Lukoil #347 (January-February 2020)

At the end of January, Switzerland hosted the 50thWorld Economic Forum. A CARBON-NEUTRAL DAVOS T his year’s Davos was dedicated to climate change, setting an agenda for all of 2020. There’s little doubt that bridging the great divide between ambitious environmental goals and the steps governments and private companies are actually willing to take to reduce carbon emissions will at the center of debate in the immediate future. “We have to move from a consumer society to a society where ideas, not material goods, are at the center,” said Klaus Schwab, founder and executive chairman of the World Economic Forum. “Profits and a society’s wellbeing should and must be in harmony.” We haven’t made much progress so far. The world’s current level of production and consumption may raise average annual temperatures by 3.1–3.7 °С over the next 100 years, while governments committed to limiting that increase to just 1.5–2 °С at the 2015 Paris Climate Agreement. The World Economic Forum’s 2020 Global Risks Report emphasizes society’s concerns with this fact. Most of the interviewed experts prioritized climate- related risks such as biodiversity loss, ecosystem collapse, insufficient responses to climate change and natural disasters. One initiative aimed at addressing such concerns that was launched at this year’s forum is the Trillion Trees by 2050 campaign, which seeks to preserve and restore forests worldwide. Event organizers also called on all participants to facilitate carbon neutrality by 2050. To be fair, “carbon neutrality” is a broad term with multiple interpretations – everything fromcompensating for pollution through offset measures to completely avoiding hydrocarbon production. Advocates of a complete transition to alternative energy have recently become more vocal. While this may be difficult to contemplate in today’s reality, it’s clear that L UKOIL President Vagit Alekperov traditionally visits the Davos World Economic Forum each January. At this year’s event, he met Azerbaijani President Ilham Aliyev and discussed the company’s involvement in offshore exploration projects in Azerbaijan’s sector of the Caspian Sea. Afterwards LUKOIL andAzerbaijan’s state oil and gas company SOCAR signed amemorandum of understanding on joint offshore development, including at the Nakhchivan block and the Goshadash and Caspian-Guba shallow structures. Mr. Alekperov alsomet with Bulgarian Prime Minister BoykoBorissov. They noted that LUKOIL intends to develop its business in the country, where it already has an oil refinery and gas station network. Vagit Alekperov: “We hope the OPEC+ agreement on reducing oil productionwill be extended pastMarch 2020.” “LUKOIL’s production increased by 1.5%, or 125 tons of relative fuel (2.3 million barrels a day), in 2019. Russian production will be reduced by 1–1.5 million tons in 2020 in line with the OPEC+ agreement. But we plan to increase production by 1%via international projects in Iraq,Uzbekistanand the Republic of Congo.” “LUKOIL’s level of investments remains unchanged – 650–670 billion rubles (over $10 billion) annually.” “Wedon’t see any interestingoffshoreprojects in theArctic in terms of investment at thepresent time. State companies Gazprom and Rosneft currently hold all the licenses to interesting projects.” “Western Africa and the Gulf of Mexico are strategic regions for LUKOIL. We’re looking at participating in various projects there, including Zafiro, as well as some gas projects.” Libya halts oil exports Libya’s oil production tumbled in February 2020 to 136 thousand barrels a day, the lowest level since the 2011 uprising. The reason is a blockade on the country’s ports by forces loyal to to eastern Libyan commander Khalifa Haftar. As a result of the closures, Libya's NOC declared force majeure on supplies, allowing the country – which is home to Africa’s largest-proven oil reserves – to legally suspend delivery contracts. Libya has almost no storage capacity that could allow onshore fields to continue pumping even when exports are curtailed. Sustainability LUKOIL AT DAVOS: NEWOPPORTUNITIES TOP 10 RISKS OVER pressure from society and governments on energy companies will only increase. In trying to stay ahead of the times, industry leaders are already taking initiatives aimed at reducing their environmental impact, including via carbon capture, utilization and storage (CCUS) technologies. The Abu Dhabi National Oil Company is a leader in this field and aims to reduce harmful emissions by 25%by 2030 via CCUS. LUKOIL, which offered investors an updated outlook on the global liquid hydrocarbon markets through 2035 at the end of 2019, also believes that utilizing CCUS technology is key to limiting global temperature increases to less than 2°С. The company also supports amodernized approach to forest cultivation and land use. LUKOIL VP Leonid Fedun believes forest cultivation can be made significantly more effective by using hybrid plants that are able to absorb 25-27 tons of CO2 per hectare annually (normal trees can absorb 1-2 tons). LUKOIL’s Board of Directors will approve a climate strategy in 2020 which aims tomake the company carbon neutral by 2050. %LRGLYHUVLW\ ORVV (QYLURQPHQWDO *HRSROLWLFDO 6RFLHWDO 7HFKQRORJLFDO :DWHU FULVHV ([WUHPH ZHDWKHU Source: Global Risks Report 2020 &OLPDWH DFWLRQ IDLOXUH +XPDQ PDGH HQYLURQPHQWDO GLVDVWHUV GLOBAL SHAPERS 6