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). Vedomosti cites the main theses of his report: 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, and a “road map” that will help solve the existing problems of the Russian energy sector.

The temperature of the air on the planet is rising unevenly, says Sechin: for example, in the Arctic, global warming manifests itself four times faster than in other regions. Sechin notes that, according to a study published in Nature Communications, by the end of the 21st century, the Arctic will be practically ice-free until October.

On the one hand, the head of Rosneft notes, this creates additional risks for the coast of the Arctic Ocean, including the risk of flooding. On the other hand, it increases the window for navigation and provides new opportunities for accessing the resources of the region. The resources of the Arctic, discovered by Rosneft, already amount to about 25 billion toe, he specified.

“Global warming is another significant factor in the growth of energy consumption,” Sechin said. According to him, ventilation and air conditioning systems account 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, Sechin adds.

The attempt to implement a “green” energy transition has led to disastrous consequences, Sechin said. Foreign regulators essentially imposed a ban on investment in traditional energy and launched a process that gave rise to a crisis in the global energy sector, he notes. The crisis was exacerbated by the impact of the coronavirus pandemic. This led to stagnation, and fragmentation and regionalization replaced cooperation, explains the CEO of Rosneft.

The green energy transition, Sechin notes, is not provided with the necessary technologies: “The world economy does not have metals, rare earth minerals, energy, time and money to make this transition.” In addition, he continues, a significant part of the production of equipment for renewable energy is in China. And the costs of the energy transition will constantly rise: 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.

“In fact, carbon neutrality is unattainable on a global scale, given the current pool of green technologies – many of the necessary technologies are still at the experimental development stage,” Sechin states. At the same time, oil and gas technologies are now at the peak of their development. Foreign oil and gas companies such as BP, Eni, ExxonMobil and Shell are already admitting the fallacy of ditching oil and gas and are ramping up investment in conventional energy, Sechin adds.

According to the head of Rosneft, now the improvement of technologies in the extraction of traditional energy resources has a greater effect on reducing emissions than investments in alternative technologies. “Thus, at the current stage of the green transition, the oil and gas sector should become a priority,” he says.

The United States recently once again avoided a technical default, Sechin recalled. 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, he notes.

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.

Against this background, the use of the dollar both as a reserve currency and as an instrument of international payments becomes a problem, Sechin said. The central banks of countries that want to remain sovereign must organize clearing systems, mutual settlements, and new payment and settlement systems.

An alternative currency, according to Sechin, should be provided with commodity and raw material flows. One such currency is the yuan. The ruble is also one of the most resource-rich currencies, but it is under geopolitical pressure from the United States, it has risks due to the lack of exchange rate targeting.

This, Sechin notes, “prevents the transformation of the ruble into a regional settlement system.”

The European Union, which abandoned Russian gas, has become completely dependent on supplies from the United States, Sechin notes. At the same time, before the strengthening of sanctions, Russia 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%. Due to lower consumption, the price of gas fell, but consumption has not recovered, he adds.

Deindustrialization led to the start of a recession in Europe’s largest economy, Germany: the country’s GDP in the 1st quarter of 2023 decreased by 0.3% compared to the previous one, and in the 4th quarter of 2022 – by 0.5%.

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.”