The oil and gas industry is undergoing a transformation. This is due to huge investments and growing costs of exploration and production, where there’s a strong increase of oil production from unconventional sources in the US, and refinery overcapacity in Europe. There is also increasing competition stemming from the Middle East and India. Coupled with changing product trade balances between the US and Europe, vast changes are happening in the demand and the development of new fuels.
Demand for energy in general in developed economies is in decline, in terms of the energy needed to generate additional units of GDP, due to advances in technology and energy efficiency. The current unfavourable economic situation in Europe has also affected demand for refined products and gas. Now and into the foreseeable future, emerging economies will drive global demand growth for oil and gas.
Some of the trends coming to the forefront are increases in offshore oil and gas production, which is expected to equal on-shore production in the next 20 years, and re-exploration of onshore reserves. Developing countries still continue to be one of the most important targets of new explorations.
Risk-based operations
Today, companies are forced to conduct more risky explorations in extreme geographical, climatic or political conditions, where exploitation and production becomes difficult, and simpler options have disappeared. For example, the cost of setting up one rig onshore is $1m, but offshore this cost is significantly higher, where the cost of drilling in the Adriatic Sea is $50m to $70m. Often, the geologic picture is not enough, nor is it crucial for estimating the feasibility of investment.
Did you know?
Total energy consumption is almost 6 times what it was in 1950 & per capita use has nearly doubled
Besides exploration and production challenges, the industry has to tackle the issue of climate change and resilience. If we take into consideration that total energy consumption per year is almost six times what it was in 1950 and that per capita use has more than doubled, it is clear that the oil and gas industry has to develop capacities for flexibility and adaptation in order to ensure long term sustainable business operations, and security of supply.
According to the National Intelligence Council, demand for water, food and energy will grow by another 50 percent, primarily due to development in Asia, Africa and South America. Having in mind the planet’s limited recourses, energy companies will have to find ways in which to minimise the use of natural resources like water – production of energy is water intensive – and decrease their greenhouse gas emissions.
INA leads the way in Croatia
As a medium sized European oil and gas company, INA leads production in Croatia, with oil processing and oil products distribution activities. Given the big energy transformation currently taking place in Europe, INA has been intensifying its exploration activities both in the continental part of the country and offshore, driving the social and economic development of Croatia, while reconciling environmental, economic and social demands into a long-term coherent sustainable strategy.
State regulations are still one of the major issues for investors and companies in Croatia. Legal uncertainties caused by frequent amendments and the change to EU regulations are a significant obstacle for investment. Other important issues that influence the business climate are complicated public administration, high para-fiscal charges and frequent changes in the tax-code.
Croatia entered the EU on July 1, 2013, which marked the start of the new game realities for Croatian energy companies
Over the years, development of Croatian energy policy was closely linked to the process of accession to the EU. The main goals of energy policy are the continuity (safety) of energy supply, competitiveness of the energy system and sustainable energy development.
Croatia entered the EU on July 1, 2013, which marked the start of the new game realities for Croatian energy companies. In that respect, the Croatian energy sector is focused on increasing the exploitation of energy sources to satisfy domestic needs, but also to potentially become an exporter of certain energy sources, including natural gas.
To facilitate investments and the entrance of new market players, the state passed a new mining act in May 2013, which made prerequisites for new investments, and the new Hydrocarbons Exploration and Exploitation Act two months later. The government announced that this year it would publish first tenders for oil and gas exploration in the Adriatic Sea.
INA, as a recognised and desirable partner is ready to apply and set strong partnership with some distinguished oil companies, not only in Croatia, but also on the territory of Montenegro. Unique regional knowledge – in terms of quality insight in geological terms and specifics of the local market – puts INA into advantageous position and could therefore be a good ally to any oil and gas company in the forthcoming upstream projects.
Tertiary methods on the domestic market
Since it was founded, INA has been involved in exploration and production operations in 20 countries. Today, it is focused on Angola and Egypt. Until 2012, the company conducted successful business operations in Syria where it participated in exploration activities with peak production in 2011. In order to secure long-term sustainable business, INA will focus on exploration and acquisition of reserves abroad in the coming period.
The use of tertiary methods is on the rise in order to revitalise mature oil reservoirs. These methods use the most gas injection of CO2, which increases the level extraction by more than 60 percent. According to the International Energy Agency, such enhanced oil recovery techniques could release around 300 billion barrels of oil globally. Oil fields in Croatia are around 30 years old, and the older they get, the faster the drop in production.
INA goals for the next two decades
3.4m
Tons of oil
500m
Cubic metres of gas
Therefore, the company turned to extracting additional quantities of hydrocarbons from older fields using the mentioned technologies. This year INA is going to start extracting additional quantities of hydrocarbons in domestic oil fields, using for the first time enhanced oil recovery methods in Croatia. The project includes injecting CO2 and water into partially depleted oil reservoirs, and besides the economic dimension, it also brings ecologic value due to decrease of CO2 emissions.
Over the next 20 years and further, INA expects to extract an additional 3.4 million tons of oil and approximately 500 million cubic meters of gas using this and similar methods.
Likewise, the company plans to fracture and explore unconventional reservoirs on several rigs. First unconventional drillings had been made in late 2013. Along with this, the company is focused on increasing the production of hydrocarbons from existing onshore fields, and produce additional significant quantities of hydrocarbons in the following years.
Fighting an unfavourable environment
For five decades now, INA has been one of the strongest Croatian companies and a reputable regional energy company. Introducing the new corporate governance model in 2009 its management has set the preconditions that enabled INA to be more adaptive to the market and to answer the business challenges in a more efficient and successful manner.
The current economic environment in the eurozone is unfavourable, and Croatia has been in recession for the past five years, which has resulted in a drop of demand. In such an environment, INA still invests more intensively in order to ensure stable oil and gas production and supply.
Currently, it is the only company in Croatia with the necessary knowledge, experience, equipment and projects that can accelerate exploration activities onshore. Those activities were significantly intensified during last few years, and therefore became a major growth factor for capital investments. Moreover, INA made three discoveries of oil and gas in the past three years.
In the refining sector INA operates in an increasingly harsh environment, as the European refinery sector is facing a number of structural trends that have led to shutdowns of almost 20 European refineries in the past five years, and the trend is continuing. After $1bn of investments into refineries in last five years, we need to review our further investments in this segment, due to a challenging business environment, including economic and industrial aspects.
Innovation and sustainability in retail
INA holds the leading position in retail and manages a regional network of almost 450 petrol stations. Advanced retail services are in the focus of INA’s business, and sustainability plays a significant part. With this in mind, INA started a project named “Energy for the future” aimed at building a self-sustainable, ecologically acceptable and innovative petrol station.
Now and into the foreseeable future, emerging economies will drive global demand growth for oil and gas
As the leader in applying sustainable practices, INA wants to set new standards in Croatia by applying green technologies in the energy retail segment, and offer added value to its customers and the community in accordance with its commitment to promote energy efficient projects.
New petrol stations will use different technology solutions for more rational usage of resources needed for everyday work, including storage and usage of heat in the heating system, using alternative energy sources in the cooling system, use of rain water, as well as using nanotechnology, LED lightning and recycled materials wherever possible.
Over the last couple of years INA has focused on most promising aspects for its long-term survival, by finding and exploring new gas and oil wells in order to secure supplies. Operating in a turbulent environment the company, like other energy companies, faces the challenges of ever-accelerating change.
Constant effort in maintaining its solid financial position have also stabilised the gearing levels at less than 30 percent at the end of 2013, from the dangerous 44 percent level in 2010. The crisis opened creative potential, which promotes positive effects and maintains motivation.
We share realistic optimism, which means that we do not expect that in 2014 and beyond things will improve on its own. Rather, we will continue to seek new opportunities to improve our future performance, while grasping the future as it emerges, while at the same time exploring and taking advantage of current trends.
