Rosneft may offer European partners participation in energy projects to the tune of USD100 billion, the oil major’s CEO Igor Sechin said at the Eurasian Forum in Verona, Italy on November 5, 2016. “The intensive development of our ties with partners in the Asia-Pacific region does not create competition, but more likely opens up new opportunities for our esteemed European colleagues. These are new projects, oil supply swaps, equipment supplies, participation in joint production and logistical projects, as well as portfolio investment and bank financing,” Mr. Sechin said. He also said the state-controlled oil major would comply with any Energy Ministry directives concerning a potential oil production freeze and predicted that oil prices will stabilize by the middle of 2017 at USD52 to USD55 a barrel. He also said that Rosneft’s purchase of its own shares will not put pressure on the Russian currency market.

European participation

Rosneft may offer European partners participation in energy projects in excess of USD100 billion, Mr. Sechin said.

“We see the most diverse opportunities for European business in the course of our work with Russian partners across the entire Eurasian space,” he said. “Moreover, the intensive development of our ties with partners in the Asia-Pacific region does not create competition, but more likely opens up new opportunities for our esteemed European colleagues. These are new projects, oil supply swaps, equipment supplies, participation in joint production and logistical projects, portfolio investment, and bank financing,” Mr. Sechin said.

According to our calculations, only Rosneft may offer to the European partners projects totaling over USD100 billion in the course of developing communications along the Russia-Europe and the Russia-Asia-Pacific energy bridges,” he said.

Production freeze

Rosneft will comply with any Energy Ministry directive concerning an oil production freeze, Mr. Sechin told journalists. Separately, Mr. Sechin said that oil prices will stabilize by the middle of 2017 at USD52 to USD55 a barrel. He said that a price of oil above USD50 “would undoubtedly stimulate new drilling in the United States, which entails additional volumes and the ensuing volatility on the market.”

“But I think that by the middle of 2017, stability will set in due to positive consumption dynamics. I think that the stabilization will be in the range of USD52 to USD55. The demand will remain,” Mr. Sechin told reporters.

“Do not forget that shale oil is, above all, a resource for the U.S. market, while the main growth will take place in other regions of consumption, such as in the Asia-Pacific region. Shale oil will not compete with us in the Asia-Pacific market,” he said.

Mr. Sechin forecast that the price of oil would rise above USD55 per barrel in the coming 18 months.

“In the next year-and-a-half, we should see an end to the period of surplus offers on the market and the beginning of the normalization of commercial oil supplies. In this period, despite some production recovery in the United States, total U.S. oil production will remain below the 2015 maximum. The price of oil will exceed USD55 per barrel,” Mr. Sechin said. He said that the low level of investor activity will be maintained for large and difficult projects, most of all for the developing majors, because the economy of these projects requires more stable and higher prices.

Mr. Sechin also stated that practically all forecasts, including calculations carried out by Rosneft, demonstrate an increase in oil consumption volumes in the daily amount of no less than 15 million barrels on the 2040 horizon. “We subtract from this [number] the additional volumes of shale oil expected by experts, optimistically estimated at six to eight million barrels a day. We add volumes of the natural five- to seven-percent decrease in production at mature fields. This is more than 30 million barrels a day. As a result, we may have a need for additional production capacities at no less than 40 million barrels a day. So, in this regard, in order to meet global energy needs, what needs to be sought out are opportunities for production of new oil volumes that exceed the current production of Saudi Arabia fourfold,” the Rosneft chief said.

“Relative to the oil supply, I would like to note several factors. In 2015, the state budget deficit of Saudi Arabia amounted to 15 percent of the GDP – this is the highest level since 1987. Despite budget consolidation, in 2016, the budget deficit will be 10 to 12 percent of the GDP. Such a level is not sustainable even for the upcoming five-year period. Saudi Arabia either needs to sharply reduce the level of spending, primarily because of the decline in employment, or raise the level of oil revenues,” Mr. Sechin said. “This also acted as an impetus for change of this country’s most recent position – the transition from a fight for the expansion of the market share to the search for allies in order to stabilize the price on the market,” he said.

Mr. Sechin said shale oil has good chances of transitioning to a trajectory of moderate growth, but with the expected market performance, it will not have the explosive characteristics it did in 2013 and 2014. To a significant extent, it will continue to have a regional influence, making a contribution to providing the balance of oil and petroleum products on the largest U.S. market, Mr. Sechin said.

Buyback implications

Rosneft’s purchase of its own shares will not put pressure on the Russian currency market, Mr. Sechin told journalists. “The press and a host of sources warned that the purchase of Bashneft would destabilize the national currency. But no one even noticed how this was conducted. Why would I tell you how we are doing this? The nation’s currency market didn’t budge,” he said.

Asked whether the company’s purchase of its own shares would also turn out that way, Mr. Sechin said, “In general no one will notice anything other than a positive effect on the national currency market.”

Elsewhere, the Federal Antimonopoly Service (FAS) head Igor Artemyev said that he was in favor of the buyback by Rosneft. “This [buyback] should not be the final goal,” Mr. Artemyev said, noting that Rosneft’s CEO Igor Sechin and First Deputy Prime Minister Igor Shuvalov have already said as much. He said that after this step, a part of Rosneft’s shares should be privatized. “Money must be received to invest in the company’s development, to pay dividends to the government,” Mr. Artemyev told journalists in Yalta.

“Of course, I am in favor of the sale of the stock. Only it is also necessary to think about the situation as well,” he said, noting that now “is not the best time” to sell the stock.

Asked whether Rosneft needed to be obligated to sell its stock within a certain time after acquiring it, Mr. Artemyev said, “there are people in the government who are engaged with this matter. This issue is being intensively discussed together with Rosneft.”