Chief Executive Officer of Rosneft Oil Company
The event arranged with support from
In his speech, the head of Rosneft provided a detailed analysis of the global economic situation amid the pandemic and drew the attention of the energy panel to the fact that market participants underestimated the risks of instability in the world.
According to him, sustainable energy development must rely upon a sound market competition of all types of energy generation, which guarantees the supply of clean and affordable energy to consumers and a minimal environmental footprint.
NEW CHALLENGES
'We have, on numerous occasions, discussed with you the issue of instability risks' influence on the global markets, but such 'black swan' was not conceivable, including its swiftness, origination and implications. If previously we considered the overproduction, imperfect regulation and unilateral sanctions to be the main risks, now these factors turned out to be of lower priority in comparison with the universal disaster,'
'The creation of vaccines raised hope for the occurrence of herd immunity and created an illusion of a rapid recovery from the crisis. However, the scale of the pandemic, the virus's capacity for mutation and the occurrence of new virus strains were understated by everybody, so the expectations of pandemic fast localization did not materialize,' Rosneft CEO noted.
According to him, in addition to the persisting risks, the world now sees some new risks: deteriorating traditional economic relations and closing domestic markets; judicial interference; regulatory policy focused on green energy subsidizing, and something that is very important - a dramatic change of the role of minority institutional investors, which are now influencing the development vector of entire industries. 'The new pandemic-triggered risks to be highlighted include an unprecedented reduction in consumption and business activity, which entails rapid deterioration of markets stability and creates, among other things, great challenges to the energy industry,' Sechin stressed.
He said that one of the outcomes of the pandemic is the regionalization of the markets, which appears to replace the globalism. 'Each country seeks its own ways, including ways out of the pandemic,' he explained. The situation has been exacerbated by the fact that the global economy issues have been accumulating over the past 20 years. 'These include debt, unemployment, widening social inequality and many others. The pandemic made these issues even worse,' Rosneft CEO noted.
As a result, an additional framework is being created for developing the multipolar world, establishing powerful regional hubs, enhancing the role of national currencies,
'The longer the pandemic lasts, the stronger regionalization sings we will see. Meanwhile, it is important to avoid confrontation, ensure a constructive dialog, and refrain from huge unproductive expenditures associated with something that results in producing 'guns before butter',' he emphasized.
COMPETITIVE ADVANTAGE
According to Rosneft CEO, the success achieved in countering the pandemic along with the mitigation of economic implications turn out to be competitive advantages of the countries that effectively respond to the changing external environment. 'An example of a country dynamically recovering from the crisis is
Chinese economy demonstrates robust recovery because of the set of actions aimed at minimizing the implications of the pandemic and the support to real production. Rosneft CEO noted that, based on 2020 results, the country's GDP grew by 2.3% and may recover to the pre-crisis level as soon as in 2021.
Along with
'Referring to the image of
NEGATIVE CONSEQUENCES
At the same time, countries that were relatively less successful in fighting the coronavirus had to take additional actions to support their economies, which, along with certain positive effect, may have some long-term negative consequences,
This is exemplified by the monetary growth in USA. 'As we see, the US, unlike
Energy industry was among the first to suffer from the crisis and became one of the most seriously affected industries of the global economy last year, as it was hit by a one-two punch from a reduction of both demand and prices,
Based on the last year's performance results, the overall loss of 20 global public petroleum majors was
Major shale companies of US suffered no smaller losses, which exceeded
A number of European majors are setting goals for transformation from petroleum companies to diversified energy companies. The intention is to achieve the above goals particularly by reducing the hydrocarbon production, which will help them achieve the carbon neutrality. A reduction in oil and gas production by majors, along with the inability to supply sufficient scopes of solar and wind energy to the market may lead to a new wave of mergers. Rosneft CEO believes that consolidation of majors would enable increasing investments in energy transformation, enhancing their competitive positions and improving their bankability.
STABILITY OF OIL SUPPLY AT RISK
With the growing scale of vaccination and reducing impact of the pandemic on the global economy, the demand for oil will recover and we have to be prepared for that,
The demand for energy will keep growing, and new waves of virus disease can only slow down this process, but these cannot stop it, Rosneft CEO said. Nevertheless, the long-term stability of oil supplies is at risk due to underinvestment. This is due to both requirements of various stakeholders to completely cease investments in the petroleum sector and the aspirations of majors to increase shareholder value and shareholder returns through stronger dividend payout and share buyback.
As a result, oil and gas reserves additions have been at their historical minimum over the past years, so that certain deficit of resources can already be forecast. 'This trend may become a 'new norm' for global majors and result in resource base depletion. The world runs the risk of facing an acute deficit of oil and gas,'
A similar scenario has already taken place in the metallurgical industry. The major producers of iron ore understated the demand, and the resulted underinvestment in the industry caused the deficit and have actually doubled iron ore prices by now.
Following these events, CITIBANK made a statement in their report that humankind understates the importance and value of oil and gas for the global economy, Rosneft CEO said. According to the Bank, the current contribution of petroleum companies to the global GDP for the first time exceeded their share in the overall capitalization of the global market. 'That is, the value the petroleum industry creates for the world exceeds the scope of investments it receives. The world consumes oil, but is not ready to invest in it,'
THE PROBLEM OF INTERFUEL COMPETITION
The
'It is important that the continued motivation of the green energy industry does not substitute its actual economic efficiency,' Rosneft CEO said.
Thus, the subsidizing of wind and solar energy generation, which saw a 5-fold increase in EU over the 10-year period and actually reached
A major challenge has been the lack of technology needed to implement plans for energy transformation and the transition to a low-carbon economy. According to IEA, about half of the low carbon energy technologies that currently undergo development will only reach the stage of prototypes or pilot projects by 2050. Even by 2070, 30% of such technologies will still require fine-tuning, hence, investments, prior to launching their commercial operation.
It will take decades to develop commercial cost-effective technologies. At the same time, the above means a strong demand for investments: according to IEA, it is about
Moreover, new technologies will require a multiplication of the production of certain metals. In May this year, IEA assessed the growth of the global demand for metals required for the growing EV production and power storage: the demand for lithium will see a more than 40-fold increase, the demand for cobalt and nickel will increase about 20-fold by 2040.
Such a considerable growth invites doubts about the sufficiency of the current resources, or investments in exploration and production of these metals. At that, the production of about 80% of ore minerals required for the above metals is either monopolized or located in unstable regions, whilst processing capacities are concentrated in a very limited number of countries, Sechin emphasized.
Increased demand will inevitably lead to prices skyrocketing. At this, IEA notes that if the prices for nickel and lithium double in size, this will work off the anticipated reduction in the unit cost of battery production associated with the doubled production scope.
As a result, the low cost-effectiveness of low-carbon solutions places an additional burden on the consumer. Having received a preferential access to the power grids, generating companies are shoving the burden of their high costs, particularly associated with redundancy, to ordinary consumers, by way of increasing the tariffs. Green tariffs are quite often overstated unreasonably due to the need for repaying the growing debt of the companies generating so-called 'green' energy.
For instance, the alternative energy's instability was vividly evident in
'This example yet again proves the point that we have tried to communicate on numerous occasions, about the need for developing the energy industry in a balanced manner, avoiding placing focus only on the alternative generation, and about extremely high costs associated with ensuring stable supplies of wind and solar energy,' Rosneft CEO said.
According to some assessments, American consumers have already overpaid
A dramatic shift of the American energy policy towards renewable energy sources triggered criticism from
Thus, new tools emerge and behavioral models are created that enable manipulating the price of shares. 'The question remains open, as to which interests are such investors guided by. Do they have a hidden agenda of making money on the shares market volatility by creating negative publicity May they ultimately aim at forcing management of the companies to buy shares from them at a higher price, to avoid the counteraction and pressure from so-called greenmailers' Rosneft CEO wondered.
An implication of such pressure is majors' exit from a number of petroleum projects; over the past 3 years, they divested assets for the amount in excess of
The public status of the global majors puts them into a position where they have no mandate not only for development but also for sustain. At the same time, this plays into the hands of unregulated market players and provides new impetus to national companies, which will be able to fill the niche, Sechin believes. 'National companies are more insistent in achieving the strategic goals and ensuring the market stability. Objectively, the state-run companies and nonpublic companies are less dependent today from the stock market's volatile mood,' Rosneft CEO said.
Contact:
Tel: + 7 (499) 517-88-97
Email: pr@rosneft.ru
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