Sentyurin Yuri, is a Russian deputy energy minister heading the administrative and legislative department in the Ministry of Energy of the Russian Federation (Minenergo of Russia) since 2010. The 56-year old politician has served in the armed forces of the USSR and the Russian Federation, including in Afghanistan. He ran for the State Duma under the United Russia party, for which he was the deputy chairman of the committee on energy, transport and communications till 2007. Prior to his current portfolio, Yuri was the deputy minister of education and science for the Russian government.
The Indian oil minister, Dharmendra Pradhan, visited St. Petersburg in June to discuss energy ties with Russia. In this interview, Sentyurin Yuri speaks of the ongoing discussions to build a hydrocarbon pipeline to connect Russia and India, of how Rosneft will deliver upto 100 million tonnes of crude oil over a period of 10 years to the Vadinar refinery, the possibility of creating a retail network of 5,000 filling stations over the next two years, and how falling investments in the oil industry will reduce oil supplies in future.
Excerpts of the interview:
1. India and Russia have had strong defence partnerships. This is not the case, however, for oil transactions between the two countries. In 2015, Saudi Arabia was the top supplier of oil to India followed by Iraq, the UAE, Kuwait and Iran. What are the impediments to Russia being one of the top suppliers of oil for India?
Part of the answer can be found in your question. You only have to look at the map to see that the countries you mentioned are situated more advantageously with regard to India than Russia. The transportation costs are much higher for Russian companies than for their rivals, unless we consider swap contracts.
However, I would like to point to the positive dynamics of Russian energy exports to India and their growth potential. In particular, we have added crude oil supplies to our traditional deliveries of oil products to India.
Also, Russian state oil company Rosneft will deliver up to 100 million tonnes of crude oil to India over a period of 10 years under an agreement to buy a large stake in the Vadinar refinery owned by India’s Essar Oil, which the parties signed in July 2015.
2. Russia has reportedly offered Indian oil companies a stake in the second phase of Yamal LNG, the biggest project to produce liquefied natural gas in the Arctic. ONGC Videsh now has a 15 percent stake in the Siberian fields owned by Vankorneft. Rosneft has agreed to sell another 11 percent stake in Vankor to ONGC Videsh. Rosneft will buy a big stake in India’s Essar Oil. What next? Do you see much untapped potential in such oil deals between the two countries?
To begin with, commercial agreements are signed for purposes of economic benefit. For example, the deal under which Rosneft agreed to sell a 15 percent stake in Vankorneft to ONGC Videsh Limited may double the value of the Russian company’s project portfolio.
Other Russian companies such as Gazprom, Novatek, Zarubezhneft and Gazprom Neft are expanding cooperation with their Indian partners.
The idea of Russian LNG deliveries to India appears to be a promising area of bilateral cooperation.
Considering the growing demand for natural gas in India and the possibility of new LNG projects, Gazprom’s cooperation with its Indian partners on the LNG market is acquiring strategic characteristics, and this is in the interests of Russia-India energy cooperation.
I believe that the potential of our bilateral cooperation, which includes the possibility of new oil and gas deals, is far from exhausted.
3. Saudi Aramco and National Iranian Oil Co. are holding early talks to buy stakes in Indian refineries. Given that India’s energy needs are set to rise relatively fast, is there a scramble to get to the country?
Russian companies are also active on India’s growing energy market. In July 2015, Rosneft and Essar Group signed a Term Sheet regarding Rosneft’s purchase of a 49 percent stake in the equity capital of the Vadinar refinery. This is one of Rosneft’s strategic and integration projects in India. It also provides for the delivery of 10 million tonnes of crude oil annually to Essar’s refineries over a period of 10 years. The contract also includes the creation of a retail network of 1,600 filling stations in India. Rosneft and Essar hope to increase this network to 5,000 stations within two years.
4. A leading Indian energy expert said that he hopes there is a gas pipeline from Russia to India, for example, through western China, sometime in the future. Could any such proposal be a theoretical possibility to strengthen links among Shanghai Cooperation Organisation members?
I’d like to inform you that the Russian Energy Ministry and India’s Ministry of Petroleum and Natural Gas have created a joint working group to analyse the possibility of building a hydrocarbon pipeline to link Russia and India. The group held its first meeting in Moscow on 6 November 2015 and plans to meet again in New Delhi in September 2016.
Russian experts are analysing the technological and economic aspects of the possible pipeline routes proposed in the presentation materials prepared by our Indian partners.
Theoretically, a pipeline from Russia to India could run across western China, but there are also other proposals. Our experts need to consider the practical aspects of this large-scale project, in particular technical and financial ones.
5. Do you think that oil prices have now bottomed out? Why did Russia not cap production in the face of falling oil prices in the last two years?
The price of oil in global markets is approaching an equilibrium level, fluctuating around $40-$50 per barrel since March. This is acceptable both to producers and consumers.
We believe that any market turbulence, even if it increases the price, will eventually play against producers, especially when the supply is being limited artificially to create shortages which lead to higher oil prices. Had oil exporting countries agreed not to increase production, this would have helped balance the market. However, we believe that should have been done in February through April this year, because the fundamental market factors at work now have put the necessity of this agreement in question.
Falling investments in the industry because of low prices will gradually reduce the supply.
In 2015-16, spending on oil production decreased by $290 billion. We estimate annual spending on exploration and assessment in 2016-18 to be about $40 billion, which is 50 percent less than in 2012-2014, according to OPEC. Many investment projects were terminated last year because they became unprofitable due to current prices. Shale oil production in the United States has fallen: OPEC estimates daily production at 430,000 barrels in 2016.
I believe that the biggest challenges facing major oil producers are to maintain investments at a level that will prevent shortages in the market and to ensure uninterrupted supplies.