Igor Sechin Gives a Keynote Speech at IP Week
Chairman of Rosneft Management Board Igor Sechin gave a keynote speech at the International Petroleum Week conference in London.
In his speech the Head of Rosneft named fundamental factors that influence the oil prices at the global markets. One of the main factors of the price crisis is the “gap between the financial instruments of the oil market and specifics of the actual industry development”. According to Sechin, the main beneficiaries of the current price crisis are not consumers (as the retail prices fell by less than 20% on average) but rather financial players. “We have underestimated the fact that the financial market players have no restrictions in dealing with their sheer financial objectives and are ready to "test" any price levels - down to $10 per barrel. What is it if not "an invitation to the game" for an unlimited price drop?” – Igor Sechin said.
According to Sechin, ‘the producers were split up, and some of them announced a "price war" setting up a mission to oust "ineffective" suppliers from the market”. “Perceptions that shale production in the USA will now become the standard and only regulator of the price situation are greatly exaggerated” – Sechin stated – “In 2015 to a greater extent, behavior of a number of the OPEC countries became such a regulator, unfortunately with a negative sign”.
Sechin also emphasized that one of last year's "surprises" for many market players was the resistance to price shocks demonstrated by the Russian oil industry. “We have record-low operating costs (USD 2.7- USD 2.8 per barrel for Rosneft), as well as a flexible tax system” – he said.
The Head of Rosneft noted that the demand for oil and oil products will be growing. The growth has become more diversified - China's role has diminished, but the share of India, other Asian countries and Africa is gradually growing. “More diversified growth seems more resilient, and confirms that many of the mentioned "threats" of reducing the role of oil in the world economy are largely exaggerated”- Sechin said. According to the Head of Rosneft, “an imbalance between oil supply and demand may significantly reduce already by the end of 2016, and by the end of 2017 even lack of oil supply is possible at the market”.
Igor Sechin noted that coordinated reduction of supplies made by major exporters in the volume of circa 1 mmbpd would sharply reduce the uncertainty and move the market towards reasonable price levels. However key market players are not ready for such a scenario. According to him, an interaction mechanism should be created between the producers and consumers for stabilization of the situation. “The market will inevitably stabilize, it has good prospects for further growth, but it depends on its players how quickly and effectively that will happen”- Igor Sechin said “A system of long-term supply contracts that Rosneft is developing with its major partners is an essential tool for such stabilization”.
Speaking of long-term priorities of the global energy sector Sechin said that “the development of advanced technologies both inside and outside of the industry is an increasingly important trend in the development of the energy sector and the economy in general. It is the development of technologies that should ensure long-term competitiveness of our industry, in spite of the objective processes of the resource base quality decline and rising costs”.
In conclusion, Igor Sechin expressed the opinion that “technological development of the oil industry will take place, e.g. due to repartition of the oilfield service market which comprises drilling services, transport, workover, etc. Further specialization in the industry means the growing role of oilfield services that will determine the nature of the future oil production to an increasing degree”.
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February 10, 2016