Igor Sechin Presents Keynote Speech at Special Session of 15th Verona Eurasian Economic Forum
Igor Sechin, Chief Executive Officer of Rosneft Oil Company, presented the keynote speech “The Flood on the Energy Market. The Second Abduction of Europa” at the Special Session of the 15th Verona Eurasian Economic Forum.
The Special Session titled “The new reality of commodity and energy markets” has been attended by Ravshan Najaf, President of SOCAR; Hardeep Singh Puri, Minister of Petroleum and Natural Gas of India; Ganbaatar Jambal, Minister of Mining and Heavy Industry of Mongolia; Andrey Kostin, President and Chairman of VTB Bank; Rajarshi Gupta, Managing Director of ONGC Videsh; Antonio Fallico, President of Association Conoscere Eurasia; Romano Prodi, President of the Foundation for Worldwide Cooperation.
The session was moderated by Aleksandr Dynkin, President of the Institute of World Economy and International Relations (IMEMO), and Alessandro Cassieri, correspondent of the Italian state broadcasting company RAI.
In his speech, Igor Sechin remarked on the end of the “era of plenty” and the beginning of the crisis of globalisation. The head of Rosneft called Europe, which had lost its identity, “the primary victim of U.S. policy” aimed only at extending its own hegemony as far as possible. “However, the world has changed for everyone, including the United States,” Igor Sechin said.
The head of Rosneft also spoke about the Company’s operational successes, such as the launch of the major Kharampur gas project, which had been commissioned on time despite a lack of funding from partner BP, and a significant increase in oil reserves at the Company’s flagship Vostok Oil project.
MULTIPOLAR WORLD AND TRUE MULTILATERALISM ARE THE ONLY TRUE PATH FOR HUMANITY
“Today the world is undergoing a profound transformation, entering a new period of upheaval and transformation ... These serious challenges make it clear to everyone that a multipolar world and true multilateralism are the only true path for humanity,” Igor Sechin quoted Russia’s President Vladimir Putin, adding that the global ongoing transformation was probably the largest tectonic shift for the humanity for at least a century.
Neither the pandemic, nor the Ukrainian crisis, nor energy and economy problems in general were the root cause of the ongoing global tectonic changes, Rosneft CEO noted.
“The United States are forced to fight to maintain their hegemony at all costs and cannot afford surrendering in this struggle, because the loss of hegemony—financial, military, political and economic one—means for them the impossibility of reproducing themselves as a country, economy and political system,” Igor Sechin stressed.
As a result, the politics destroyed the economy completely, the head of Rosneft argued. “Energy market is the most vivid illustration to that: the sanctions pressure reaching its culmination, which has now turned into sabotage—to what happened to the European gas transportation system, Nord Stream,” Igor Sechin said.
“There is no single energy market anymore. There are no rules. The high volatility that has been observed throughout the last decade has become unprecedented today,” Rosneft CEO noted. In his opinion, the trends outlined earlier and those that may manifest themselves suddenly act independently, do not absorb each other, completely destroying the foundations of law, private property and the market like a cumulative projectile.
GREEN GAMBLING IS THE ROOT OF ENERGY CRISIS
“The sources of the current artificially created energy crisis are not the events in the Ukraine or the pandemic, but the enormous industry underinvestment, one of the causes of which is the irresponsible and adventurist policy of accelerated green transition. And further anti-Russian sanctions as a powerful additional catalyst of the energy crisis and inflation in general,” Igor Sechin stated.
The head of Rosneft emphasised that the “green transition” policy had nothing to do with solving climate problems. “At present, the technologies necessary to implement a truly effective transition from conventional energy to low-carbon energy are not available,” he said.
ENERGY RESOURCES FOR THE “RIGHT” COUNTRIES
Igor Sechin drew the audience’s attention to the fact that there was no longer any competition on the energy market in Europe. “Here is yet another European Union innovation—procurement centralisation. Up to 15 percent of the gas purchased for storage in Europe is supposed to be purchased and distributed through the European central station, which will now decide who and on what terms will be allowed to allocate resources. And the European Commission believes that the rise in gas prices is caused by the competition for suppliers. Until now, in market economics it was believed that suppliers’ competition and supply sources diversification are the main tools for lowering prices,” the head of Rosneft explained.
“In essence, the introduction of ceilings is an attack not only on the fundamentals of the market, but also on the fundamentals of sovereignty,” Igor Sechin said in his keynote speech at the Special Session of the 15th Verona Eurasian Economic Forum. He explained that the idea promoted by the West was to abolish sovereign rights of countries to their own resources, because the “right” countries, which lacked resources, would need them more than the “wrong” ones.
“Of course, the U.S. itself is not affected by these restrictions,” Rosneft CEO said.
He stressed that people in Europe were already openly accusing the United States of profiting from the energy crisis that they had provoked themselves—that is, from the problems of their allies, as the gas prices in the U.S. were five times lower than in Europe, to which they had imposed their LNG. Nevertheless, European officials offer their own ill-advised justifications for the energy crisis.
LACK OF INVESTMENT AND REJECTION OF RUSSIAN HYDROCARBONS LEAD TO ACUTE ENERGY SHORTAGES
“Oil and gas remain the world’s main source of energy, reliably supplying more than 50 percent of global demand. 36 percent is coal, and its share is growing for reasons you know. At the same time, huge investments in renewable energy, the amount of which over the past seven years exceeded the incredible $2.6 trillion, did not bring results: the share of renewable energy during the same period grew by only 3 percentage points,” Igor Sechin said.
According to Goldman Sachs analysts, previous years of significant underinvestment in the industry (from a peak of $900 billion a year to $300 billion in 2020) have resulted in the average proven global reserves availability reduced two times, from 50 to 25 years. Insufficient exploration scope often no longer provides even simple replenishment. According to Rystad Energy analysis, global recoverable oil reserves and resources have declined by nearly 9 percent by early 2022.
According to Igor Sechin, the quantitative dynamics of gas reserves is alarming. For instance, according to OPEC, global proven gas reserves have been declining for the past two consecutive years, dropping to 205.9 trillion cubic metres in 2021 (-0.5 percent YoY). The urgent need to replace global gas reserves is also reflected in the reserve replacement ratio, which in recent years has been steadily declining—towards its lowest level since 1975 reached in 2021.
“The accumulated lack of investment, as well as the rejection of Russian hydrocarbons lead to acute energy shortages and prices increase, spinning an inflationary spiral around the world,” Rosneft CEO said. Meanwhile, leading European energy companies keep reducing their investments in the oil industry under pressure from climate policy, despite the energy crisis in the region. For example, Shell announced the complete cessation of exploration in new basins by 2025, and ENI intends to bring the share of gas in production to 60 percent in 2030 and 90 percent by 2040, reducing oil production.
“On the other hand, amid high energy prices and rising industry profitability, many majors, including BP, which previously positioned themselves as leaders of green transformation, have dramatically changed their approach,” Igor Sechin noted.
The head of Rosneft reminded the audience that even at the present day, BP was not just claiming a return of interest in both U.S. shale and North Sea offshore production, but had already begun offshore investments in the Alligin and Vorlich projects, which, according to geologists, together contained about 7 million tonnes of oil equivalent.
The situation is aggravated by the fact that investors are reluctant to invest in long-term projects in the current environment. Goldman Sachs estimates that the share of investments in oil and gas projects with a quick payback period has increased from 37 percent of all investments in the industry in 2010 to 60 percent today, but there are simply not enough of these highly profitable projects and they can’t meet long-term demand.
According to the forecast of J.P. Morgan, if the current investment trends persist, the global energy deficit observed in 2022 will increase sevenfold by 2030. To eliminate this deficit, investments in the conventional energy sector should be increased annually by an average of $100 billion by 2030, including $44 billion in the oil industry.
The Biden administration’s policy on fossil fuels and its public statements are not conducive to an investment-friendly environment either. The White House may be demanding additional supplies from producers today, but its policy priorities are focused on eliminating the need for them within just five years. Meanwhile, such a time frame is extremely small for an industry, whose investments often last 20 years or more.
At the moment, the Biden administration’s energy policy is addressing purely electoral objectives with a planning horizon of two weeks. Those included attempts to persuade Saudi Arabia not even to abandon production cuts, but simply to delay the announcement of the decision until after the US congressional elections, Rosneft CEO observed.
“And I would like to take this opportunity to express my respect for Saudi Arabia’s balanced position, free of political conjuncture, based on an objective analysis of the supply and demand balance and ensuring the stability of the world oil market,” Igor Sechin said.
YEN, POUND AND EURO MIGHT GO UP IN FLAMES OF THE CRISIS
Since the beginning of the “American global cycle”, the Fed and the US dollar have remained the main regulator—the instrument for manipulating the global market, Igor Sechin noted. Along with sanctions, the Fed and the US dollar remain a traditional tool for manipulating the global market, he said. The United States has turned the dollar into the world’s ultimately dominant reserve currency.
Since the end of 2021, foreign investors have reduced their investments in US government debt by $238 billion. The share of the US dollar in the world’s central banks’ foreign currency reserves has fallen to 55 percent, the lowest since 1995. “Dollar is strengthening in U.S. allies, of which there are enough, at least for now. But it is not the whole world. The major economies of Southeast Asia are more and more often settling accounts directly with each other,” Igor Sechin said. Amid arbitrary seizures of accounts, transactions, sovereign funds and foreign exchange reserves, central banks in Asia and the Middle East are setting up bilateral currency swap lines to strengthen their own financial systems and reduce risks of dependence on the dollar. “We are witnessing the desire of the states that want to maintain their sovereignty to move away from the settlement of accounts in dollars. It is a slow but irreversible process,” the head of Rosneft stressed.
“The aces used by the US to create a strategic advantage are, along with the armed forces, the use of the entire US credit and financial system and all the capabilities of high-tech companies for military purposes to achieve a military result,” Igor Sechin said in his speech.
“The world has changed for everyone, including the United States. And the resource that they gained in the last century as the issuer of world currency, the ability to influence billions of the earth population through the control over global network, thanks to which they believe in their omnipotence, this resource is ending,” Rosneft CEO believes. In his view, civilisational algorithms have led to the development of other centres of influence: the positions of China, India, Russia and others can no longer be ignored.
However, the United States persist in exploiting the same resource, yet its effectiveness is steadily declining. “Today, they are best able to use this resource effectively, which includes manipulation of the dollar, against their allies. For example, the yen, the pound and the euro are the most affected by Fed policy. They are the ones in danger of going up in flames of the crisis for the sake of saving the dollar,” Igor Sechin said.
LOOKING PAST “UNFRIENDLY” STATES
During his presentation at the Special Session of the XV Verona Eurasian Economic Forum, Igor Sechin, Chief Executive Officer of Rosneft, noted that the important thing was to ensure a rapid transition to financial cooperation without looking to “unfriendly” financial centres, to organise clearing settlements, first between China and Russia, which other interested countries (EAEC, SCO, BRICS) could join later.
“It would be desirable for the Russian regulator to be more active on this pressing issue as well,” Rosneft CEO said.
According to Igor Sechin, the investment deficit associated with green transition problems and secondary sanctions at the corporate level are contributing to fostering regional ties. He said the emphasis was increasingly placed on strengthening cooperation between growing markets.
“The countries of Southeast and Central Asia, Latin America and Africa are increasingly focused on strengthening ties, coordinating with Russia, China and India,” the head of Rosneft said.
SEVEN HORSES IN THE CHARIOT OF THE SUN GOD
Igor Sechin noted that in 2022, India had become the 5th largest economy in terms of GDP and had the highest growth rate among major economies (averaging 6-8 percent in recent years). “The plans of Honourable Prime Minister Shri Narendra Modi to improve energy availability to every citizen of the country has made India the key growth driver of the global demand for energy resources,” Rosneft CEO said.
The head of Rosneft said that India’s energy vision focused not on one or two priorities, but on the balanced development of all energy sources: as Narendra Modi figuratively put it, those were “seven horses pulling the chariot of the Sun God”—India’s energy sector and the economy as a whole. The inflow of foreign direct investment into India has increased from $4 billion in 2001 to $82 billion in 2021.
The expansion of energy supplies, above all oil and gas, has greatly increased Russia’s share of India’s imports. While Russia’s share was 1.6 percent in the financial year 2021/22, it reached 4 percent in April and May 2022.
Rosneft values cooperation with oil and gas corporations in India, which in fact is developing along the entire technological chain. Together with Indian companies, Rosneft is implementing three major production projects in Russia: Vankorneft, Taas-Yuryakh Neftegazodobycha and Sakhalin-1. “Rosneft is Russia’s largest strategic investor in India’s economy,” Igor Sechin said.
NEW OPPORTUNITIES FOR THE WORLD
Igor Sechin noted that China had always offered cooperation as part of its development as a new opportunity for the world. The 20th Congress of the Chinese Communist Party, which has now become historic, identified the main development priorities: strengthening national security, social stability and technological sovereignty. For example, Xi Jinping noted at the 20th Congress that China was promoting an open global economy that benefited the people of all countries.
China’s economy had been one of the main drivers of global economic growth for decades, Igor Sechin noted. Over the past 20 years, China has made enormous progress in terms of not only economic growth but also the prosperity of its population and the rapid shift of its export-oriented economy towards domestic demand. The growth in this demand is impressive. In Credit Suisse’s Global Wealth Index, China’s figure of $6,752 at the end of 2021 surpassed the European average for the first time. At the same time, China ranks first in terms of prosperity growth. An eightfold increase from 2000 through 2021.
All decisions of the Congress are distinguished by their strategic, thoughtful and integral approach. Their implementation will without a sliver of doubt ensure a new level of development for China on all fronts.
China’s leaders command great respect by expressing their views calmly and openly, without false presumptions, even on the most difficult issues such as Taiwan. It seems that the frenzy around it is, as usual, provoked for afar. But Igor Sechin said he was confident it would calm down.
Igor Sechin reminded the audience that on 9th August, President Biden had signed the so-called “chip law”, the purpose of which was to accelerate the establishment of a full production cycle in the US for complex logistical microchips, which were being imported from Taiwan almost in its entirety. The whole package amounts to about $200 billion, including tax credits and research incentives, but the $52 billion US manufacturing programme itself is also set to run until 2027.
“Thus, we can assume that this programme is a roadmap to returning Taiwan to its home harbour on schedule,” said Rosneft’s head.
KHARAMPUR ON SCHEDULE
Global economic turmoil and a complete lack of partner financing had had no impact on Rosneft’s plans to launch its major gas project at Kharampur, Igor Sechin said. “Joint projects with BP are still progressing well; for example, in September, despite the lack of funding from the partner, we commissioned the major Kharampur gas project on schedule, which increased the Company’s production by 11 billion cubic metres of gas per year,” the head of Rosneft informed.
Igor Sechin noted that BP’s shareholdings and joint ventures with Rosneft amounted to $37 billion with a total cash investment of about $10 billion. “This is an excellent return on the capital invested,” the Rosneft head added.
He also mentioned that BP remained a shadow shareholder in Rosneft despite the board’s emphatic statements in February and did not participate in the Company’s governing bodies, retaining all rights and dividends corresponding to the shareholding. “I would like to take this opportunity to advise our friends at BP that the $700 million dividend due to them for the second half of 2021 has been transferred to the accounts,” Igor Sechin said.
VOSTOK OIL TO ENSURE OIL MARKET STABILITY
Vostok Oil was the world’s only greenfield project capable of meeting the growing need for affordable energy resources amid underinvestment and a lack of meaningful sources of production growth in the near term, Igor Sechin, Rosneft’s chief executive officer, said.
“Having made the strategic decision to “pivot to the East”, Russia is consistently stepping up energy supplies to the Asia-Pacific region. With the development of infrastructure, Russian oil exports to China and India exceeded 80 million tonnes in 2021. Vostok Oil will more than double oil supplies to the growing Southeast Asian market, primarily to our partners in China and India, and will provide reliable and assured energy supplies to the growing economies of all Asian countries,” Igor Sechin said.
“We are committed to a mutually beneficial partnership along the entire supply chain, from production to the sale of fuel to end consumers. Vostok Oil will ensure long-term stability of the oil market and reduce price volatility, preventing energy prices from skyrocketing for no one’s benefit,” Rosneft CEO said.
He also noted that 2022 comprehensive geological exploration of the Vostok Oil project had confirmed a significant increase in oil reserves: the State Reserves Commission had approved the discovery of two new deposits with recoverable oil reserves of 101.4 million tonnes on the left bank of the Yenisei River at the Zapadno-Irkinskoye field.
According to Sechin, also on the right bank of the Yenisey River, Peschanaya 1 Well of Payakha field tested, before reservoir fracturing, a natural flow of water-free oil in the depth interval of about 3,300 m at the reservoir pressure of 600 Atm. “This significantly exceeds the prognosis and improves the efficiency of the Payakhskoye field development. Preparations for hydraulic fracturing and drilling of a production well cluster are underway. All of the above, together with the results of 3D seismic exploration in the Taimyr cluster, indicate a significant increase—some 300 million tonnes—in the resource base of the project from 6.2 to 6.5 billion tonnes,” Rosneft CEO said.
The construction of the Project’s primary facilities—the main oil transportation system—is proceeding as planned, with 25,000 piles installed and more than 100 km of pipe welded. The construction of a complex technological facility, an underwater crossing under the Yenisei River, has commenced. Rosneft continues to expand the port’s onshore and berth infrastructure and storage facilities, as well as the terminal at Bukhta Sever, which will become Russia’s largest oil terminal and provide transfer of over 100 million tonnes of oil per year from Vostok Oil’s fields along the Northern Sea Route.
More than 6.5 million cubic metres of earth has already been dredged, nine berths and five logistics bases have been prepared for receiving and unloading, accommodation facilities have been fitted out for 5,000 personnel, and relocation camps for 1,000 more personnel are in the final stages of construction. In the 2022-2023 season, up to 6,000 staff and up to 2,000 vehicles will be permanently employed.
During the summer navigation period of 2022, more than 600,000 tonnes of construction cargo and steelwork were transported, with 285,000 tonnes via the Northern Sea Route (more than 400 voyages were made).
“The implementation of the project continues as per the previously announced schedule. We look forward to seeing our friends, including SOCAR, as participants in this project!” Igor Sechin said.
PRESENTATION TO IGOR SECHIN’S KEYNOTE SPEECH AT THE 15TH VERONA EURASIAN ECONOMIC FORUM
Rosneft
Information Division
October 27, 2022