speech

Remarks to the Russian Economic Forum

By Sam Laidlaw, Executive Vice President, Global Downstream
ChevronTexaco Corporation

7th Annual Russian Economic Forum

The Queen Elizabeth II Conference Centre, London

ChevronTexaco is one of the largest investors in the global energy industry. We have been active in Russia for over ten years and have already made a net investment of more than $1 billion in Russia — a claim few others can make.

As many of you know, we are the lead partner in the Caspian Pipeline project, with the Russian government and Russian companies as major partners. For more than two years, that project has been shipping crude oil to the Black Sea for export to world markets.

Now the Caspian Pipeline Partners (CPC) are working to expand the pipeline to its originally-planned capacity of 1.5 million barrels per day, and 25 percent of the CPC's capacity is intended for Russian oil, so the project will provide a significant new export option for Russian producers. It will also provide an important export route for the increasing volumes from Kazakhstan, both from our Tengiz expansion and ultimately from Kashagan. This timely expansion will not only benefit producers but will also provide enhanced revenues both for the pipeline shareholders and the host governments.

Tengiz and the Caspian Pipeline are powerful examples of what can be achieved when companies, governments and capital come together around shared objectives.

Today, ChevronTexaco is working to broaden its commitment to Russia's energy industry beyond the CPC. We believe in the potential Russia offers and in the value of partnerships to deliver a common vision of a prosperous future.

Russia's leaders have stated clearly their priorities for the future. President Putin has set the national economic objective of doubling GDP within ten years, but the economy must grow not only larger, it must also be more efficient and competitive.

To achieve this, the energy industry has a critical role to play — serving as the primary enabler for the transformation to a more diversified economy — while at the same time, keeping the world's largest country heated, electrified, rolling and running smoothly as its economy grows.

International Oil Companies can contribute to the development of the energy sector in several important ways:

  • First, the successful transfer of technology and management skills, in both directions, will create stronger and more diverse energy companies in the global marketplace.
  • Second, international oil companies can broaden the opportunity set available to Russian oil companies through overseas partnerships. This diversity will not only benefit Russian oil companies, but the economy as a whole.
  • Third, as we all know, Russia is resource rich. On the demand side, however, as energy efficiency increases, expectations of domestic energy demand growth are modest. Capturing international markets is key. Here, international companies with downstream capabilities can help.
  • Fourth, capital. It has been estimated that over the next two decades up to $240 billion of capital will be required to develop the oil sector, and a further $200 billion for the gas and power sector. Much of this capital is required simply to sustain production levels in maturing fields and ageing infrastructure.

To allow the energy sector to play its role in enabling economic growth, a stable and secure investment climate is key for both Russia and international oil companies. Investors require stability and security to put capital to work in long-term investments with confidence. This requires establishing a world-class energy-investment climate.

Progress towards clarifying the fiscal regime and confirming open access as a principle for pipeline infrastructure is a positive move, but more can be done to reduce the uncertainties for investors and improve the investment climate to raise the level of investment in Russia's energy sector.

Russia should no longer be viewed as an 'exciting emerging market.' Excitement is not what investors are looking for. Oil and gas in Russia is an established and mature industry. Moreover, the past decade has seen one of the greatest comeback stories the energy business has ever produced.

For all its recent success, however, Russia's industry is like the rest of the world's oil industry in one primary sense: Its greatest challenges lie ahead. Creating the right framework for both Russian and international oil companies to work together is a cornerstone for future success.

I believe that many of us here share a vision. We see new relationships developing and investment proceeding on multiple projects. We see Russian companies accessing fresh opportunities to diversify and becoming more competitive. We also see a new generation of energy partnerships ahead, providing Russian companies with a broader spectrum of opportunity.

The energy industry can play a major role in enabling economic growth, facilitating the transformation to a more diversified economy and achieving a brighter, more prosperous future for Russia. I trust we at ChevronTexaco will be able to play our part in making this vision a reality.

Thank you.

Updated: April 2004