No. 3, 2004

Alexander Seleznyov


"Oil of Russia: Present and Future" International Forum held in Moscow was a success

During two days, from May 18 to 19, 2004, the participants of the International Oil Forum - politicians, businessmen, scientists and public figures - discussed current problems associated with the development of the oil and gas industry in Russia and international energy cooperation.

A meeting of interests

The initiator of the 3rd Moscow International Oil Forum "Oil of Russia: Present and Future" was the magazine Neft Rossii (Russian Oil).

The event, which has now become a tradition, was held on the eve of the edition's tenth anniversary, so the journalists decided to mark it by business event in line with the subject-matter of their magazine rather than festivities. The event was held with the active support and assistance of both chambers of the Federal Assembly of the Russian Federation, the Ministry of Industry and Energy, the Ministry of Natural Resources, the Government of Moscow and the Moscow International Oil and Gas Club.

Representatives of 17 countries took part in the forum. They included leading experts and top managers of oil, gas and service companies, oil and gas equipment producers, investment and banking institutions, professional associations of oil and gas workers, analytical centers, and educational and research establishments. Russian State Duma deputies and senior officials of the RF line ministries were also present. The forum was covered by 120 correspondents from Russia, the United States, Germany, Poland, and other countries.

Objective approach, the interests of the industry and the state became the unspoken slogan of the forum. The speeches dealt with the main issues associated with the development of the oil and gas industry in Russia: the current state of affairs and future prospects, relationship between oil companies and the state, progress in the implementation of the Energy Strategy of Russia for the period up to 2020, application of the advanced experience of foreign colleagues to the realities of the Russian market; investments, innovative oil production and refining technologies, problems involved in improving the quality of information and other services, development of science and personnel training, job safety and environmental protection.

Focus on power and business

Assessing it as a generally favorable situation that has taken shape in recent years in the sphere of oil production in Russia, primarily due to the quite high world oil prices which have topped the budgetary targets, Alexander Arbatov, Deputy Chairman of the Council of Productive Forces Studies of the Russian Academy of Sciences, also expressed concern over the introduction of a unified tax rate on the production of mineral resources (MRPT) and the unproductive discussion around the levying of natural resource rent on the mineral producers.

Chairman of the Board of Directors of LUKOIL and General Director of JSC RITEK, Valery Graifer, stressed the complexity of relations between the Тpower verticalУ and the oil and gas business. Also, in Mr. Graifer's opinion "the Energy Strategy adopted in Russia suffer from grave shortcomings, so we need to begin by formulating a clear national policy with respect to the oil and gas complex".

Renat Muslimov, State Councilor for the President of the Republic of Tatarstan on the issues of subsoil use and oil and gas production, expressed a similar view on the tax legislation for the oil industry. He believes that the production target of 500-550 mln. tons of oil a year envisaged in the Energy Strategy of Russia cannot be achieved by itself and attributes the current growth rate not to the favorable market situation but exclusively to the fact that "a mighty oil industry, with a huge number of wells, new development technologies and so on was put in place at the time".

In the opinion of Valery Prozorovsky, Deputy Chairman of the RF State Duma Committee on Natural Resources and Subsoil Use, today we should think out the way of making the maximum use of existing reserves and encouraging to make investments in the prospecting and exploration of oil fields, including in new regions of the country, rather than discussing the withdrawal of "super profits" from oil companies. This view was shared by Mikhail Subbotin, Director of the research and consulting company PSA-Expertise, who said in his address to the forum that over half of direct foreign investments, which reached $6.5 bln. in 2003 (an increase of 62%), went into two projects on product sharing terms being unimplemented in Sakhalin. These have only just reached the peak of investment activity, which, the analyst believes, will last another three or four years.

Investing for the future

LUKOIL Vice-President Vagit Sharifov spoke at the forum about the state of affairs in the refining sector. He believes that the investment climate in the petrochemical industry in Russia is generally not exactly favorable. He stated that the country's refineries often have obsolete equipment and are in need of major overhaul, and stressed, in particular, that "the modernization of existing refineries and construction of new ones in this country will require huge investment on the part of the companies". "Against this background, I would like to highlight LUKOIL's position", Vagit Sharifov went on. "Over the last ten years, the Company has invested about $3 bln. in Russian and foreign refineries and intends to allocate the same amount for these purposes during the next decade. In addition, more than $1 bln. is to be invested from 2004 to 2008 under the Environmental Safety Program".

Concerning the prospects for the development of the refining sector, Sharifov believes that "first, we need to gradually reduce our exports of diesel fuel with a 0.2% sulphur content and fuel oil on the foreign market, which are used in other countries as feedstock for refining into higher quality petroleum products. Second, the export of fuel oil should be almost ceased by refining it here in Russia". Vladimir Zhirinovsky, Deputy Chairman of the RF State Duma, also supported the idea that Russia should not be supplying semi-products.

Prof. Albert Vladimirov, Rector of the Gubkin Russian State University of Oil and Gas, Valery Salygin, Director of the International Institute of Energy Policy and Diplomacy under the Institute of International Relations (MGIMO), Lydia Lipina, Director of the Russian-Canadian Educational Center of Oil and Gas technologies, and Rustem Shagiyev, Director of the Institute of the Oil and Gas Business, all spoke about problems involved in the training of skilled scientific and engineering personnel for the oil industry.

On the world energy market

The energy sector is one of the most important elements of a state's might in the world today. And Russia, with its fuel and energy complex providing about 30% of its GDP, is no exception, stressed Sergey Zhiznin, Senior Councilor at the Department of Economic Cooperation of the Russian Ministry of Foreign Affairs, in his speech. He believes that Russia occupies a unique geographical and strategic position in Eurasia, and has the biggest reserves of primary energy resources in the world, a well-developed industrial infrastructure and significant intellectual potential. All this creates objective preconditions for Russia further strengthening its role as one of the leading energy powers and continuing to exert a marked influence on the world economy and politics.

Only a few Russian companies are ready to enter the world energy market, just as a few foreign companies wish to invest in the country's fuel and energy complex (the BP-TNK transaction tends to be an exception). It is clear that this psychological barrier has to be broken down in the near future, and a slow advance in this direction already began a few years ago. The foreign press increasingly often discuss the possibility of major world oil and gas companies participating in projects to develop Russian oil and gas fields, while the Russian media increasingly often report about the intention by Russian oil companies to join new foreign projects and purchase foreign assets. This was mentioned in the speech by Sergey Dovbnya, Head of the Corporate Finance Department of JSC Investment Company AVK. Among others, he cited LUKOIL as an example, which, at the end of January 2004, won a tender to explore and develop the block on the Gavar field in Saudi Arabia, which has estimated reserves of several hundred bln. m3 of gas. The most important fact, in his opinion, is that LUKOIL's coming work in Saudi Arabia proves that Russian companies have at last started not only to operate in the exploration and production sector on the territories of developing countries, but also to enter developed markets. Moreover, they are capable of competing with the leading world corporations.

Academician Anatoly Dmitriyevsky, Director of the Institute of Oil and Gas Studies of the Russian Academy of Sciences, and Nikolay Ivchikov, Executive Director of LUKOIL Ltd., expressed hope that, in the current process of global energy market formation, the Russian Federation would play the modest role not of "an extra" without any rights, but a real leader to be reckoned with.

H. E. Carlos Ramon Mendoza Pottella, the Ambassador Plenipotentiary and Extraordinary of the Bolivarian Republic of Venezuela to the RF, and H. E. Golamreza Shafei, the Ambassa-dor Plenipotentiary and Extraordinary of the Islamic Republic of Iran to the RF, highly appraised the enormous experience of the Russian oil and gas workers in developing heavy and superheavy oil fields and agreed that their countries had a great opportunity for cooperating with Russia both on the regional and international levels.

H. E. Ogvind Nordsletten, the Norwegian Ambassador Plenipotentiary and Extraordinary to Russia, related to the participants of the forum about Norway's 30-odd-years experience of working its part of the North Sea continental shelf. "We believe", he stressed, "that these technologies might be very useful to Russia for developing the unique Shtokmanovskoye field on the Russian shelf of the Barents Sea, for example".

In the opinion of several of leading analysts, the 3rd International Oil Forum "Oil of Russia: Present and Future" was a notable event in the Russian oil industry. The issues discussed at the forum are of major significance to Russian economy. It gave a fresh impulse to the dialogue between the key players of Russia's oil and gas complex and to the international cooperation in oil and gas business. The event also helped to make another step in the development of the energy dialogues that have been initiated between Russia and the European Union, the countries of the Far East and South America.

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Oil of Russia, No. 3, 2004
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