesy of Statoil.