16 June Rosneft President, Chairman of the Management Board Igor Sechin took part in discussion amid plenary session ‘Energy Sector Growth Strategy in the Developing World’ in the course of 21st World Petroleum Congress in Moscow. ExxonMobil President, Chairman of the Management Board Rex Tillerson also joined the discussion.

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Igor Sechin noted in his report that global economy keeps generating growing demand for fuel and energy, however the dynamic of the growth significantly varies in different countries and regions of the world.

‘Suffice it to say that if energy consumption per head in each country around the world would have been identical to current consumption in the US, the world would require energy 4 times higher than now,’ Igor Sechin said. ‘If the provision of cars in each country around the world would have been identical to current provision of cars in the US, there would be 5 times more of passenger cars around the globe.’

According to Sechin, potential demand for oil exceeds current production capabilities. This means that oil remains the main source of motor fuel, and its consumption will be increasing in the wake of human wellbeing rising in the world.

‘The structure of world oil resources has undergone substantial transformation over the last 15–20 years,’ he explained. ‘The share of exploited oil reserves which fall on reserves with low rates, reserves of small deposits, and fields with decreasing recovery has significantly increased. Against this background, we are forced to proceed to hard to recover reserves, hydrocarbon reserves in the shelf area, including the Arctic.’

According to him, as a result, even maintenance of achieved production volumes of oil require the increasing investments in exploration and production. Investment assurance into extraction under these circumstances reasonably assigns sufficiently high level of free market price for oil.

Igor Sechin noted that therefore growing demand against lack of availability of hydrocarbon resources in the world is the main challenge for the development of oil industry. Changes in the demand structure, competition on resource access, and significant escalation of production costs in addition to the increasing level of technological effectiveness of production, require from oil industry constant efficiency increase.

Rosneft President believes that in order to increase the efficiency of not only oil industry, but global economy at large, it’s critically important to adjust and stabilize oil and gas business environment in different countries. In perspective, one could speak about adjustment of terms for oil industry functioning with other sectors of economy, which would attract additional investments in the industry, and would encourage the creation of multiplicative effect.

Igor Sechin noted that formation of pricing at the oil market is affected by a number of external factors, including budgetary requirements of producing countries, and a phenomenon of system manipulation over energy market. In this regard, this poses the question, what the reference price is, and how reasonable the prices considered as market ones are. The discussion around these issues is constant.

‘Here also come sanctions issues, which can be treated as a competition tool,’ Rosneft President said. ‘The situation makes political risks to increase business risks through the sanctions, and this is also the demonstration of system manipulation. We believe that energy, as well as food production, in view of their strategic importance for any economy, for quality of living, shall not be exposed to sanctions generally.’

He believes that new mechanisms are required in order to lighten these issues, to a greater extent based on cooperation between companies and expert community. In the situation, when political risks create volatility at the markets, it’s necessary to intensify information sharing on condition of national oil and oil products reserves, having in mind the later creation of damping mechanisms based on the use of respective regional reserves.

Igor Sechin considers it possible to create an independent in-house conflict group, consisted of internationally recognized experts, whose opinion would be counted when considering cases of market manipulation and distortion of competitive conditions, including the pricing. According to him, the expansion of nonmarket subsidy (also in mature economies), and creation of preferences hereon distorts the operation of the markets (e.g. renewable energy sources in EU, shale gas in the US).

‘In the current situation, in the sharp increase of technology role, it’s important to reconsider international regulation in order to avoid monopolization in this area, as well as unwarranted restrictions of possibilities to use critically needed modern technologies for implementation of important social projects in energy sector,’ Rosneft President added. ‘It’s overwhelmingly important to also provide financing transparently.’

He believes that the basis for stability and predictability of commercial relations in energy sector are represented by contractual relationship. Long-term contract become more important, and create background for the implementation of large-scale investment projects, attraction of investments, creation of respective producing units.

‘We need special efforts and mechanisms to guarantee the parties execution of contracts, which in view of their importance shall not become an issue of political pressure and intimidation,’ Igor Sechin said. ‘This will require the creation of arbitrazh precedences and corporate culture, making it impossible to suspense projects on a unilateral basis under any political decisions.’

Igor Sechin said that Russian companies see the importance of mutual coordinated work on the corporate level between all key players as one of the main answers to the market challenges.

In conclusion, Rosneft President said that the projects that have been started by the Company this year, will become major in the global oil sector. First of all, it’s drilling in the Kara and Black seas. There is scheduled the drilling at the University–1 well in the Kara Sea. There are 30 drips discovered at the license blocks in the Kara Sea, and expert appraisal of the resource base of 3 blocks amount to 87 billion barrels of oil equivalent.

Secondly, at the Arkutun-Dagi field of Sakhalin–1 project, there will be started the production drilling with the use of unique offshore drilling platform Berkut with the world’s largest crown. The weight of the platform (top and bottom) exceed 200 tons, and the number of wells is 45. Igor Sechin invited anyone who feels like it to participate in the installation of the Berkut platform deck, which is scheduled for 18–25 June on Sakhalin in accordance with weather condition.

‘Energy Sector Growth Strategy in the Developing World’ Plenary Session
 

Rosneft Information Division
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June 16, 2014

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