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Main page News room Rosneft today

Igor Sechin gave a keynote speech at the Summit of Energy Companies

Rosneft Chief executive officer Igor Sechin gave a keynote speech at the Summit of Energy Companies, which took place during XX St. Petersburg International Economic Forum.

One of the Forum's key events was attended by the heads of the industry's leading companies: BP Group CEO Bob Dudley, Eni CEO Claudio Descalzi, Total CEO Patrick Pouyanne, GE Oil & Gas President and CEO Lorenzo Simonelli,

People's Minister for Petroleum and Mines of the Bolivarian Republic of Venezuela Eulogio Del Pino, ENGIE Chairman of the Board of Directors Gérard Mestrallet. Also among the participants of the discussion were: ExxonMobil President Rex Tillerson and Pirelli & C SpA Chairman of the Board of Directors and CEO Marco Tronchetti Provera.

Nobuo Tanaka, former Executive Director of International Energy Agency, acted as the moderator of the event.

In his report, Head of Rosneft noted that the current situation at oil market is "rather more complex and puzzle-like than what we've seen in the period of balanced market". "It can be said that market tools regulating industry functioning have been deformed," Igor Sechin said. "The reason for it lies in those notorious sanctions, as well as in reliance on short-term financial market instruments and in manipulation with market institutions at the expense of damage for long-term relations between consumers and hydrocarbon producers as well as for fundamental development factors."

According to Igor Sechin, currently at the oil market "a whole range of uncertainty factors is present, first of all, relating to behavior of different producers, which in fact are acting now as regulators at the oil market, as well as in financial sector." "I would like to note, that this unprecedented price volatility that we've witnessed, has tested the very basics of the industry," added Rosneft Head. "Events of last several years have shown that in fact the paradigm of oil market had changed: for a long time it has been a common belief that OPEC cartel of producers is regulating the oil market; then, owing to groundbreaking technologies, a new regulator appeared which is the shale oil production in the USA."

"The result of the current crisis, as I see it, is reestimation of the role, which three main oil producing countries are playing now and will play. They possess not only geological resource potential, but also a wide range of factors needed to influence markets," Igor Sechin said. "So the main players are being crystallized. These countries are Saudi Arabia, the USA and Russia. Each of them finds a way to meet these challenges, basing on its resource and technological possibilities, market structure and peculiarities of political and economical decision-making."

The Head of Rosneft mentioned that, with regard to supplies to the international market, Russia has significant advantages over other countries: the developed export infrastructure; including pipeline; the relatively low leverage; the distribution network that has been tested for decades and completed successfully with long-term agreements obtained by Rosneft; and the integration into emerging East and solid West distribution markets. "This model provides consistency, efficiency and stability of Russian oil exports," said Sechin. "Another matter of importance is the balance of supply and demand in Russia - given the high level of domestic demand, existing capacities allow exports diversified in accordance with directions and products. This is what makes Russia different from USA and Saudi Arabia."

According to Igor Sechin, in the midst of upheaval Russian oil industry seemed to be a terra incognita to many observers and analysts, but "as a result, taking into account its resource base, the results achieved, market institutions, presence of quality market channels, it is becoming a terra fertilis, a fertile land".

"Russia has a huge resource potential, and Russian oil projects are cost-efficient even if the oil prices are low," added the Head of Rosneft. "There are new big promising projects in Russia, allowing us to maintain the oil output and the investment level while the majority of foreign public and national companies are cutting their capital costs and are forced to re-evaluate their project portfolios due to the lack of attractive investment projects."

As Igor Sechin says, it is the fiscal terms, not the oil prices that are the key factor determining oil production in Russia. "According to the official independent evaluation by Ernst&Young, in 2015, when the average oil price was $51 per barrel, Rosneft paid taxes of almost $25 per barrel of oil produced. It is much more (in some cases 4 to 5 times more) than foreign companies did. It should be noted that these tax payments are fixed as part of the so-called ‘big tax maneuvre’ that was developed and implemented considering the oil price above $100 per barrel. Obviously, it is important to readjust it in accordance with the new reality of medium-term oil prices.

Target fiscal system must provide for the stimulus to upstream investment until production cost of additional barrel is less than market price for a barrel," Igor Sechin said. "If we talk about downstream, cross-subsidization within vertically integrated systems cannot be treated as economically appropriate method of business operations - all dimensions of company's activities should be economically justified. That is why taxation of downstream should also be rational and stimulate investment."

Covering main tendencies and fundamental changes in world energy, the Head of  Rosneft noted, that gas industry, in accordance with forecasts, will grow faster than oil industry. "We are actively developing this business and are interested in its growth," Sechin emphasized. "It is distinctive for the gas industry to have expanding competition at main export markets and to conduct policy of gas "sources and supply routes diversification". Entry of LNG from the USA among it. We see the necessity of efficient "Russian gas answer" - first of all, meaning providing equal terms at external markets."

Igor Sechin’s Speech at the Summit of Energy Companies “World oil market at crossroads: uncertainty investment reduction or risk management?"

Igor Sechin’s Presentation at the Summit of Energy Companies “world oil market at crossroads: uncertainty investments or risk management?”

Rosneft Information Division
June 16, 2016