Igor Sechin makes key report at X Eurasian Economic Forum in Verona
Rosneft Chief Executive Officer Igor Sechin made the key report “Towards ideals of Eurasian Integration” during the X Eurasian Economic Forum in Verona (Italy). The main topic of the jubilee forum is “Great Eurasia as a driving force in modern international geopolitical and economic context”.
Chief Executive Officer of Rosneft expressed confidence that despite all the complicacy of the international situation, Eurasian cooperation will be developing and consolidating. “The tenth, jubilee forum in Verona can make a contribution to that process,” Sechin said.
Businessmen, politicians, public figures, diplomats, experts participated in the forum. Notably, at the plenary session Rosneft CEO was joined by Rosneft Chairman of the Board of Directors Gerhard Schröder, CEFC China Executive Director Li Yong, former President of the European Commission and former Prime Minister of Italy Romano Prodi, Glencore Chief Executive Officer Ivan Glasenberg, Trafigura Chief Executive Officer Jeremy Weir, QIA Chief Executive Officer His Excellency Sheikh Abdullah bin Mohammed bin Saud Al Thani, Eni President Emma Marcegaglia, Saipem Chief Executive Officer Stefano Cao, Special Advisor to the Minister of Economy, Trade and Industry of Japan Hirofumi Katase, Minister of Natural Resources of Iraqi Kurdistan Ashti Hawrami.
Igor Sechin began his speech with an analysis of the oil market. “I can assure you that the rumors about the “death” of oil are greatly exaggerated. Oil will remain the base of the world's fuel industry both for the next 20-30 years and more ahead,” said the head of Rosneft. “We are convinced of the sustainability of the growth in demand for hydrocarbons due to the growth of the economy and the standard of living. In the coming decade the expected rate of the world economic growth, especially in developing countries, will require further growth in the supply of liquid hydrocarbons by 0.7-0.8 million bpd annually. The growth will continue in the future,” he said.
The changing needs of the world economy
The share of liquid hydrocarbons in the structure of world energy consumption will slowly decline in the long term, but it will remain quite high - about 30 percent of the world primary energy consumption, with increasing physical volumes, the head of the Company believes. At the same time, a slight decrease in the share of oil in the overall ratio will be almost entirely offset by an increase in the share of gas and the extension of the derived oil chain, primarily through petrochemical production.
Speaking about the situation on the global oil market Igor Sechin noted that majors and other public companies put great efforts to monitor short-term price indices and thus include speculative volatility in their investment plans. “That is very dangerous”, says Sechin. He reminded that between 2014 and 2016 large companies had cut investments in exploration drilling 2.7 times - and now they try to accelerate recovery. “But how can you justify such upswings in the industry with a long-term investment plans?” Rosneft head asked the participants at the Forum.
“Taking into account long-term interests of the industry we ourselves see our goal in neutralizing whenever possible the volatility of the market, approaching the task of meeting the long-term demand of the global economy in a profound and responsible way”, Sechin said. Also, he mentioned cases of inefficient actions of global and local regulators. “Very often regulators decide to implement regional, interregional or industry-specific sanctions, which corrupt market nature of the industry, primarily creating space for speculative and intermediary operations. The risks of removing certain volumes of oil from the market due to artificial limitations make a loss for everybody. Such steps are taken with damage to real energy security and customers interests usually pleasing only conjunctural political agenda.”
As an example Sechin mentioned the situation with forced development of electric cars. The main source of electric energy in many developing countries is coal. The increase in electric energy consumption due to the rise of electric cars can lead to a certain environmental damage that may be much higher than keeping the status quo.
The head of Rosneft said that the oil glut is another risk factor for the market. Since 2014 the excess of supply over demand formed a great surplus in oil and oil products reserves. Thanks to the increase in demand and 9 months of OPEC+ agreement global reserves diminished by 60 million barrels. But that is only 25 percent of the reduction required to get to the average levels of 2012-2016. Sechin thinks that the level of reserves is not fully normalized and it is too early to speak about the break.
He specified that the excess of reserves is not an independent event, but a manifestation from a various market factors combination. The overhang of production over demand that emerged in 2014 was offset by the production cuts in some countries and a reasonable growth in demand for liquid hydrocarbons. “But this balance is very delicate and shaky - shale production in the US has a lot of drilled but not completed wells. With certain price levels they can greatly increase the production and destabilize the market once again. So I think we shouldn’t wait for a rally in prices in the near future.”
The head of Rosneft said that the global efforts to stabilize the oil market are complicated by the lack of reliable information on inventories as well as on the oil supply and demand ratio. That paves the way for speculative manipulations on the market in search for short-term profits. The key task here is to create a unified system of inventory measurement and overcoming of stock excess.
“Unfortunately we can see that some strategic market deals, such as Saudi Aramco’s IPO, that can increase the transparency of market information on reserve volumes and prospective volumes of production may risk not to become a fully-fledged international listing because of different factors, first of all due to certain legal risks” Sechin said. “The scenarios of private share placement or local listing, which are being discussed today, unfortunately, will not allow achieving the goals, which the organizers had initially set out.”
“We believe in the future of our main oil market, but at the same time we evolve together with the market. Thus, the most perspective way of demand for liquid hydrocarbons development is into the petrochemical industry,” Sechin said. By 2025-2030 the demand for oil from the petrochemistry should prevail over demand of the main consumer of oil products – the transport sector.
The head of Rosneft expressed confidence that petrochemistry is promising and important for the company due to the effective source base, being competitive on the global market, good forecasts for demand in the world and in Russia. Moreover, the sources of the company are very close to the most receptive and quickly growing markets in Asia Pacific. “The other promising point of growth is natural gas, one of the most environmentally safe and accessible sources of energy.”
Role of Rosneft in providing Eurasian energy security
In his address, Igor Sechin noted that the current situation “lacks integration projects aimed to build bridges, infrastructure and economic corridors connecting the European coast of the Atlantic and the Arctic Ocean with the Asian coast of the Pacific and Indian Oceans.”
“Rosneft actively participates in the process of pan-Eurasian energy integration, acting as its catalyst in many ways,” added Sechin. “We are proud of our anchor shareholders - the largest European company BP, Qatar investment fund QIA, the largest private Chinese oil company CEFC and global company Glencore, as well as our long-standing investors since the IPO - Petronas and CNPC. We cooperate with all these shareholders in large joint projects. Our international shareholders structure and its participants' cooperation level allows Rosneft serving as a role model of the ongoing integration processes,” Sechin said.
The Company is actively developing partnerships with leading oil and gas and investment companies of “Great Eurasia”, Rosneft Chief Executive Officer said. “Over the past few years, we have significantly expanded the range of our joint projects, and today I can say that the value of projects in the energy collaboration of Rosneft and its partners in Europe, Asia and the Middle East exceeds USD110 billion,” Sechin said, clarifying that the deals mentioned include shareholder deals, onshore and offshore exploration and production partnerships in Russia, oil refining and petrochemical projects overseas, Mediterranean gas resources development and other strategic projects.
“Having added our trade flows, swap operations and prepayments to the scope of our cooperation with “Great Eurasia”, I can say that its value exceeds USD500 billion. And yet we are just at the very beginning of this path,” Rosneft head added.
He reminded that Russia has traditionally been the leading supplier of hydrocarbons to Europe, and the Company provides more than 40 percent of total Russian crude and oil products supply volume. “All attempts to alienate Russia from energy cooperation, whether in the logic of sanctions measures, or in the logic of achieving energy independence, will never work out,” Sechin said.
The Company's strategy is aimed not only at increasing of supplies, but also in implementing joint investment projects with European partners. For example, Rosneft is the third largest player on the German oil refining market with a production capacity of 12.5 mmtoe per year, which is more than 12 percent of all German refining capacities. One of the factors of the Company's success in the German market is the world's largest Druzhba pipeline system, consistently supplying Russian oil to Europe for more than 50 years, regardless of any political conflicts and political climate in general,” Rosneft Chief Executive Officer noted.
Speaking about the development of the “Russia – Asia” energy bridge, Igor Sechin marked out the Company's efforts in developing the diversified cooperation with the Chinese companies. “Cooperation with the Chinese company CEFC is actively developing. Alongside with the successful share capital acquiring, the parties are expected to cooperate in the areas of exploration and production, refining and petrochemicals, crude and oil products trade,” he said.
“Another strategic priority for Rosneft is its cooperation with Indian companies. Suffice it to say that the value of assets of Rosneft and Indian partners collaborative activities in Russia and India has already exceeded USD35 billion,” Sechin said. “Earlier this month, we discussed with Indian Prime Minister Narendra Modi the prospects for further cooperation between Rosneft and Indian partners, as well as the creation of favorable conditions for expanding the Company's business in India”, he added. “Also, Rosneft is actively developing Vietnamese offshore projects and plans to work in Indonesia”.
“I would like to especially highlight our cooperation in the construction of complex high-tech facilities for exploration and offshore production in the Far Eastern seas. I refer not only to the construction of the Zvezda shipbuilding complex, but also to agreements, that are planned to announce in the margins of this respected Forum, about the placement of anchor orders for the construction of ice-class ships for the development of prospective areas of the Russian North by Russian oil companies. We are developing this project together with South Korean partners,” Sechin said.
Projects in the Middle East are another strategic direction for Rosneft's development. “We are discussing projects in Iran, where we want not only to participate in exploration and production projects, but also to establish effective supply chains of Iranian and Central Asian oil to the world market. We are developing cooperation with Saudi Arabia. Finally, we are very serious about working in Kurdistan and Iraq. Our interest in these projects is purely practical - this region features the largest resource base with low production cost and potential that is not fully disclosed yet. It is very important that the oil from Kurdistan goes directly to our refineries in Germany. At the same time if we include this region in the sphere of Eurasian business integration, we will contribute to solving general economic and social tasks - energy stability and advance in living standard,” said the head of Rosneft.
At the end of his speech Igor Sechin noted that at present Rosneft is the only company that implements such large-scale integration projects.
According to the head of Rosneft, the scale and importance of these projects make it possible to hope for a significant transformation of the entire intra-Eurasian energy space. «Big Eurasia is a huge economic and energy space that has all prerequisites for economic rapprochement and integration,» concluded Igor Sechin.
He mentioned that the Eurasia gravity field is stronger than any external influences. “The movement toward an integrated Eurasia is smooth and natural,” thinks the head of Rosneft.
Speech of Igor Sechin “Towards ideals of Eurasian Integration” at the X Eurasian Forum in Verona
Rosneft Information Division
October 19, 2017