Chi bene incomincia è a metà dell’opera, an Italian proverb says. The start of the year evokes certain global hopes concerning energy development I would like to share with you. One is a hope that international crude prices could be stabilized in a sustainable way through the framework of a marketing procedure adopted at the end of 2016: both OPEC and non-OPEC producers decided to reduce their oil production. Russia pledged a 200,000 to 300,000 barrels per day (bpd) cut and already in the first days of 2017 has lowered production to 100,000 bpd. Although a special OPEC body will determine whether all participants of the significant international move obeyed this self-imposed production discipline, one thing is certain: the crude price finished 2016 at $55 per barrel, and in the mid term should oscillate in the $50=$60 range. This means that the profitability of energy corporations throughout the globe will remain stable, allowing a commensurate stability in project implementation and employment. For me, the oil reduction decision nicknamed OPEC+ has a special meaning: in 2001, as Russian Energy Minister and head of the Russian delegation to the 117th OPEC conference in Vienna, I led around-the-clock talks with oil ministers of the cartel which resulted in the first ever participation of my country in the solidarity oil output cut. The Russian reduction share was 140,000 bpd, and despite some skeptical voices from the press, it helped to maintain the price of oil in the essential just corridor, at that time between 20 and 25 dollars. Different times give different prices, but let me provide an answer for those who do not understand how Russia will manage economically with lower oil production: raising the price of oil by $10 means that when our budget is calculated on the basis of a $40 per barrel price, $29 billion will be added to net income.
A new America: What this means for Russia
Anno nuovo, vita nuova: the new political year started with inauguration festivities in Washington which deeply impressed me as a guest, but at the same time I felt that this fanfare could announce a new beginning of the Russian-American energy dialogue that I have had the honor to contribute to for some 15 years. My term as Russia’s energy minister coincided with a very interesting and laborious period that included an intensive search for new rationales and incentives for Russia’s energy policy. In the early 2000s, we developed our country’s energy strategy and established close ties to Italian companies and the European Union as partners in global energy relations. In 2001, the Presidents of Russia and the United States, Vladimir Putin and George W. Bush, proclaimed the bilateral energy dialogue based on the understanding that Russia as the most important oil producer and the U.S. as the major oil consumer needed each other. It is a particular joy for me to mention that one of the most active participants in the establishment of this qualitatively new international relationship format was ExxonMobil’s Senior Vice-president, Rex Tillerson. We first met on April 10, 2002 and right from the start it was clear that a conversation with such a strong and knowing personality would lead to a positive result. Mr. Tillerson seemed to know and to understand Russia exactly in the same way I did as minister, and not only in energy matters. He knew personally every person both from government and the private sector whom we discussed, and he seemed to have grasped even the smallest details of Russian legislation and of contracts that foreign companies had concluded in Moscow. In my opinion, Russia and Italy have many things in common as personal contacts and relationships play a significant role for us, even in the most formal contacts. Mr. Tillerson also showed his substantial skills in this regard. It is not a coincidence that President Putin appreciates him and chose him as one of the few people to be decorated with the Russian Friendship Order. Together with the brilliant Russian diplomat Sergey Lavrov, our foreign minister, the new secretary of state can really change the world. Of this I am certain! The business-like approach central to the Trump administration represents a very solid basis on which the skyscraper, maybe a metaphoric Tower named after its architects, of the new Russian-American energy dialogue can be created. Russia has many very interesting energy projects to offer, and the American contribution could consist of investment and managerial and technological input. My sincere hope is that President Trump and his team will demonstrate a reasonable and positive approach to global challenges and to a strategic partnership with President Putin, not least in the area of energy cooperation. This would open the door for massive investment into Russian oil and gas exploration and production and for the attraction of cutting-edge technologies and excellent American management practices into this sector. This would give Russian companies new opportunities to have the courage to enter into projects with heavy-to-extract hydrocarbons such as the Achimov deposits in the Urengoi district in Siberia. This is exactly the technology and management challenge the investment Fund Energy I founded six years ago is facing while working on our Yamal project which comprises two deposits, Karasyovskoye and Yuzhno-Tanlovskoye, plus eight licensees for geological exploration of other fields. We managed to attract Halliburton to the exploration drilling as supervisor and continue talks with the Export–Import Bank of the United States on financing these operations in order to continue this spring with three more exploration drillings. So, we are optimistic about the future of both our projects and the Russian-American cooperation in the energy field in general. This is no wonder. In the beginning of 2000, I had the privilege to attend the birth of this interstate dialogue having been actively involved in the organization of the two Russian-American Commercial Energy Summits in Houston (2002) and Saint-Petersburg (2003). By the way, it was in Houston in 2002 that I first met James Richard Perry, the present Energy Secretary of the United States. I had the privilege to witness his excellent knowledge of the energy issues discussed by both government and private business representatives at this historic event. It’s my opinion that now is the best time to return to the praxis of such summits. In interviews for Bloomberg Businessweek and The Guardian published in January, I have already proposed a return to the practice of bilateral energy summits. We are ready to work hard to provide a qualitatively new impulse to the new Russian-American energy cooperation. Being organized under the aegis of presidents of the two countries and with active involvement of both the governments and private oil and gas business, they seem an effective format not only for extensive diplomatic discourse but also for the formulation of common goals in energy development. As the U.S. expresses ita intention to come to the international energy market with considerable amounts of oil and gas, it should be noted that one of the sections of the Russian-American Commercial Energy Summits was dedicated to international hydrocarbons markets. This is exactly the place where a common pricing policy could be formulated, and Russia would be able to implement this decision using our experience of effective dialogue with OPEC and other crude producers. At the next stage, European and Asian energy powers could join this new dialogue which has to result in the elaboration of certain regulatory mechanisms, and market stability could be established for a period adequate for the effectiveness of the measures introduced. All experts from the Fund Energy, which can function as a kind of small think-tank, and I would be glad to contribute to this part of the global energy dialogue and apply our experience to make it succeed.
My term as Russian Energy Minister coincided with a very interesting and laborious period of intense search for new meanings and incentives for the Russian energy policy. In the early 2000s we formulated energy strategy of our country and intrecciammo close ties with Italian companies, and with the EU as partners in global energy relations
The "opposing" effect of U.S. sanctions
As for politically motivated sanctions, this invention from past times, they seldom lead to the expected result. Having been first introduced in 423 B.C. by ancient Athens against certain producers from the Megara district, they resulted in the bloodshed of the Peloponnesian Wars. The clever Lysistrata from the Aristophanes comedy, who lived in the same historical period, was a trifle more successful with sanctions, but that is a completely different story. Returning to the sanctions issue, the Russian oil and gas sector emerged quite successfully from this harsh stress-test. As for the sanction details and their future, I would like to quote Mr. Anthony Scaramucci, President Trump’s senior advisor for communications with business. In January in Davos he stressed ''an enormous respect for President Trump (then President-elect) for the Russian people and the legacy of the relationship that the U.S. has with Russia, which dates back to the Second World War''. Mr. Scaramucci said American sanctions against Russia have had an “opposite effect” which has brought Russians closer to their President. In addition, 2016 was a record year for foreign investments into our energy branch. Chinese Beijing Gas invested $1.1 billion into the Rosneft project Verkhnechonskneftegas, and the Indian ONGC Videsh Limited invested $5 billion into East-Siberian Rosneft projects. Further, the privatization of 19.5 percent of the shares of Rosneft through the participation of the Swiss Glencore and the Qatar Investment Authority brought $10.2 billion to the Russian budget. What strikes the eye? Of course, the absence in this impressive list of American and Italian companies. This must be changed! Among the Russian-American projects I expect to succeed in the near future, I would mention the ExxonMobil - Rosneft project in the Kara Sea. ExxonMobil invested $640 million, including the financing of exploration drilling. The drill core is now being analyzed in the Exxon laboratories in Houston. My hope is that shortly we will get news of the discovery of a new important deposit. This means that even under present conditions, leading American and Russian companies successfully search for secure ways to extract oil in Arctic off-shores. It is the first step to the future cooperation of giants such as Exxon and Rosneft in hydrocarbons production in the Arctic regions. In the future, we expect new projects in these areas with Italian participation.
From my point of view, the decision to reduce oil production is especially significant: in 2001, as the Russian Energy Minister and Head of the Russian delegation during the 117th OPEC conference in Vienna, I led negotiations with ministers oil Cartel that had, as a result, the very first participation of my country to supportive cut in oil production