Climate-related business resilience and the energy transition

OMV aligns the boundaries and time horizons of its business strategy with the foreseen short-, medium-, and long-term risks and impacts of climate-related policies and energy sector developments. Scenarios consistent with the goal of limiting the global temperature increase to no more than 2°C by reducing greenhouse gas emissions are of utmost importance for our strategic considerations as they imply fundamental changes to the current energy market. We are aware of the potential risk of stranded assets if we cannot fully exploit our reserves due to surpassing the global carbon budget. During the strategy development and planning processes, OMV has taken into account scenarios reflecting various aspects of potential economic, technological, and social developments and their implications for the energy market and, consequently, for our business. The results of our analysis have shown what impact different national and international emissions targets will have on the passenger and freight fleet in Europe and OMV core markets. This influenced OMV’s business objectives and strategy.

OMV currently still uses the International Energy Agency (IEA) Stated Policies (SP) Scenario, given that it incorporates current and announced (not yet fully realized) policies, targets, and plans. Based on the IEA SP Scenario, we projected the development of the oil and gas demand in Europe and in the OMV core markets up to 2025. The results of the analysis show an expected increase in petrochemical and jet fuel production volumes and a decrease in gasoline, diesel, and heating and fuel oil volumes. In general, according to the IEA SP Scenario, changing demand will lead to a less carbon-intensive fuel mix.

The IEA 450 Scenario and Sustainable Development Scenario¹The 450 Scenario takes into account policies which put the world on a path consistent with having around a 50% chance of limiting the global increase in average temperature to 2°C in the long term, compared with pre-industrial levels. The Sustainable Development Scenario – introduced by IEA for the first time in the World Energy Outlook (WEO) 2017 and derived from the UN Sustainable Development Goals – outlines an integrated approach to achieving internationally agreed objectives on climate change, air quality, and universal access to modern energy. (www.iea.org) were used by OMV as a downside sensitivity option to determine how the existing and future OMV business portfolio would perform in such a business scenario.

OMV’s inherent drive to contribute to a sustainable energy system – today and beyond – has already led to innovative and successfully implemented projects. In the interest of building on this strong foundation and enabling OMV to spearhead the energy transition toward a climate-friendly energy system, the Executive Board decided to establish the new function called New Energy Solutions (NES) in 2019. NES will focus on Group-wide portfolio management, an effective ideation and project maturity process as well as promoting an encouraging corporate culture. The Group-wide strategic aim of NES is to reduce the carbon footprint of OMV’s existing business and in parallel to develop innovative energy solutions. This dual approach takes into account the expectations of political and public stakeholders while ensuring sustainable business success. It also secures OMV’s social license to operate in line with the expectations of the Paris Climate Change Agreement.

We are taking the following steps to manage our portfolio to ensure that our business remains resilient even under stricter legislation and in view of a changing mix in global energy demand:

Increasing our focus on gas products

We are designing our product portfolio for lower carbon intensity stepping up our sales of natural gas, CNG and LNG, to be prepared for the growing demand for these products (for more details, see Focus on gas products and Focus on future mobility).

Increasing our focus on petrochemicals

We are increasing our focus on petrochemicals and exploring the suitability of plastic waste for producing synthetic crude on a commercial basis, thereby addressing key future trends, such as the circular economy. Substituting post-consumer plastics for crude oil is estimated to reduce CO₂ emissions by 45% and lower energy demand by 20% per t of the product (for more details, see Circular Economy).

Exploring opportunities for innovative low-carbon products and other solutions

We are researching alternative feedstocks and intensifying our focus on the production of sustainable biofuels by way of Co-Processing (for more details, see Biogenic Oil Co-Processing). The high degree of integration within OMV refineries reduces greenhouse gas emissions from Co-Processing by up to 85% compared with the EU standard for similar finishing steps for biofuels. In addition, we are researching and exploring new technologies, such as hydrogen solutions (for more details, see Hydrogen). Furthermore, we are looking into carbon reduction and abatement technologies, such as carbon capture, utilization, and storage (CCUS), and have started a CCS pilot project in Austria. We are also building up our own renewable power portfolio for captive use as a cost-effective way to decarbonize Scope 1 and 2 emissions. For example, OMV is building a photovoltaic plant in Austria, which will be the largest photovoltaic plant in Austria, generating 14,200 MWh of power annually.

Setting an internal carbon price and including carbon reduction in financial steering

As early as 2015, we introduced an internal carbon price to test our investment decisions. Using the carbon price, we run sensitivity analyses of project financials with increased operating expenses (OPEX) from carbon costs. The internal carbon price allows us to factor the hypothetical carbon costs into our investment estimates and the engineering designs of projects. Such analyses protect the value of our new investments under future scenarios with increased carbon costs and increase business resilience to potential changes in climate-related taxes or trading programs. They also increase the transparency of additional economic incentives for carbon emissions reduction initiatives. The internal carbon price system is currently under review in terms of the internal carbon price levels applied and strategic management. In 2019, OMV introduced risk-adjusted return expectations in its financial steering model for carbon reduction projects as well as new energy solution projects.

Pursuing low-cost Upstream production with a gas focus

OMV’s Upstream business generates profitable growth through its high-quality portfolio, while remaining focused on cash generation. Our current production mix is 57% gas and 43% oil. By 2025, the share of gas is projected to increase to more than 65%. Portfolio growth is achieved through acquisitions in low-cost, hydrocarbon-rich regions, as well as through organic exploration and investments. Our exploration focus is on near-field, short-cycle finds. Average production costs will be below USD 8/boe.

Operating an integrated value chain with flexibility

OMV operates international Upstream and Downstream assets. OMV’s fuels and petrochemicals enable mobility, provide heat for living and working, and form the basis for a variety of plastics and high-end petrochemical products used every day. OMV’s vertical integration establishes a strategic natural hedge against oil price volatility. OMV generates material and sustainable cash flows and has proven to be resilient in a volatile market environment. It also has the ability to capture attractive opportunities in two different segments as well as in various markets.