Igor Sechin proposed ways to solve the problems of Russian oil and gas

On June 16, Rosneft Chief Executive Officer Igor Sechin spoke at the energy panel of the St. Petersburg International Economic Forum (SPIEF-2023).

“In the context of unprecedented sanctions, we do not want to name all our partners in the hall (as is usual in law enforcement agencies,” he joked. – Please do not direct the cameras into the hall – I’m joking again. If you like, it will be our “Last Supper”. And given the time – matins.

Representatives of the business circles of Asian, Latin American and African countries attended the “secret morning” with Sechin. Vedomosti cites the main theses of the report of the Chief Executive Officer of Rosneft.

He spoke about the utopia of a “green” transition in the energy sector, the decline in investment in oil exploration and production, the risks of a shortage of energy resources in the global market, the global economic crisis and the road map that will help solve the existing problems of the Russian energy sector.

In his report, Sechin drew attention to the fact that there is no scientific consensus on the nature, causes, speed and long-term direction of climate processes. The green transition policy, in turn, is based on the “absolutization of the anthropogenic factor”, which is not confirmed by objective scientific research.

But it is known that the cycles of solar activity, as well as the removal and approach of the earth to the Sun, lead to an increase and decrease in temperature on Earth. All the efforts of the scientific community should be focused on an unbiased study of the nature of these phenomena.

It can be stated that global warming is now manifesting itself in the Arctic four times faster than in other regions, Sechin noted. As a result, the window for navigation increases (that is, plans for the development of the Northern Sea Route are based on real climate dynamics). This, in turn, opens up new opportunities for access to the resources of the region. For example, the resources of the Arctic, discovered only by Rosneft, already amount to about 25 billion toe.

In addition, global warming is another significant factor in the growth of energy consumption, Sechin said. HVAC accounts for 10% of the world’s electricity, and by 2050 global demand for indoor climate control could triple. In terms of energy consumption, it will exceed the consumption of the United States and the European Union combined, the CEO of Rosneft is sure.

Sechin is sure that the green transition standards are also imposed unilaterally, without taking into account those who have production capabilities and a resource base. And oil and gas technologies are currently at the peak of their development, they have no equal in terms of technical and economic efficiency, he noted: “In terms of physical indicators – energy density and heat of combustion – they can only be surpassed by hydrogen and thermonuclear fusion, which have not yet been mastered.” Therefore, in fact, carbon neutrality is not achievable on a global scale, given the current pool of “green” technologies – many of which are still at the stage of pilot development.

The authors of the green transition, who unilaterally impose certain standards, still have not understood that their rules need to be coordinated with those who have production capabilities and an appropriate resource base, Sechin said. A significant part of the production of equipment for renewable energy is located in China, which has concentrated in its hands the full cycle of solar panel production – 79% of the world’s production of polysilicon, 97% of wafers, 85% of cells and 75% of panels, thereby providing 85% of the world’s production of solar panels.

The idea of ​​a “green” energy transition led to catastrophic consequences, Sechin believes: foreign regulators essentially banned investments in traditional energy and launched a process that gave rise to a crisis in the global energy sector. Energy transition costs will continue to grow: according to the International Energy Agency, investment in clean energy by 2030 should almost triple to $4.6 trillion a year, that is, up to 5% of global GDP. McKinsey’s estimate is even higher: at least $9.2 trillion a year through 2050.

Foreign oil and gas companies such as BP, Eni, ExxonMobil and Shell are already recognizing the fallacy and cost of moving away from oil and gas and are increasing investment in conventional energy. At the same time, now the improvement of technologies in traditional mining gives a greater effect in terms of real emission reduction than investments in immature “alternative” technologies, Sechin emphasizes. The oil and gas sector itself should become a priority at the current stage of the green transition.

The US is on the verge of delayed bankruptcy, Sechin says, despite the fact that the US recently avoided a technical default once again. During the bargaining between Democrats and Republicans, President Biden threatened to use the 14th Amendment to the US Constitution: an amendment adopted following the results of the American Civil War (1868) was intended to prevent payment of compensation to slave owners of the southern states for slaves freed by the 13th Amendment because the 5th amendment guarantees the protection of private property and, in the event of its withdrawal by the state, requires compensation.

Over the past 30 years, the US national debt has grown 10 times to more than $31 trillion, which is twice the country’s economic growth. At the same time, debt servicing can reach 20% of the budget – $1 trillion. According to Sechin, the systematically repeating story of the debt ceiling and the threat of a US technical default is “perceived by many as a political circus.” A huge debt cannot be paid. And the further – the more, with growing rates, it will be impossible to serve it.

Four ways are being considered to solve this problem, the head of Rosneft explains: sanctions (this tool is close to exhaustion), inflation to depreciate debt, default itself and war. “Actually, the US default is already a war, only by economic means,” Sechin notes.

Europe has already been affected by deindustrialization amid reduced gas consumption, says the head of Rosneft. The fact is that the European Union, having abandoned Russian gas, has become completely dependent on supplies from the United States: Russia, before the strengthening of sanctions, supplied 160 billion cubic meters to the EU. m of gas per year, and the United States in 2022 increased supplies to only 70 billion cubic meters. m.

Due to the growth of energy costs in the EU, production is being closed: in December 2022, the output of chemical products in the Union decreased by 18% in annual terms, the output of iron and steel – by 17%. The decrease in consumption led to a fall in the price of gas, but consumption has not recovered.

Deindustrialization against the backdrop of reduced gas consumption (primarily in industry. – Vedomosti) led to the start of a recession in Europe’s largest economy, Sechin says. In particular, Germany’s GDP in Q1 2023 decreased by 0.3% compared to the previous quarter, after contracting by 0.5% in Q4 2022. Thus, the German economy entered a recession – the first after the pandemic.

The flight of energy-intensive industries from the EU will make the European economy even weaker and more vulnerable, the head of Rosneft is sure.

Sechin also talked about which currency could replace the dollar as a reserve. In order to qualify for this, the country must have a sufficiently large and stable economy, as well as free and barrier-free capital transactions, he noted.

“Currencies backed by commodity and raw material flows are becoming promising, which gives them weight and liquidity. First of all, it is the yuan,” he said. But the ruble is one of the most resource-provided currencies. Although there are at least two problems: “This is geopolitical pressure from the current hegemon and the risks associated with the lack of targeting of the ruble exchange rate, which does not allow it to provide cross-border lending, prevents the ruble from becoming a regional settlement system.”

According to the forecasts of the IEA and OPEC, the demand for oil in the world in 2023 will grow by 2.4 million barrels per day to a record 102 million barrels per day, Sechin recalls. In the long term, oil consumption will increase by about 15 million barrels per day (by 15%) by 2045. Oil and gas will provide more than 53% of global demand for primary energy, the head of Rosneft notes.

At the same time, underinvestment occurs not only in oil production, but also in exploration, which has already led to an insufficient increase in new reserves, Sechin notes. “Underinvestment will inevitably create a shortage in the market, which will lead to an increase in oil prices,” Sechin said.

It becomes more difficult for OPEC countries to reach a consensus due to the difference in the structure of the economy and the dynamics of production. Some OPEC+ countries export up to 90% of their oil, while Russia exports about 50%. This “puts our country in a less advantageous position,” says the head of Rosneft. In his opinion, it is necessary to ensure monitoring not only of oil production quotas, but also of its export volumes, taking into account the difference in the size of domestic markets.

In the coming years, Sechin notes, there will be a problem of a shortage of production. OPEC countries will not be able to meet the growing demand, and the maintenance of oil production levels in the United States is in question.

“The potential for long-term growth in the production of liquid hydrocarbons in the world is actually available only to some OPEC countries, as well as Russia, where the resource base of new projects is comparable to the resource base of all new promising production regions in the world,” Sechin emphasizes.

The head of Rosneft presented a “road map”, which, in his opinion, will improve the efficiency of the Russian energy sector.

Sechin believes that it is necessary to create a payment and settlement system as soon as possible, which will not depend on “toxic” currencies. It is also necessary to work out the issues of logistics, transport and insurance. The development of the insurance system will require the assistance of the Bank of Russia, he noted.

It is also necessary to make lending available to companies, as the high cost of loans hinders the development of the industry, adds the head of Rosneft. In addition, Russia needs to solve problems in the power industry: for example, over the past 10 years, electricity prices have more than tripled. At the same time, electricity costs account for about 25% of operating expenses of companies, he explained.

Sechin also commented on the statement by Finance Minister Anton Siluanov about the loss of oil and gas budget revenues. “It was gas revenues that fell out, and this should be treated with understanding, but this is no reason to transfer the tax burden to the oil industry,” he said. At the same time, it is necessary to develop the domestic gas market in response to the closure of the European market, Sechin adds: to build new gas pipelines in an easterly direction, to create more transparent conditions for all market participants in the production, transportation and sale of gas, etc.

Summing up the review of the state of the energy market and the challenges facing the oil industry, Sechin quoted Hegel: “Contradiction leads forward.”