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Oil is getting cheaper. A new crisis is inevitable

During this year and next year, if there is no catastrophic global shocks, the price of oil will stay between US$ 80 and 90 per barrel. But this will be just a respite. The outgoing crisis – is just a precursor of a really horrible world crisis. Because of that at the end of 2011, closer to 2012 there will be a new fall of hydrocarbon prices. Such a prognosis was expressed by Yuri Shafranik, Chairman of the Council of Oil and Gas Industrialists Union of Russia in his interview to Alexey Kravchenko, ITAR-TASS observer.

— Could the current flare-up of contradictions between Moscow and Minsk over oil customs become a strategic factor hindering a teethed at last breakthrough in post Soviet integration? What kind of end of this conflict seems preferable to you?

— Any conflict could bring the most unexpected results. Including pitiable, if it is essentially unconstructive or they try to resolve it in an unconstructive way. Could the named conflict hinder development of normal relations? Sure, if, I would repeat, it is unconstructive essentially or will be resolved unconstructively.

It is appropriate here to remind of history of forming a united European Common market. It suffice to turn to the newspapers of 70-ties - 80-ties of last century to understand: conflicts on market soil were practically ceaseless in Europe. Why? Because the process of forming a market contains inevitably conflict of interests. And this can be called a blessing, since collision, contradiction of interests enriches the picture of economic order, helps to build a market community. If, of course, both sides aspire this and not resolving their own problems at the expense and to the detriment of their neighbors. Constructive dialogue is the basis for successful development of common economic space.

Should conflict over anything (milk, metal, oil, gas) arise, in case of a reasonable solution it will only strengthen economic ties. On the opposite in a conflict-free quagmire such ties will be bogged down. In this sense I am advocate of conflicts so that the wish of all sides to jointly solve complicated problems for the sake of common good grows. Then in a short period of time (in 2-3 years) there will appear a common market which is difficult to destroy since its destruction will take a heavy toll on any of the sides.

Of course, we should not copy mechanisms of European integration, but the experience accumulated in Europe should not be rejected either. Yes, our history is different, our mentality is different, finally, we have a different level of economic development, but our people unconditionally aspire integration, and this is the main guide for political leadership of the states.

And as far as the conflict is concerned... For an outsider it is difficult to judge. The governments of both countries have comprehensive information on the essence of the conflict, they are responsible for the state of their budgets and economics, and due to that I hope on constructiveness of their dialogue.

On the face of it Russian side’s proposal: to establish one level of tariffs on the volume of oil consumed and another level of tariffs on an additional volume of oil, looks completely logical. But there are beyond it some other agreements on different kind of products – metals, tractors, automobiles... Without knowing all economic components one should not give concrete advice. May be our government will make a decision to lower tariffs on all volumes of oil, but by complex approach to the problem’s solution will gain in another economic sector. It is understandable that the talks are being conducted behind closed doors, but the results of them must become known to public at large.

— What are the results of the Russian-Iranian Working Group on Cooperation in the Field of Oil, Gas and Oil Chemical Industry?

— The main result of the last contacts is the fact that a direct dialogue between governments and business of both countries has begun. This is more than previous rare visits and meetings of representatives of some companies and government officials. A system of relations is being forged.

Meeting and working with officials of Russian and Iranian governments I have become convinced that both sides aspire to strengthen cooperation.

As far as commercial contracts are concerned no company will tell you on what and with whom they are working. And they would be right because it is ridiculous to say something before a result is achieved.

As a whole the picture looks as follows. There will be a lot of difficulties since it concerns both big politics as well as global economy. This means there will be a lot of risks on this road. Iran has always been and is famed for hard defense of its interests. In any project. It would be naive to think that there one can easily get big profits. One must work hard, conduct long negotiations, show good working results. Only then one can achieve economic efficiency and expected dividends.

And here I would like to say a very important thing. Forging relations is not simply and not only with Iran, but along the axis Russia-Turkmenistan-Iran (I would call it gas axis) presents a unique opportunity, a unique chance to forge interaction and work out coordinated actions in determining participants in gas extraction and the ways to deliver the blue fuel. And the most important – in determination of volumes of gas production and prices of its delivery. The chance is great as Iran, Turkmenistan and Russia are main players on the gas market of a giant region and even the whole world (at least for the present time).

Further. How many pipes, that all western and eastern politicians are dreaming of, should we build, the only winner would be gas consumer. And we, having “enlaced” our countries with pipelines, shall compete with each other and lower the price of gas so much that its production will become unprofitable. What should be done in this relation? First of all to agree upon volumes of production and prices. Even better is to reach the stage of integration with consumer, get included in his system of processing of hydrocarbons, selling of final products. Opening, of course, our doors for consumer … Unfortunately developed countries for the time being swear off such an integration.

That is why the first stage – reconciliation of volumes of production, prices and supply routes – is extremely important. And the sooner we set about to solve this problem, the greater success in economy will be achieved by producing countries. That is why I would not reduce contacts with Iran to discussions of projects of deposits development or gas chemical complexes construction only. I consider it the most important for Russia and Iran and Turkmenistan – to begin a dialogue over the above mentioned subject.

— Your assessment of world’s and local gas market. Does pipeline gas and the Russian Federation projects based upon it retreat irrevocably before liquefied and shale gas? Should they be modified or simply quickly realized?

— You have put the question too radically: have retreated, have given in. Yes the epoch of big pipeline systems has not come to an end yet. Systems of regional and local purpose have been and will be for a long time yet - decades – profitable. But projects of great pipeline systems today have to be recalculated tens of times as gas transportation for long distances – is not a cheap type of business. Liquefaction of gas is also an expensive process, though technologies are being improved and equipment is becoming cheaper. It is the competitiveness that matters. In some countries they do not yet renounce pipelines, but “the yoke” under the pressure of liquefied gas can already hardly keep balance.

We have a different situation. There were incalculable billions of dollars invested into pipeline systems of Europe, Russia and transit countries. And to throw them away is not simple even many years hence.

Not all famous projects of pipeline arteries will be realized. Some must be recalculated, reevaluated, made cheaper. The north version is beyond doubt competitive. The Southern – I would not judge, I have not made calculations, but possibly it may have the right to exist. But this way or that, both systems (and the Caspian also) are needed. They will be a pinnacle of what was started to be built in the 60-ties – 70-ties for gas delivery to Europe. But should one go on building something similar? A very big question. During the time while we realize these streams (that Europe needs more than we do), liquefied gas may break the balance of the yoke thanks to new means of delivery over long distances.

About shale gas. Along with it as an energy source one may name coal bed methane. And I would add to this hydroelectric power stations too, and solar cells, and tidal power stations and wind power aggregates… For me there are no alternative – replacing traditional – sources of energy. You sure would not drag gas pipe to Sahara. Instead the Sun can work there. And through mountains you would not crawl with pipes. But there are enough winds there. A liquefied gas container can be delivered by helicopter and this container will provide a small village with energy for a whole year. Such is the case with shale gas: there are technologies to extract the gas so one must do it. I am convinced that in coming decades not alternative sources will be confirmed but a complex approach to extraction of energy and spheres of its usage.

— How does the situation around oil and gas production in the Caspian region develop? Is it possible to say that Russia is strengthening its positions on this vector or Moscow must undertake something additionally? If so, then with whom?

− First, in its part of shelf Russia acts quite consequently, actively and effectively. By the way, I.I.Sechin (Vice-premier responsible for energy – Editor’s note) who recently visited Lukoil’s drilling rig, was convinced that this very prominent project was being successfully realized. At the same time I consider that one should in general not hurry up with a large scale opening up of Caspian shelf. The Caspian Sea region as well as the Baikal Lake region is unique, unrecoverable, there is nothing similar in the world. Because of that oil and gas hurry there is out of place. And one should not organize a competition over “hammering down” rigs there.

If one speaks about the Caspian Sea region as a whole, Russia is for a long time lagging behind energetic partners of Caspian Sea countries in starting producing projects . We long ago should not have been stingy and invest financial resources into them. In the 90-ties I talked about the necessity to invest 2-3 billions US$ in Turkmenistan’s, Kazakhstan’s and Azerbaijan’s projects. In such case our business would have long ago settled steadfastly in these republics. Now one must invest by 3-4 times more but we still lag behind.

I have already pointed out that integration is unthinkable without active cooperation. We must be actively present in the Caspian Sea region and that - owing to investments – is beneficial for our neighbors, too. Above that hydrocarbons produced there we could transport more rationally – and profitably, and prices for resources could be fairer. Is it possible to envisage that with integration Kazakhstan pumps gas at one price and Turkmenistan at a different one? No it is not. This concerns projects in different industries.

Because of that I consider that we have not yet disposed of a syndrome of post-Soviet “disease” when nobody cares about neighbors. It is time to reevaluate the situation.

But we as before break entrance into producing projects. Truly, there are successes achieved in Uzbekistan but this is evidently not enough.

— What in Russian tax system should be readjusted or modified to enable the back-bone sector of Russian economy – oil and gas industry - to realize in full measure the function of a technological and financial locomotive of modernization of the country’s industry?

− The tax system should be readjusted so that it stimulates development of production at small, exhausted deposits and utilization of idling wells. It should be understood that with a great spectrum of geographical and economic differences observed from Kaliningrad to Kamchatka one can not use one tax “comb”. In general solution of this problem in many respects should be realized at regional level. The regions should get exclusive opportunities to manage everything that is today considered unprofitable. And in the first place it should be just the deposits that I named. But no matter what and wherever has been spoken about it – changes are miserable.

There are changes pertaining to preferences at development of new gas deposits at the Far East, in Eastern Siberia along a new pipeline system. But, practically nothing has been done for “small and orphaned”. Not only in tax sphere.

Apropos, for oil and gas complex to realize functions of a technological-financial locomotive of the economy tax measures are not as important as politico-economic measures. For instance, if we do not let western service companies in our country and besides give them subcontracts for well drilling then our oil men money goes to rearming of those companies, to deliveries of new equipment from abroad. Besides it is necessary radically - by two times – enhance effectiveness of our companies due to separation and specialization of all non-profile assets.

Finally we need to affirm and promote our own service brands and through them order equipment, provide them with orders. Alliances with western partners are possible and needed. But they must be mutually beneficial alliances - not squandering of our own resources.

“The secret” of waking up of innovation and modernization impulse that can be given by oil and gas complex is hidden in just these details.