with Vladimir Ryashin, Country Manager, INTSOK
Norway and Russia are two countries with a lot of common ground, knowledge and experience. When INTSOK first made the decision to establish a presence in Russia, what were the goals the association wanted to achieve?
INTSOK first arrived in Russia in 2002. Russia had started to develop some offshore projects, such as Prirazlomnoye and Sakhalin, and Gazprom was indicating serious intentions about Shtokman. This was the motivation for the Norwegian oil and gas business to turn its attention towards Russia. Although historically Norway and Russia are both oil producing countries, there are a lot of differences between their industrial histories: Russia in the past produced 100% onshore, whilst Norway’s oil and gas is offshore. 2002 was the right time for INTSOK to come to Russia and start activities, and bring Norwegian companies into the market so that they could apply their offshore skills and experience.
Another difference between the two countries is that Norway historically has approached oil and gas more as a business, whereas Russia seems to have ascribed more of a geopolitical agenda towards the industry. How much of a challenge is it for Norwegian companies to enter into such a different working environment?
In Russia, many of the oil and gas projects are very large, and are linked both to political and economic issues. This is the main difference between business logic in Norway and Russia. In Norway, the way that projects are developed is that first, the value chain is created for a project, and every field is developed through consortiums, in order to share the risk. It is easy to share experience in these cases, and Norway is more in line with the rest of the world in this respect, as the oil and gas business is a very international business. All the national examples in developing countries like Brazil and China demonstrate that with offshore projects need to be developed through cooperation. Alone it is very difficult.
In Russia, still the business logic of the oil and gas sector is to keep everything closed, and give very limited access to foreigners. That is why there is a big difference in the business environment. The Norwegian companies who are interested in developing their business in Russia have to take these differences into account.
When these Norwegian companies are looking at potential markets, there are many projects that they could work on without ever having to come to Russia. What do you think it is that is attracting Norwegian companies to come here from 2002 through to today?
Norwegian companies have been driven to look for business internationally by the situation on the Norwegian Continental Shelf. It is at the stage where most of the fields have been discovered, and are in the mature stage of production. Russia, on the other hand, has huge geological potential, especially in the Arctic. However, whether Russia is commercially viable is a question of calculation, based on the current situation on the world market. However, Norwegian companies are optimistic about the future demand for their offshore experience and technology.
The situation is not yet decided however. What is clear is that Russia will have to look to new areas in order to maintain its current production levels, as retrieving oil from the mature fields in Western Siberia becomes more difficult and expensive. Although companies could look to offshore to fill this production gap, there are other options, such as Eastern Siberia and Yamal.
Since 2002, up to the present moment, there has been growing attention to offshore development in Russia. Projects such as Sakhalin have been criticised in the western press, but the general impression that international companies have towards future projects is extremely optimistic. This optimism is peaking today. Russian companies have had the time to see that developing these offshore projects alone is very difficult, and are now looking to international, experienced partners to help them make these projects as efficient and successful as possible.
The Russian companies charged with developing the Russian offshore regions, such as Gazprom, are not exactly known for their speed, flexibility and efficiency. What can Norwegian companies like Statoil share with such companies, in order to help them move forward?
As Norway’s main oil company, Statoil knows that in the Russian market, it is necessary to demonstrate the practicalities of implementing offshore projects, and managing such a large scale and long term project. It is also important to transfer
experience, technology and services from Norway into the Russian sector, and work together with Russians. Norwegian companies have very good motivation to do so: they have governmental support. This does not just relate to Russia. The Norwegian government actively encourages companies from the oil sector to internationalise their operations. INTSOK has selected priority markets for these companies, of which Russia is one. These are countries where the offshore industry is either developed, or has the potential to be very important.
Statoil has led the way in coming to work on large projects, such as Shtokman, and after having agreed preliminarily to the project, has brought in all its smaller service companies and encouraged an environment where they can flourish. Is this the only way that these smaller Norwegian companies can gain access to the market? We don’t see any E&P companies here for example, and traditionally Norway has been very strong for the smaller, independent explorers.
In the Norwegian oil sector, there is support for smaller companies, and there is competition between small and medium sized suppliers, because the Norwegian business environment makes it very profitable to work with companies of this size. The Russian market is completely different: huge, vertically integrated companies mean that smaller enterprises struggle to compete. In such globalised times, only cost and quality should inform the choice of products and services, not politics.
Nevertheless, smaller Norwegian companies are finding business for themselves in Russia. Projects on the Caspian and in Sakhalin, and Prirazlomnoye on the Pechora Sea provide chances for small and medium sized companies, as well as the larger companies. Statoil is working towards the Shtokman project, and it is very important politically that the Norwegian oil major is involved in this project, as it demonstrates the willingness from Russia to cooperate internationally on their offshore projects.
What is the impact of the Murmansk regional government on these Norwegian companies?
An offshore project does not just require construction and installation offshore, but also huge infrastructure onshore. As the project comes into the implementation phase, a lot of practical questions are asked, and at that stage it is up to the local authorities to create a favourable investment environment. In the Murmansk area, the main question is access to territory, because the region is quite closed as a result of its military importance.
Do you believe that one of INTSOK’s activities will lobbying for this, as has been done in Sakhalin in the past?
INTSOK is trying to demonstrate to the Russian authorities that for a project like Shtokman, it is necessary to have supply bases, operational support centres, and training centres in place in the region. Where and how these can be established is a question for the major oil companies and the Russian authorities.
INTSOK is currently focused on assisting Norwegian companies who want to establish business, set up joint ventures or production on Russian territory. INTSOK is now in the second phase of its activity. The first was to bring Norwegian companies to Russia. Now it is providing assistance and advice on how to establish a business in Russia. The association spends a lot of time training individual companies, and helping them to prepare and elaborate their Russian strategy. INTSOK staff all have industry experience, business experience, and international experience, which facilitates giving companies a reliable strategy plan regarding the project, service and products they would like to bring, and how they would like to do business, because there are many different ways – either establish production, or have an agent, or a partner.
At this stage, for most projects, Norwegian companies are choosing to deliver products and equipment for offshore projects from Norway. The establishment of fabrication on Russian territory requires more offshore projects and more time. However, more Norwegian companies are deciding today not only to sell their products in Russia, but also to establish production here. The extent of this will depend on how offshore projects develop in the coming months and years.
During the last year, INTSOK helped approximately sixty Norwegian companies with their Russian strategy plans; another thirty companies are already doing business in Russia, which means that ninety INTSOK members are active in Russia. This includes large companies like Aker Solutions and Acergy, as well as small and medium-sized companies.
What is your vision as an association for the next five years?
Most companies who are interested in developing their business in Russia are already here. There are around 100 companies, and in the future this quantity will remain more or less stable, excepting mergers and acquisitions. We expect that attention paid to the Russian market will grow, because Norway does not have as many offshore projects as it once did. The Norwegian side needs more discoveries in order to provide business to the industry, and that is why international markets like Brazil, Russia, China, and Australia are all very attractive for Norwegian companies.