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The oil era will not come to end in coming decades

The oil era will not end in coming decades and such phenomenon as oil peak as described by western analytics is hardly probable said Chairman of the Council of the Union of Oil and Gas Industrialists of Russia Yuri Shafranik after his speech at the British Royal Institute of International Relations (Chatham House) in an exclusive interview to Roman Podervyansky ITAR-TASS correspondent in London.

QUESTION: Yuri Konstantinovich, what directions of Russian oil exports are now especially perspective? What changes on the world energy map can we expect in coming years and decades?

ANSWER: Europe has been and remains one of the most advantageous buyers of Russian oil and gas. Russia’s presence on European gas market has been quite serious and that caused significant discontent of consumers worrying about so called Russian dictation. After 2008 we reduced volumes of exported gas what, of course, created significant problems for us. Especially, against the background of other suppliers supporting this market. Notwithstanding Europe represents for us a permanent and exclusively great interest both in export of pipeline gas as well as in oil export.

Besides all serious oil sellers invariably dream of delivering oil to North American market since it is gigantic and attractive in financial respect. Consequently to sell oil from our eastern coast is a rather perspective business because it can be bought not only by Asia-Pacific countries (first of all Japan as the biggest consumer) but also by consumers on U.S. western coast.

And most important is that pipeline coming to Pacific Ocean provides with a good diversification of hydrocarbons supply routes. A significant point in this respect was put by a recent opening in presence of Prime Minister Vladimir Putin of a pipeline from Taishet to Skovorodino and also filling of first tankers at the terminal in Kozmino bay.

QUESTION: So, as they say, the process is already under way?

ANSWER: Yes, but a large-scale, perspective and expensive project of pipeline “Eastern Siberia-Pacific Ocean” – is only a beginning stage of work in this tremendous region. Opening up of deposits lying along this pipeline is much more important than laying of pipes. These deposits are very precious, but they are located in very complicated geographic and climactic zones. And efforts being put here for opening up of hydrocarbon “storerooms” are obviously insufficient. Indeed besides the oil and gas Vankor deposit along VSTO (Eastern Siberia – Pacific Ocean pipeline) oriented largely on western market we have not developed any meaningful deposits during the many years passed.

Beside geographic, geological and other particularities and gigantic distances and capital expenditures the specifics of this project lie in the fact that all explored deposits here are not purely gas or oil deposits. In aggregate state hydrocarbons here are represented by liquids, gas and gas condensate. Because of that development and operation of these deposits is a very complicated business. Besides inevitably arises the question what has to be done with oil well gas and other accompanying components, for instance, with helium. Obviously a complex program of developing resources is needed.

So first of all one must put up (consequentially) efforts to start development of first oil deposits, to prepare projects of complex territory development, to develop gas production and to create oil chemical and gas chemical complexes capable of producing high quality final products. And these complexes must be put up not at the coast but in the region of hydrocarbons production.

QUESTION: What gas markets are promising now taking into account that demand for it in Europe has fallen?

ANSWER: With gas everything is harder and more complicated. Though the bulk of it is supplied by pipeline systems there is already liquefied gas (LNG), its production grows competing with the traditional “blue fuel”. This competition is surely unpleasant for us. Nevertheless gas consumption in Europe will grow any way (the question is in dynamics of this growth). I personally believe that the growth would be insignificant. Because Europe undertakes very serious measures to introduce energy-saving technologies, confidently adopts other sources of energy, including so called alternative ones. But anyway Europe will need our gas for quite a long time. Because of that the pipelines “Nord Stream” and “South Stream” are quite perspective as an addition to the existing ones.

If we talk about “Nord Stream” this is an already decided question. Practically all accents are placed, the pipeline can be constructed and set in operation. But this does not call off a necessity for a new dialogue with the present Ukraine’s leadership on principally new approaches to gas transit. With reaching a full juristic, economic, corporate and financial mutual understanding Ukraine is sure to win because its pipes will be operated at full capacity. Needless to say that Russia will win too. And Europe also. As far as “South Stream” is concerned it doubtless will enhance the reliability of Russian gas deliveries to Europe itself.

But what is especially important and insufficiently noticed and appreciated is a giant economic breakthrough of Turkmenistan who managed to put up new branches of its pipeline system (to the East and the South) to reach China and Iran. Apropos, the first gas pipeline between Turkmenistan and Iran was opened as long ago as 1997. And Russia has always understood and supported Turkmenistan’s lawful aspiration to diversify its gas streams directions.

What is not less important - this fact brightly lightens the future role of Iran, Turkmenistan and Russia as leading players on Eurasian gas market. They form some kind of a gate between Asian and European consumers and that is extremely important for working out of a thought over price policy for strengthening of international energy security.

I am confident that active actions of Russia in this direction (with hydrocarbons producers of Central Asia and Azerbaijan coming to a European formula of gas price), entry of Russian companies to production projects of Central Asian states and effective cooperation of Russia with Iran in realization of oil and gas projects - is a very serious phenomenon of modern times that will significantly influence the development of world energy market.

The most essential aspect here consists of “not making friends against” not stand up against the consumers’ side but steadily to pursuit economic interests that unite us by achieving effective and rational utilization of subsoil reserves.

Indeed I must say that I feel awfully sorry that at the beginning of the 2000-ths, when Russian political leadership put a lot of efforts to build comprehensive relations with Algiers, our business – especially gas companies – did not manage to entrench itself in economic projects in that country.

QUESTION: Recently Israel’s Prime minister Benjamin Netanyahu called world countries to set up an oil embargo against Iran. Are such sanctions able to influence long-term perspectives of energy cooperation in the Caspian Sea region?

ANSWER: I, of course, speak about cooperation abstracting political aspects. I take them into account but abstract them. Because one should not estimate long-term perspectives by putting stress on current actions of political character. Obviously, any sanctions brake the development of cooperation. But the gas factor of cooperation of Russia, Turkmenistan and Iran can not be called off. This is objective reality with being extremely significant for world energy security.

There were sanctions against Iraq. Including the hardest ones - military. Have they stopped oil production in the country? No, they have not. There was more oil produced there than today. 5 years passed after the war ended, but Iraq only recently signed first contracts with foreign oil companies. But the country surely will achieve the highest rates of production achieved in the past. And will produce even more because Iraq disposes of gigantic oil potential. Gigantic in terms of our planet. This factor is being underestimated everywhere, but it, I am sure, to a large extent will change attitude to prices, to volumes of oil production, towards OPEC. (Here we have a separate and important subject that must be discussed but it is early to make conclusions.)

So in Iran these and those sanctions could for some time silence energy theme (I talk about energy itself), but I do not think that will last for decades. I suppose, maximum, for 5 years. Besides the gas vector Russia-Turkmenistan-Iran will work independently of anything and actively.

The Axis Russia-Turkmenistan-Iran as it seems divides European and Asian consumers of energy resources. In reality the world only gains as diversification of energy flows is always reasonable. Additionally producing countries will learn to agree between themselves on prices and volumes in pursuit of common benefit. Because of spare pipes leading to one customer (in this case – to Europe), this as a minimum not beneficial for producers including Russia. But in case of many consumers no pipe will be superfluous.

QUESTION: In the West a concept of so called peak oil production is often discussed now. Purporting that in the next 15-20 years oil will begin to finish it is necessary to urgently transform energy production...

ANSWER: I started my working life as an oil man at the Samotlor deposit in 1974, and then the discussion about for how long there will be enough oil was also going. Some people believed that its era will end any moment. But during all years passed, especially, during the last 20 years it turned out that there were always more explored resources than produced and consumed. This means there is no threat of oil hunger in coming decades.

Indeed hydrocarbons are becoming more and more expensive. Tremendous investments are required, since one has to extract oil at great depths and on sea shelf. That is why I started to repeat long ago that the era of cheap oil had come to an end. But the Oil Era will not end in coming decades. This is the fact.

Now about the oil peak. This is a wrong interpretation of reality, a very serious mistake: they arithmetically add production of operating deposits and state: “Well, that’s the peak. It will happen literally tomorrow. And then there will be a decline of production”. As I already said, explored oil reserves are increased faster than production grows. The gist of the matter is not in underground “storerooms” exhaustion but in lack of investments and better technologies. Just in this. Because of that “the arithmetic peak” will constantly retreat in time until the moment, when world consumption of oil stays at a relatively stable (necessary) level. Hence production will also reach not a peak but a settled “shelf”.

What by that time will influence energy as a whole? Without any doubt the gas factor (and everything that concerns LNG). Relation of profitability of using these or those hydrocarbons will “decide” at what level the named “shelf” will stay. Shale gas and possible production of industrial volumes of liquid fuel from coal will also exert certain influence. In the end so called alternative sources of energy: low carbon, hydrogen, nuclear, solar, tidal, biologic, wind and so on will not stay aside.

I categorically disagree with a wide-spread manner to counterpoise different sources of energy. Each of them occupies its right place (some very small yet), but in the future will occupy one can say a reliable stationary niche. Then it seems will a firm “shelf” be determined – economically the most purposeful volume of oil production.

QUESTION: New energy technologies and possibly “a new Kyoto Protocol” – what all this would mean for world energy? The West is evidently aspiring to go away from fossil fuels.

ANSWER: For what the West is doing for energy saving, for energy effectiveness, for appearance of new technologies one as they say should erect a monument on behalf of whole mankind. I support this in everyway and very much vexed that in 20 years of our state formation after disintegration of the Soviet state we lost a lot and not succeeded in this field in any meaningful way. (Except last years when our numbers in energy saving have come closer to the planned ones and show certain positive dynamics.)

I would not say that the West’s achievements are “a big alternative”. I think that hydrocarbons will still serve us. But one should not leave it at that. Both Russia as well as the former Soviet Union in general achieved great economic results not during the period of “big oil” but during the time of lack of it (and not only of it). In 1950-ties – 1960-ties there was not enough oil in the country for inner consumption but what was developed? Nuclear energy, ice-breaking fleet, military industry, airplane construction, electric and hydropower … It is not clever to aspire the past, but it is even sillier not to learn lessons of the past.

QUESTION: During last weeks hopes are getting stronger in London to find on Falkland Islands up to 60 billions of barrels of “black oil”. In case of success will it noticeably affect world market?

ANSWER: Such hopes speak in favor of my theory – oil will not disappear. Even on Falklands (theoretically) they have calculated very many barrels. Theoretically there is oil almost in every region. Another matter - does it lie at the depth of 2 or 20 thousand meters where we have not even explored yet. That is the question. I do not believe that Falklands will become a region of growing oil production in coming years. But, as they say, God help you. I risk myself when take this or that block for exploration in different countries. So, God help us.