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Interview

with Vladimir Chirskov, President, Russian Oil & Gas Contractors Union

18.12.2009 / Energyboardroom

Vladimir Chirskov, President of the Russian Oil & Gas Contractors Union, was interviewed by RussiaEnergy to talk about the changes that occured on the Russian market of oil and gas construction after the collapse of the Soviet Union, about the old and new practices in the industry and the activities of the Union to promote the expertise of the Russian energy industry on a global scale.

Since the Soviet Union ceased to exist, Russian oil and gas companies have been very successful home and abroad, and they are now consolidating. How has the construction sector evolved during this time?

The Russian oil and gas industry is more than 100 years old. As you may already know, the oil and gas industry in the USSR was developing at an especially intensive pace during 1960-1980. The annual oil and gas production volume in the USSR in late 1980ies (640 mln t of oil and 815 billion m3 of gas) was higher than in any other country. In order to attain that, the Ministry of Construction of the Oil and Gas Industry of the USSR (Minneftegazstroy of the USSR) was developing fields in the Arctic and West Siberia. This Ministry employed 550,000 workers and engineers, 10,000 scientists, 38 scientific institutes… Over 13 billion USD were invested annually. The industry was very well equipped and its activity covered 12 countries from Africa, America, Europe and the Middle East. Up to 22,000-23,000 of pipelines were constructed every year in the 1980s – just about as much as in the rest of the world in terms of capacity. So, the Soviet Union had a very high profile in the world, but when it ceased to exist so did the need for pipeline organizations. In general, the industry was destabilized and, obviously, the oil and gas production shrunk.

The end of the 20th century was the time of economic and political stabilization in Russia. The Union of Oil and Gas Construction Companies of Russia was created in 2002 and currently unites 151 corporate members – construction companies, design bureaus, suppliers of pipes from Russia, Ukraine, Belarus, USA (Caterpillar), Netherlands, Sweden (Volvo). Our member companies are involved in the main construction sites in Russia, Algeria, Sudan, in the United Arab Emirates, in India…

You talked about the reputation of the Russian construction sector during Soviet times. What is that reputation today?

Of course, there are many issues: the volume of pipeline construction plummeted from 22,000 km to about 2,000-3,000 km per year. In spite of all this, its priceless expertise, qualified engineers and technology allow Russia to maintain a very high quality of production facilities and pipelines constructed both home and abroad.

Is that helping to increase the foreign activities of your members?

In spite of the current crisis, pipeline construction in the world is growing, which is a positive trend but its current dynamics in Russia could be better.

When we look at construction in Russia today, it looks as if most oil and gas companies already have their own fully integrated construction units. How much room does this leave for other companies?

During the 1990s, when the former system ceased to exist, Lukoil and Gazprom and other large oil companies created their own construction companies (design bureaus) which were sold afterwards as non-core assets. It was then that these companies became independent and entered our Union under the same names.

What trends do you see today in the big Russian oil and gas companies? Do they still favor their former construction companies or are they more competitive in terms of tenders?

Tenders in Russia are not yet a common practice. Firstly, the design works and design bureaus remain attached to the ‘internal’ design bureaus – by this I mean the companies that they are integrated into. These internal companies get large projects from their mother companies which makes these tenders virtually closed for outsiders and that, at the end of the day, slows down the technical progress. Secondly, tenders for large construction projects are also not arranged openly. But large oil and gas companies are familiar with all the member companies of our Union and get to choose among them.

Russia, being the biggest country in the world, has huge experience of creating infrastructure from zero. As many countries in the world heavily invest in infrastructure, which geographic expansion would you recommend to your members?

First of all, Russia because it still has a long way to go in developing the social infrastructure required for exploiting the country’s oil and gas assets. Let me explain. For instance, when Gazprom gets a new Yamal field and before the state issues a license for its development, Gazprom is responsible for the local social development. This means that its first action is to develop the entire infrastructure meant for the specific number of people that will operate the field. The next stage is to improve the living conditions of the area. The local authorities arrange yearly social responsibility contracts with the producers, and in some cases oil companies get tax exemptions for their social contribution. Everybody knows that oil and gas production requires a good social infrastructure, especially in the harsh conditions of the Arctic.

Is there more business coming from the Nord Stream and South Stream pipeline projects, or from the new fields in Eastern Siberia?

Today the Russian construction companies are not operating at full power although there are enough domestic projects. Nord Stream implies not only gas supplies to Europe but also that the German companies would control the Arctic fields and be integrated there.

What is your vision of development for the future? What would you like to see specifically happening and what would your Union like to create in Russia for the construction companies?

Firstly, energy is in the centre of the global agenda today. Every country is cautious about the price of oil and how long it can last. Currently the confirmed reserves of Russia’s oil and gas are 11 billion t of oil and 33 trillion m3 of gas respectively. But the point is that prospectively Russia has over 100 trillion m3 of gas and much more than 11 billion tons of oil. Today field exploration both in the Arctic and East Siberia is still very poorly developed. Given such enormous reserves, you have to think about the future generations as well. There are still untapped opportunities of oil and gas production. The USSR developed a real yearly production program during the 1990s for 1 trillion m3 of gas. The current production level is 600 billion m3 per year. It is essential for a better life in Russia and in the world which is quite feasible in terms of opportunities.

Russian companies have a controversial image around the world. If somebody would have to make a decision between, say, a French and a Russian company… How would you pitch a Russian firm? What sort of partner can foreign decision-makers find in Russian companies?

As I have already mentioned, I used to head the Ministry of Construction of the Oil and Gas Industry of the USSR with 550,000 employees responsible for the whole industry. We have always been regarded as reliable partners. Today all the facilities that we have constructed abroad work perfectly. Our global image is impeccable. We have good relations with all our foreign suppliers of pipes and equipment from Germany, Japan, Italy, from the USA and UK. Countries of Eastern Europe worked together with Russia for the construction of oil and gas facilities making possible the integration of the sector. Now the Algerians know that only Russians are capable of working enduring the conditions of the Sahara summer!

Two months ago Gazprom created a joint venture for gas field development in Nigeria, one of the largest potential gas suppliers for Europe. Russia has constructed over 1,000 km of pipelines and pump stations in Nigeria. It is possible that Nigeria-Algeria-Europe gas pipeline will be eventually constructed.

What would be your final message to our readers from Oil and Gas Financial Journal?

I would like to wish every success to your publication! You’re doing very important work because oil and gas are crucial for the lives of people all over the world!

Thank you for talking to us!

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