Business Resilience

The COVID-19 pandemic had a significant impact on energy markets worldwide in 2020, disrupting supply and demand dynamics. The global economy is now bracing for a multi-year recovery with a strongly divergent pace among different regions. In the short to medium term, energy demand will again grow but will be coupled with the risk that some changes in consumer behavior may remain, especially in strongly affected sectors like tourism and aviation. Thanks to the announcement of the European Green Deal, renewable energy outpacing the crisis, and many countries declaring net-zero carbon ambitions, 2020 can be considered a landmark year for the global energy transition. This will have a sustainable impact on the energy markets in the medium to long term. 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.

Scenario Analysis

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.

OMV currently still uses the International Energy Agency (IEA) Stated Policies Scenario (STEPS), given that it incorporates current and announced policies, targets, and plans. Based on the IEA STEPS, 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 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 STEPS, changing demand will lead to a less carbon-intensive fuel mix.

In comparison to the IEA STEPS analysis, the IEA Sustainable Development Scenario (SDS) was used by OMV as downside sensitivity to generally understand how the existing and future OMV portfolios perform in such a business scenario. The SDS charts a path fully aligned with the Paris Agreement by holding the rise in global temperatures to well below 2°C and meets objectives related to universal energy access and cleaner air. For this scenario, a thorough analysis was performed regarding the assumptions behind it and their implementation in an OMV model in order to understand the long-term financial consequences for OMV. For example, the CO₂ price from the IEA SDS for the year 2040 was applied to OMV key indicators projected for 2040. The estimated impact was at least EUR 1 bn. Applying the IEA’s price assumptions in this scenario to a volume of 13 mn t for 2040 compared to the base line assumed in our financial planning could lead to an impact of at least EUR 1 bn.

Global Energy Demand by Primary Energy Sources

In bn toe

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. OMV has introduced lower return on investment specifications for projects that will reduce GHG emissions. These risk-adjusted return expectations in the financial steering model apply to carbon reduction projects as well as new energy solution projects.

Pursuing Low-Cost Upstream Production With a Gas Focus

In a rapidly changing world, OMV is revising its volume targets for 2025. The initial goal of reaching a production volume of 600 kboe/d and 1P reserves of 2 bn boe by 2025 will no longer be pursued. Going forward, the Upstream portfolio will be operated for value, cash flow will be harvested, and there will be a strong emphasis on gas. OMV expects to maintain a production corridor of approximately 450–500 kboe/d until 2025, with an overweight on gas, and achieve a production cost below USD 7/boe.

Diversifying Our Products

In 2020, we took a major step in diversifying our product portfolio through acquiring a majority stake in leading polyolefins producer Borealis. With full control of Borealis, OMV Downstream increases its base chemicals production and extends its value chain to polyolefins and fertilizers. The joint production capacities make OMV the top producer of ethylene and propylene in Europe and one of the top ten polymer producers worldwide. The acquisition is a strategic extension of OMV’s value chain into high-value chemicals. This provides a natural hedge against the cyclicality of each value chain step with respect to both volumes and market spreads, de-risking OMV’s exposure to volatile markets. With the Borealis acquisition, OMV is shifting emphasis to products with strong growth prospects which are also in demand in a low-carbon world (for more details, see Petrochemicals and Plastics).

We are designing our product portfolio for lower carbon intensity by stepping up our sales of natural gas, CNG, and LNG so that we are prepared for the growing demand for these products (for more details, see Future Mobility).

We are 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 carbon emissions by 45% and lower energy demand by 20% per t of product (for more details, see Circular Economy). We are also researching alternative feedstocks and intensifying our focus on the production of sustainable biofuels by way of Co-Processing (for more details, see 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).