President of Russia Dmitry Medvedev: Mr Sechin, let’s discuss an issue that is of strategic importance for our country, namely what is happening in the global fossil fuels markets, what trends can be observed and how these are affecting our domestic policies with reference to quite specific areas.
The first involves the implementation of our major energy sector projects, including the ESPO [East Siberia — Pacific Ocean pipeline] project. What has been achieved in this regard? Have there been any difficulties?
And second, at a meeting on energy sector development in Omsk [on February 12, 2010], we agreed to continue discussing energy efficiency in the fuel and energy complex and to hold a meeting of the Commission [for Modernisation and Technological Development of Russia’s Economy] in the near future, relatively soon, to address these matters. I would like to consider these two things together. Please go ahead.
Deputy Prime Minister of Russian Federation Igor Sechin: Mr President, we are constantly monitoring the international oil market. Russia is currently the number one oil producer in the world. And of course expanding oil exports is of fundamental importance to us, since this is where our core budget revenues come from.
Positive data on GDP growth in the U.S. and Japan for the fourth quarter of 2009 enabled investment and commercial banks to raise oil price forecasts for the current year, with some variation though. For example, on February 22 Goldman Sachs raised their estimate of the price per barrel for WTI [West Texas Intermediate] in 2010 to $85–95, and JP Morgan raised theirs to $83.5.
Projections differ, and the two principal factors underlying these projections are the high rate of economic growth in Asia and the expectation of rapid exhaustion of spare capacities available to existing suppliers. However, European analysts’ forecasts are more restrained. For example, the London Centre for Global Energy Studies believes that in 2010 the price of oil will barely exceed $80 a barrel.
An increase in oil production in countries that don’t belong to OPEC may also affect the price. It is this context that has made us choose as our priority the development of diversification opportunities.
Dmitry Medvedev: But our estimates, those supported by government agencies in charge of economy, are even more restrained than those of the European analysts.
Igor Sechin: Exactly. Our budget revenue forecasts are based on a price of $59 a barrel, whereas in January, for instance, this figure worked out to $76 on average and in February it will be just over $71. Of course we are the beneficiaries of these additional revenues and we have already profited from them.
In order to diversify supply routes our priorities first and foremost are the second stage of the ESPO pipeline linking networks of Western Siberia to the Pacific, extending the CPC [Caspian Pipeline Consortium] project, and implementing a pipeline to the port of Ust-Luga as part of the BPS-2 [Baltic Pipeline System 2] project.
This year the oil and gas industry generally is projected to grow and the results of January confirm this. In January, oil production actually increased by 1.2 million tonnes compared to January last year, a jump of 2.8 percent; and natural gas production is up by 8.9 billion cubic meters, which works out to 16.1 percent.
Dmitry Medvedev: Natural gas production is up by more than 16 percent?
Igor Sechin: More than 16 percent.
Dmitry Medvedev: Last year our gas production was affected most severely.
Igor Sechin: The past year has been difficult, but since December the trend towards a sustained recovery is clear. This year, if all goes according to our expectations, we anticipate production of 495–496 million tonnes of oil. That seems to us a sufficiently stable outlook.
However, in accordance with your instructions, we know that one of the most important components for the industry’s performance is to ensure supplies for our domestic market. Now we are working together with farmers and oil companies on the fuel supply that will be required for the spring sewing campaign. I can say with some confidence that we will successfully meet this challenge, just as we did last year.
We are preparing a special meeting of the Commission for Modernisation [and Technological Development of Russia’s Economy] to address the subject you identified, i.e. the energy efficiency in the fuel and energy industry. We hope to be able to come to you with our proposals in March. Of course, the fuel and energy complex is both a supplier of energy and its largest consumer.
Dmitry Medvedev: Exactly. And its energy efficiency as consumer is anything but perfect.
Igor Sechin: That’s right, it is the biggest consumer.
Another problem in this regard is that of the associated oil gas processing. Hopefully we will be able to demonstrate the new technologies currently being introduced by some oil producers. If you have the opportunity to visit an oilfield, we will show you how they work.
Another challenge facing us is of course increasing efficiency in gas consumption by thermal power plants. Advanced facilities can operate with an efficiency in the range of about 60–62 percent while the power plants currently in operation in Russia use obsolete technologies merely allowing some 35 to 38 percent performance coefficient. This is one of the major challenges to be addressed in line with your executive order.
Dmitry Medvedev: That’s absolutely right. You just mentioned the executive order, the one that was issued in 2008. This is in effect one of the first documents that I signed on this subject. Now we really have to lay the foundations necessary for moving toward the figure that is specified in that order, namely to reduce the energy consumption of our economy by 40 percent by 2020. This is why we made the decision in the first place and adopted a law on energy efficiency, despite all what we know about the entrenched resistance to this process. I believe that the essential regulatory framework is now in place. If more is required, I am ready to consider additional measures. Please prepare your proposals for the Commission [for Modernisation and Technological Development of Russia’s Economy] meeting with this in mind.
Finally, I would like to say a word about the preparation for the spring sewing campaign. As usual, the situation is far from simple. For us these things are never easy. Nonetheless, in the past year decisions have been made that provided additional opportunities for our agricultural enterprises for the successful spring and fall sewing campaigns; that is, they were given gasoline and diesel fuel at somewhat more favorable terms than other consumers.
I would like you to reflect on this issue. I hereby instruct you to meet with the executives of our oil producers to discuss this topic, perhaps in conjunction with other decisions that have to be made concerning the oil and gas industries. It is not right if we simply exhaust their capacities without offering the fuel and energy companies new opportunities. We need to create the proper conditions for their development.
Generally speaking these are the things we need to address. Please submit proposals to me that take into account meeting farmers’ needs and ensuring a smooth spring sewing campaign.
Igor Sechin: I will, Mr President. We will do this without fail. In short order we will prepare proposals, and try to match the preferences granted to oil companies, with their respective responsibilities in supplying designated territories throughout the country and in making the provisions necessary for our farmers.
Dmitry Medvedev: I like the way you put it. The approach to the issue must be responsible. On the one hand, we have instruments to encourage these companies to come up with the appropriate solutions, but on the other hand, we need to help our commodities producers.
Igor Sechin: That will be done.