IEEJ： June 2014

ｃ○ IEEJ 2014

Special Bulletin
A Japanese Perspective on the International Energy Landscape (176)

June 19, 2014

At the 21st World Petroleum Congress
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn June 15-19, the 21st World Petroleum Congress (WPC) took place in the Russian capital ofMoscow. (I participated in the conference from June 15-18.) The WPC, for petroleum industry
people around the world, is a major international energy conference, rivaling the World Energy
Congress for electricity industry people and the World Gas Congress for gas industry people.
Participants included high-level government officials and state-run oil and gas company leaders fromthe host country of Russia and other major countries, as well as top executives of international oilmajors or other oil and gas companies. They discussed important challenges involving petroleum
and gas markets in the world. From Japan, some 140 people took part in the conference, including
leaders of oil, gas and other relevant industries. The WPC, though designed for the petroleum
industry, included many natural gas and LNG sessions since gas problems are important for today'spetroleum industry. Gas problems were thus one of the major topics at the conference.
During the conference, Russia's suspension of gas supply to Ukraine (resulting from a shift tothe system of advanced payments) became a big news item reported worldwide, attracting globalattention. At the same time, the Iraqi situation rapidly grew tense, leading crude oil prices to rise.
The conference thus came as the Middle East and the petroleum situation were attracting attention
from throughout the world. Also during the conference, BP and China's CNOOC announced a $20billion, 20-year LNG contract. Russia hosted the large-scale international conference at a time whentensions between Russia and Western countries were intensifying amid the destabilization of theUkraine situation. This is a major attention-attracting point. Although this report has no space fordetailing the conference, I would like to summarize my feelings about my four-day participation in
the five-day conference.
First, the conference gave me an opportunity to feel Russia's great presence in international oiland gas markets anew. According to BP Statistical Review of World Energy 2014 whose global
launch was timed to coincide with the conference, Russia was the world’s second largest oil
producer after Saudi Arabia in 2013, with output totaling 10.79 million barrels per day (accountingfor 13% of the global total), and the second largest gas producer after the United States, with output
aggregating 604.8 billion cubic meters (accounting for 18% of the global total). Russia thus boasts
the largest oil and gas combined production volume in the world. Including gas exports to Europethat have attracted attention in regard to the Ukraine problem, Russia’s pipeline gas exports in 2013
increased 9% from the previous year to 211.3 billion cubic meters. This is reportedly because Russia
1

IEEJ： June 2014

ｃ○ IEEJ 2014

lowered gas sales prices at the request of users amid the severe gas supply/demand situation inEurope and recovered its price competitiveness. As gas infrastructure including pipelines has been
fully depreciated, the competitiveness of Russian natural gas for Europe is so strong that it would be
economically difficult for Europe to substitute Russian gas with alternative supplies, according toEuropean experts. At the conference, Russian business leaders made presentations on bothconventional and unconventional energy resource potentials in Russia, as well as Arctic Ocean andEastern Siberia/Sakhalin development initiatives, emphasizing Russia’s resource development
potentials.
In fact, Russian oil and gas industry leaders, including Rosneft President Igor Sechin, Gazprom
Vice President Alexander Medvedev and Lukoil President Vagit Alekperov delivered speechesstressing the importance of Russia for international oil and gas markets. In an apparent response toWestern economic sanctions, Russian speakers remarkably emphasized that Russia would welcome
and maintain an open-minded approach on various partnerships important for Russian resourcedevelopment. Even with Western economic sanctions on Russia, oil industry leaders, includinginternational oil major executives such as ExxonMobil CEO Rex Tillerson and BP CEO Bob Dudley,
made speeches on future prospects and challenges for international oil and gas markets and Russia’s
positioning and importance in these markets. In this way, Russia’s presence in international energy
markets was reaffirmed before world oil industry leaders at the conference in Moscow.
Russia signed a historic natural gas supply contract with China as late as last month, indicating
its willingness to further enhance its expansion into the Asian market. In this respect, future resource
development plans in Eastern Siberia, the Far East and Sakhalin are attracting attention. The
conference included some roundtable sessions on the Asian natural gas market, where participants
had active discussions on the problem of regional gas price gaps (the so-called Asian premium), thepossibility of future price convergence, and the feasibility and economic efficiency of new gas
supply options such as new LNG projects and pipelines. This might have been a noteworthy point
regarding the conference.
Although Russia demonstrated its great presence at the conference, it faces various challenges
regarding future oil and gas business. Russian President Vladimir Putin and Gazprom President
Alexei Miller abruptly cancelled their addresses at the conference. They reportedly had to makeresponses to the suspension of gas supply to Ukraine, indicating that the tense geopoliticalenvironment directly shook Russia due to the great significance of oil and gas problems for thecountry. While the abovementioned partnerships are truly important for the Russian oil and gas
industry, the possibility of enhanced economic sanctions casts a shadow on the Russian industry’s
future cooperation and partnerships with Western companies regarding advanced technologies,
markets and sales channels.
This point is of grave significance for Russia and could affect stable oil and gas supply for theglobal market. In this respect, we have to give consideration not only to the impacts of short-term
supply disruptions on the supply-demand balance but also to long-term impacts on the balance that2IEEJ： June 2014

ｃ○ IEEJ 2014

could emerge from adverse effects on Russian oil and gas sector investment. Russia is expected toexert great influences on the global supply-demand environment at a time when supply disruptions
are seen in many oil and gas producing countries in the Middle East and Africa while U.S. shale
resource development is making progress. The Russian factor is very important for considering
energy security for Asia and Japan.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3