Interview with Cederic Cremers, Executive Vice President and Country Chair Russia at Shell

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Neftianka had the chance to interview Cederic Cremers, Executive Vice President and Country Chair Russia at Shell. Neftianka correspondents Sergey Nikitin and Maria Kutuzova spoke with Mr. Cremers on topics ranging from the company’s bullish outlook on LNG, downstream expansion in Russia, and Shell’s investment in the Nord Stream-2 pipeline project. Below is the transcript of the interview, which was originally published in Russian.

Neftianka: Mr. Cremers, Russia’s economic situation is far from great now. There are internal problems, existing sanctions, and new sanctions yet to come. Does any of this have any impact on Shell’s strategy in Russia or are you following the course that was set previously?

Cederic Cremers: Shell has been active in Russia for over 125 years. There have been great times for the industry, and there have been difficult times, but we have found a way to make our business successful during all those years. And we are still here today, and I see very important opportunities for us to continue to grow in Russia.

If I think about what we look for as we grow, I think it’s about the combination of the right scale, the right type of projects and the right partners… And then we look for the right synergies, where Shell brings something that works in good combination with local companies, local contractors and our local strategic partners to create the right value and the right projects.

I see many of those opportunities, particularly in our downstream business, in both retail and lubricants, but also in our LNG business: expanding our presence in Sakhalin and working on Baltic LNG together with Gazprom. This fits in terms of right scale, right partners and right synergy.

You also asked about sanctions. There are certainly key areas that are clearly off limits to us right now, the Arctic offshore and shale oil being examples of that. In 2014 we had to stop our activities in those areas. At the same time, our downstream business is much less impacted by sanctions.

You recently published Shell’s second outlook on the LNG market. How does the company see this market growing between now and 2030? What investments will be necessary? Please, tell us in more detail.

In 2017 the demand for LNG was just about 300 million tonnes per annum (mpta); if you think about it in terms of scale, it powers more than half a billion homes worldwide. And if you then look at the 2017 demand growth, it was almost 10% of that number, 29 mpta. Quite a bit more than what was expected even one or two years ago.

Many market players were talking about the expected oversupply. A lot of supply came onto the market from the new projects in Australia, the USA and Africa. But the real story of the last two years has been the fact that the demand has caught up and fully absorbed all that additional supply. First, the number of countries that are importing LNG today has grown significantly if you compare it to the year 2000. There were only about 10 countries importing LNG, and there’s more like 40 today. Second, there are more areas where LNG is being used right now, such as LNG for transport.

Another real story was China where there’s been a significant increase in demand for gas and LNG. That related to improvements on air quality that have been made in the last few years.

There’s been a government-driven program to switch over from coal to gas across the industry. Not only in power generation, but also in the industries themselves, heavy industries, the heating and power to plants. This is long-term new demand. This is not switching back and forth between gas and coal in power plants, but really making new investments into boilers, etc. This has made a huge difference in China and we see that trend continuing.

Based on our projections that the global gas demand will grow about 2% per annum, we expect LNG to grow even faster by about 4%. This is for the simple reason that the gas isn’t always in the ground where the demand is, and therefore LNG is a good way to transport and connect those demand and supply.

If you then take that 4% per year demand growth into the next decade, we see supply is not projected to grow at that same rate. There are very few new projects that have been sanctioned anywhere in the world in the last two years and therefore as you get to about 2024 there will be a shortage in the market and there will be new projects needed to be sanctioned in the years ahead. Personally, I feel this provides a great opportunity for Russia and for the LNG market in Russia in terms of starting up new supply projects that will fill that demand.

Mr. Cremers, let us talk about the glory days experienced — and yet to be experienced — by the Russian LNG. First was the commissioning of the LNG plant at Sakhalin-2, the second one was the recent commissioning of Novatek LNG, and now we are waiting for you to tell us about the coming halcyon days, about the future of your LNG projects in Russia.

The Ministry of Energy in Russia has outlined a plan of the total LNG market being about 70 mpta in Russia by somewhere in the 2020s. And even then, if we continue to see the market growth, Russia would still only be 14% of the global LNG market, which is only a fraction compared to Russia’s share of global gas resources.

If you look at Sakhalin LNG plant, the capacity is about 11 million tonnes per annum. One train on Yamal is online, if the next ones come online that would be about 15 million tonnes. Let’s say that we’re going to somewhere between 20 to 30 MTPA when both those projects. There’s going to be a lot of new projects required from multiple players in the market to meet the goal of 70 million tonnes.

At Shell, in partnership with Gazprom, we have two key projects that we’re focusing on. One is the third train in Sakhalin, adding another 50% to the capacity, i.e. a little bit more than 5 mpta. The other project is the one in the port of Ust-Luga, the Baltic LNG, with 10 mpta for just the first two trains and a possibility of expansion. We think these projects will be very competitive globally as new projects on the LNG market.

I’m quite proud to say that just a few days ago, on February 28, Train 3 received the final approval of its project design from Glavgosexpertiza. The next step is on the commercial side, where we have to resolve the discussions around gas supply to the project. Once this is resolved we should be at a stage where we can take the final investment decision and move forward with the project.

On the Baltic LNG side, in 2017 we agreed with Gazprom on the key terms of a joint venture and started a feasibility study which we’re now finalizing. We have landed on a very robust and strong technical concept.

Cremers, let me ask you about Shell’s collaboration with Gazprom on another project, Nord Stream-2. How much has Shell already invested in this project, and how much do you plan to invest? And what are the principal political risks that you see for this project?

The European energy market is in transition right now. There’s quite a large increase in renewable energies, and at the same time quite a shift away from coal. With these two counterbalancing forces, we expect that the demand for gas in Europe will stay roughly flat for the next 15 to 20 years. But the amount of gas produced within Europe, in places like the Netherlands, Germany and Norway, is reducing. With demand flat and production in Europe reducing, Europe will have to rely more on import of gas. I believe that will come from multiple sources, from a combination of more pipeline import and more LNG import.

This is where Nord Stream-2 fits, and I think it’s an important project in ensuring energy security in Europe with a new alternative, modern, and more efficient source of gas pipeline import.  You ask about political considerations, for us it’s very much a commercial project. We think it’s a good project that makes sense for Europe, that makes sense from an investment perspective.

We are financing 10% of the project, the estimate is about 950 million euros. I can say that the project is well on track, it is progressing along schedule, which means that we’ve executed about one third of the project financing to date.

I heard that Shell has some specific plans to use LNG as bunkering fuel. What is happening in this segment at the moment? What does Shell think about potential growth of the fleet that would use the bunkering fuel?

LNG as a fuel for marine transport has huge potential. First in terms of making the market more cost-competitive, but also as a cleaner burning fuel for heavy land transport and heavy marine transport. It’s also strengthened by the recent IMO regulations to go to below half a percent of Sulphur emissions in marine fuel by 2020, and LNG as a marine fuel is effectively Sulphur-free.  Shell supports this market by helping build the infrastructure required for bunkering, to ensure there’s enough LNG available to fuel marine transport and to really make it a sustainable and an effective industry.

Can you tell us, please, about your collaboration with the Russian company Sovcomflot?

We’ve had a strong relationship with Sovcomflot dating back to 2004 as a supplier of vessels for Sakhalin Energy. We went on a journey together and said, ‘let’s also look at tankers’, specifically Aframax crude tankers and see how can we make them more environmentally friendly. Sovcomflot has developed what they call their “green funnel”, six ships that will be fueled by LNG. Shell developed the capability to fuel these vessels with a new bunker vessel, the Cardissa, able to operate across Europe, which was put in place in 2017 in the port of Rotterdam.

I’m quite proud to announced that just a few weeks ago we chartered two of those six vessels for our own use. This is an area where we’re intensely working together with Sovcomflot to make the marine industry greener.

Is Shell satisfied with the way its joint project with Gazpromneft using ASP flooding at Salym fields is going? What’s in the project’s future?

One of the areas of our cooperation is ASP flooding, a chemical-based recovery method used in other places around the world before, like the USA, Canada and China. It is a process that uses a combination of alkali polymers and surfactants to achieve enhanced oil recovery. We sanctioned a pilot project back in 2012 that has now been completed. It produced about 3000 tons of oil and now the company is finalizing its analysis, so that then we can make choices about larger scale economic development. Our belief is that that it will require different fiscal incentives and tax treatment to make it economic on large scale.

Mr. Cremers, I also want to talk about the retail business. Our independent producers claim that their gas stations are on the verge of closing. Our majors claim that they are basically selling at self-cost. Meanwhile, the number of Shell gas stations continues to grow. How would you comment?

We see Russia as a very important market for our retail business, and it is one, where we have been steadily growing. About five years ago we had a hundred stations, in 2015 we already had 150, whereas just last year we opened our 250th station. It’s been on a rapid increase and that will continue going forward. Also, we were initially concentrated around St. Petersburg and the region, now we are much more spread out and present in many more regions.

Regarding profitability, it is fair to say that today the margins are under pressure. But our retail business is profitable. Two things are critical: one is customer focus, really understanding the customer needs and servicing those; the second is operational excellence, running the retail stations at the right cost and right efficiency. With those together certainly there’s an opportunity to have a very profitable business in the retail space in Russia.

Last year, we visited your refinery at Torzhok along with Gazpromneft’s delegation. I can tell you that our colleagues were very impressed by everything we saw — the way the plant functions, the way production safety is enforced, the way people are treated. What would you say about the state of the lubricants market in Russia?

We are quite proud of our Torzhok refinery. We are the only international company that has its own lube blending plant in Russia. It was built to worldwide standards, it’s a state-of-the-art modern plant. I think it gives us a very strong position in the market. We are currently the largest international brand on the Russian market as far as lubricants are concerned. And we see a lot of opportunity, a lot of capacity in the plant also to grow further, in partnership with many of our distributors across the country, to increase our presence in different market segments and with different customer segments.

Russia: The Most Influential Non-OPEC Member

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A year ago in Vienna, as the Organization of the Petroleum Exporting Countries met for its November meeting on whether or not to maintain, cut, or increase oil production for member countries, there was a new face on the sidelines. Alexander Novak, Russia’s Energy Minister. Leading up to the negotiations, and the final announcement of an OPEC cut, Novak had a busy couple months jet-setting to Qatar and China to meet with Saudi oil ministers to clinch the deal to cap oil production and cooperate with OPEC to stabilize the oil markets.

Russia’s participation, in terms of sheer volume, gave the production freeze a larger market impact. Prices rose 10% after the decision was initially announced last November. It was the first time Russia joined OPEC members in a collective action since 2001. Tomorrow, on November 30, Russia is expected to join the 9-month extension of the current agreement. By capping production, OPEC and Russia have more or less achieved its goal of stabilizing oil prices, which have been hovering at a near $60 per barrel level, in both US and European markets.

Last November, Russia and Saudi Arabia – OPEC’s biggest producer – were in a similar predicament Both governments faced massive budget deficits and oil revenue shortages due to historically low oil prices that earlier in 2016 had fluttered below $30 per barrel.

Russia’s incentive in 2016 to agree to a production cut was motivated by increasing oil revenues in the short term, but more importantly, the idea was to boost oil prices before selling off shares in Rosneft, Russia’s largest and state-owned oil company. The Russian government, therefore, had a direct financial interest in boosting oil prices to fetch a higher valuation for Rosneft before putting it up for sale.

This year, the Russian government has a much more concrete goal in mind: keep oil prices high through the elections in March of 2018. Rosneft no longer has an interest in prolonging the production cuts, because now that the sale is complete, the company wants to secure its market position – i.e. keep prices high enough to make a profit, but low enough to continue to box out US shale producers.

In 2018, Saudi and Russian interests may not align. Saudi Arabia is gearing up to list its energy giant Saudi Aramco 2018, and wants to see oil prices continue to climb before the billion, if not trillion dollar, IPO. The higher the oil prices, the higher the company can list its initial shares. Russia doesn’t necessarily want to sabotage the IPO, but would certainly benefit from it fetching the lowest price possible.

While OPEC is happy to leave the exit strategy vague, Russia is not. Russia’s oil companies such as Rosneft and Lukoil seem to be placated by prices above $60 a barrel and don’t necessarily support extending the deal any longer.

Of course, Saudi and Russia are not the only voices at tomorrow’s meeting. The 14 member countries of OPEC all have various needs. Nigeria and Libya, which were exempt from the production cap cut last year due to low production and civil unrest, may be forced to comply this year. In Venezuela, the crisis has significantly cut oil production, and major debts at state-owned PDVSA risk further damaging output and refinery potential.

Louise Dickson

The Future of Russian LNG: Thierry Bros

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Thierry Bros, a senior research fellow of The Oxford Institute for Energy Studies sat down with Neftianka to discuss Russia’s future prospects in the LNG market.

Neftianka: You’ve been an analyst on both Russia and LNG markets for decades. You tell us, is LNG Russia’s top energy priority right now?

Bros: The government wants to be a decent player in the LNG world, and again, if you are the government, you have to address the question if you want to be a major LNG player, and ten years later you are a small player, but nowhere near where you wanted to be. It is difficult and risky for companies, therefore we need to partner one way or another.

Today we are in a world where there is too much LNG, other sources are drastically changing merit order system. The Russian government needs to answer one very simple question, is LNG strategic or not? It will need to adapt model to produce. If it decides that the project isn’t strategic, then the market can do it.

We are seeing a relaxed LNG world. I think companies have to think that its still a capitalist world, so you have to think about what type of strategy you want. If you have depletion of historical fields, then you need to find new fields.

You’ve been in the analyst trenches for quite some time now. What do you think about the current slump in LNG prices? Will Russia be able to influence LNG pricing the same way they were able to play with European gas pricing?

I think the Russian state will never be able to control the LNG price, it will be like Brent for oil. The question is, “Do we have sufficient market power LNG to understand the mechanics?” And right now the answer is no. The way to better understand the mechanics is to do more projects.

In order to better understand the LNG market, this means more Russian players and better reporting to the government. In a world where pipeline gas is going to be connected with LNG, Russia has an interest in understanding, but not necessarily controlling, the mechanics of LNG.

There is a very simple question if you are Russia is pipeline gas at discount to LNG, and if so, how can I price this?

The LNG “success” story that everyone is talking about these days is Yamal, an LNG plant with16.5 mtpa that looks like it can break even at $30/barrel prices, even though the area is remote and the technology advanced.

Novatek succeeded in understanding, thanks to Total [partner in Yamal LNG] that costs and CAPEX can’t go through the roof. They understood making it profitable from day one. We can’t twist the spreadsheet, the only way for this to go ahead is for the Russian government to take control, to provide tax holidays, port infrastructure, etc. Novatek and the Russian government definitely came out with a win/win situation.

Yamal has strong state support, provide LNG on time and on budget, a new thing in the LNG world these days. Russian LNG provided by different actors. Remember no monopoly in LNG world. Not enough to put Russia on the LNG map. Still second class player when it comes to LNG. Policy makers would like LNG to become more relevant in Russia.

Conversely, the Shtokman LNG project was thought to be risky, and was postponed. You cant say on your spread sheet you’ll add it up later, it has to be adapted from day one.

Gazprom’s Sakhalin, Russia’s first LNG project, had problems in term of CAPEX during the building phase, but now it operates perfectly fine.

We’ve seen LNG projects on maps for many years, but so far there are only two in Russia [Sakhalin and Yamal].

And what about Gazprom’s Vladivostok LNG project that has been officially shelved since late 2015?

If you are Gazprom, it makes sense to expanding Sakhalin because its cheaper.

Gazprom has never built an LNG liquefaction plant [their partner on the project, Shell, was the operator up until 2009].

Gazprom is extremely good at pipes and conventional upstream. LNG is challenging for them. I think Vladivostok LNG was on the map back many years ago because it was a hedge to Power of Siberia, but with Power of Siberia going ahead, they don’t need

Vladivostok LNG would in theory involve an undersea pipeline from Sakhalin to Vladivostok. Is it really profitable to use pipelines in an LNG project?

Gazprom is used to doing pipelines. They can do the profitability analysis and decide yes or no.

How do energy companies become more vertically integrated? What’s Gazprom’s future in an LNG world?

These big companies have the challenge to adapt – Exxon has the same problem with oil: Their mantra will be “oil, oil, oil” for how long? Gazprom has an advantage as a gas company, its one step ahead in the energy transition. This is why Rosneft is so pushy in breaking into the gas market. Gazprom understands there is a huge risk of unbundling, and for it to try and avoid it, in needs to be profitable day in and day out.

If you are Gazprom, you have to make your case stronger, and that means delivering what the state is expecting.

Gazprom will have a duty to do LNG projects in Russia. If your shareholders ask you do to something that isn’t profitable, you can come back and negotiate.

Of course it is easier to do in Europe, because Gazprom has a long history there, and Asians are tough bargainers. And when we compare this move to what’s going on in Europe, we see it’s a good for Gazprom. They are going to have a tendency to move towards Asia due to financing, sanctions, etc.

Will the Russian government support future LNG projects? How does this change with the 2013 law to “liberalize” the market, letting in new players Novatek and Rosneft to export abroad?

My understanding is that the Russia is creating competition between two national companies, Rosneft and Gazprom, and now Novatek.

It could be a good start. If you want liberalization of markets, this may be a good tool to use later on to move away from regulatory price. If you want to have a price of Russia that is reflective of the market.

Interestingly enough, the Russian government has opened the market to all the companies, and since this law, only one project. Did I pass a law for only one project, or am I going to tell the other companies that its time to deliver?

OK, last question. Do you think that St. Petersburg has the potential to be an LNG pricing hub?

Right now it is for a few players, but you have to start somewhere. You can use a hub as a pricing tool.

Gazprom Neft gains access to Sakhalin

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Gazpromneft-Sakhalin, a subsidy of Gazprom Neft (itself the oil division of state-owned Gazprom) has received a license to explore and drill on Sakhalin Island, Russia’s budding LNG hub situated north of Japan.

The company got permission to drill and produce hydrocarbons from the Ayashsky shelf, part of the Sakhalin-3 project. The other two blocs in the Gazprom-operated project are Kirinsky and Vostochno-Odoptinsky.

The first exploration well is to be drilled oil going this summer and a 3D seismic survey has already been carried out over a 2.15 square kilometer area.

Gazprom Neft joins Russian energy giants Rosneft and Gazprom on the remote island in the Okhotsk Sea, where the companies respectively head up the Sakhlin-1 and Sakhalin-2 projects. Gazprom Neft’s first exploration well will be drilled this summer. The license, granted by Russia’s state subsurface agency, Rosnedra, is valid through July 2039.

The Ayashsky bloc, which Gazprom Neft estimates contains more than 100 million tons of oil or oil equivalent, is sandwiched between the already operating Sakhalin-1 and Sakhalin-2 fields.

This is the first time Gazpromneft-Sakhalin received a license in the Sea of Okhortsk. Previously, the company had only obtained licenses to drill in Arctic blocs.

Russia considers increasing oil exports to Cuba

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The Russian government is discussing the possibility of increasing supplies of Russian oil and oil products to Cuba. Russian oil giants Rosneft and Lukoil would carry out the deliveries of oil and petroleum products and are reportedly working on contracts, but no prices have been discussed.

The development was reported by Russian business daily Vedomosti on Friday, citing a letter from the Deputy Minister of Economic Development Alexey Gruzdev dated January 11.

Between 2010 and 2015, Russia delivered $11.3 million worth of oil products, according to Rosstat data. In 2016, Russia exported just shy of $1 million of oil and oil products.

Cuba’s oil supplies from neighboring Venezuela have been disrupted due to the political crisis. Venezuela is Cuba’s top energy supplier, but as the country teeters on an economic and humanitarian crisis, it has failed to keep up oil production. Reuters reported that in in the first half of 2016 Cuba received 40% fewer barrels of crude oil from PDVSA, Venezuela’s national oil company, than in the same six-month time period in 2015.

In September of last year, Prime Minister Raul Castro asked President Putin to increase oil supplies, but Russia wasn’t actively receptive of the idea due to its doubts about the small Caribbean island nation’s ability to pay up, RBC reported.

The two Cold War allies have collaborated on a number of strategic issues. In October 2015, Russia issued Cuba a $1.3 billion loan to build two nuclear power plant facilities. In 2014, Russia forgave more than $32 billion in Cuba’s Soviet-era debt.

“From our standpoint, the successful completion of negotiations on delivering Russia oil to Cuba will not only increase trade but also have a positive socio-political and humanitarian impact on Russian-Cuban relations,” Gruzdev is quoted by Vedomosti as saying.

Finding a Global Energy Balance – BP Economist

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BP Chief Economist Spencer Dale presented his company’s 65th edition of the Statistical Review of World Energy June 2016 in Moscow on June 10 at the Institute of World Economy and International Relations. BP has been producing the report since 1952, and the study has established itself as an authoritative source in the energy industry.

The report, which in its inaugural year, only reported on oil – now focused on the three primary global energy sources – oil, coal, and natural gas.

Oil remains the most widespread used energy in the world – in 2015 it accounted for 32.9% of total energy consumption. In 2015, it even saw its market share rise, for the first time since 1999. After oil, coal is the second biggest fuel, with 29.2% share in the energy balance, but it saw its market share decline in 2015. Natural gas made up 23.8%.

Dale’s main message for the upcoming year is to expect another year of strong growth in demand, and a continued shift towards low-carbon fuels, as well as renewables.

According to the report, global demand for primary energy only amounted to 1%, which is significantly lower than the average in the past decade (on average 1.9%).

Dale said this reflects an overall slowdown in the global economy and consequential slower growth in energy consumption, most notably in China.

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“On the demand side, we are in a world where demand is in a period of transition. Over the last 10-15 years, we have seen very strong growth in global energy demand, much of that driven by China,” he said.

China’s economic boom days are over, and as Dale put it, “the days of double-digit growth and industrialization are behind us”.

Even if there is a massive increase in demand – from China or elsewhere – the massive amount of oil inventories will offset any oil price surges.

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For example, even if demand grows to a point where there is a shortage of oil, prices won’t suddenly snap back.

Dale explained: “If you have a shortage of a 1 million barrels per day, but we have a surplus of 500-600 million barrels, simple arithmetic tells you that it could easily take 12-18 months before stock levels are back to normal levels, and it’s only when you work off that significant stock overhang, will the oil market come back to balance.”

Technology is also changing the energy balance, the report says, referencing developments in both shale oil in the US, as well as renewable energy sources worldwide.

“On the supply side, we are surfing a technological wave. Over the last few years, we have seen rapid gains in technology advancements and productivity gains, which are increasing the types and abundance of energy supplies,” said Dale.

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As our readers know very well, oil prices in 2015 dropped drastically. In dollar terms, the largest drop on record, and the sharpest fall in terms of percent since 1986. Prices rose slightly in early 2015 as US shale producers nixed production, but increased production by OPEC countries, especially Iraq and Saudi Arabia (account for ~90 percent of increase production) caused a sharp drop in prices overall.

We are “truly in an age of plenty in terms of supply,” Dale noted.

The growth rate of world oil production for the second year in a row outpaced global consumption growth. Production grew by 2.8 million barrels per day, or 3.2%, the highest rate since 2004. Production in Iraq (750,000 barrels per day) and Saudi Arabia (510,000 barrels per day) rose to record levels, which pushed OPEC production up 1.6 million barrels per day to 38.2 million barrels per day, even outpacing the previous record set in 2012.

“You do not need a PhD in economics to know if supply grows by 2 million barrels a day, and demand grows by 1 million barrels a day – what will happen with oil prices – and sure enough, prices fell,” said Dale.

Natural Gas

“The big picture story on natural gas is one where global production continued to grow strongly, but demand outside of the power sector was relatively muted, and these two things together causes gas prices to drop sharply around the world,” said Dale.

There is still a large variation across countries and markets.

“On the supply side, the US remained the global powerhouse for natural gas, accounting for around half of the entire increase in global production last year,” according to the economist.

Overall, BP sees three general themes from the gas market:
1) A gas increase share within power sector, especially in the US, even pricing out coal;
2) LNG overall increased, though demand from Asia decreased, and increased in Europe, North Africa, and the Middle East;
3) In order to retain market share, Gazprom responded to increased competition by lowering European prices

The rise of LNG is increasingly influencing prices. For example, a drop in demand for LNG in Asia affected prices in natural gas in Europe.

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Other interesting points of the presentation:
– Gas overtook coal in US power sector – first time ever
– Renewable energy – solar energy has increased 60-fold in the last 10 years

Lukoil First Russian Oil Company to Enter Iran after Sanctions

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Russia’s second-largest oil producer, Lukoil, has reportedly signed a $6 million contract on two exploration and projects in Iran’s southern provinces, and word is already under way.

The news was reported by Iran’s Press TV, citing Hormoz Qalavand, the director for exploration affairs of the National Iranian Oil Company (NIOC).

The two exploration projects are located in the country’s southwestern oil-rich Khuzestan province, situated on the Persian Gulf and sharing a border with Iraq.

The Russian energy group is exploring the hydrocarbon reserves in Dasht-e-Abadan in Khuzestan and in the northern parts of the Persian Gulf, according to Press TV.

This isn’t Lukoil’s first venture into the Islamic Republic of Iran. Lukoil has worked in Iran since the early 2000s, and began work on the Anaran oilfield in 2003 as a minority partner along with Norway’s Statoil, but had to cease operations in 2010 when economic sanctions were imposed.

The Anaran oil field, which is located near the Iraqi border, has an estimated 2 billion barrels of recoverable oil reserves.

Anticipating the imminent lifting of Western sanctions against Tehran over its nuclear program, Lukoil reopened its office in Iran in April 2015.

Iran is home to the world’s fourth largest reserves of oil, which is very cheap to produce – only $10 per barrel.

Sanctions linked to Iran’s controversial nuclear program have barred it from developing or exporting oil or gas in recent years. Iran’s oil exports have dropped from 2.5 million barrels a day in 2011 down to just 1 million barrels in 2014, according to the US Energy Information Administration (EIA).

Until the lifting of sanctions exports, which went mainly to tChina, Japan, India, South Korea, and Turkey, amounted to about 1 million barrels a day, compared to pre-sanctions crude output of 3.6 million barrels per day in 2011.

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Iran was allowed to resume selling oil to the US, EU, and its allies in January, after it agreed to take steps to wind down its nuclear program.

According to statements by the Iranian authorities, in the next six months, the country has the ability to bring 500,000 barrels of oil per day to market, and in a year, 1 million barrels of oil. The draft budget for 2016 provides for the export volume of 2.25 million barrels of oil per day.

Iran’s President Hassan Rouhani has repeatedly said that Iran will need foreign companies to invest billions into his country’s economy in order to give it a boost start.

Vagit Alekperov, Lukoil’s chief executive officer, has kept close relations with his Iranian colleagues, most notably the country’s oil minister Bijan Namdar Zanganeh.

The Kremlin has a soft spot for Iran, which up until January, had been subject to Western sanctions, bringing its oil industry to a near standstill.

Sanctions against Russia have its own economy hanging on for dear life. As a result, Moscow will have to make cuts and adjustments across the board, including, as noted by Deputy Finance Minister Sergei Storchak, loans to other countries, with the exception of Iran.