Dear colleagues!

Thank you for the opportunity to speak in front of you today.

The current crisis is by no means the first one, nor the last one in the global oil industry. Look back at 1973, when OPEC’s oil embargo resulted in the crude price surge, or 1998, when the prices plummeted following the collapse of the Asian stock market.

Each new crisis not only brings in threats, but also new opportunities. Mid-70s saw an investment boom into development of new fields outside OPEC, as well as into alternative energy. We are still using the fruits of that boom.

The 1998 crisis triggered a number of mergers and acquisitions in the oil and gas industry. The supermajors made a breakthrough in the development of deep-water shelf and oil-bearing sandstones, significantly expanded global LNG production and transportation capacity.

We are now all facing the same question: what opportunities does the new global crisis open up for the oil and gas industry?

It is obvious that the current energy market is not efficient enough.

Over the recent years, due to a tremendous growth of financial instruments trade, the oil price dynamics no longer reflects the actual supply/demand balance.

However, unpredictable dramatic price fluctuations offer no advantage for either the consumers, or the producers. Both are interested in fair oil prices that, on the one hand, would encourage replacement of reserves, and, on the other hand, support the demand for hydrocarbons.

The crisis is a good time to develop new pricing mechanisms, since it helps shrink the “financial bubble” and increase the role of commodity markets. The key factor of setting a “fair price” may be in limiting the use of oil quotes in speculative financial transactions, reducing spot market trade volumes, and making direct long-term contracts between feedstock producers and consumers.

Another feature of the current energy market, which impedes its efficient operation, is the lack of confidence between suppliers and consumers.

We fully support the initiative of integrating European energy markets, developing common standards and common energy policy of the European Union.

However, we cannot but be concerned with the fact that this idea is based on the opposition of the EU as a huge consumer versus major crude suppliers, first of all Russia.

This is a reminiscent of the 70s, when OPEC countries agreed to coordinate their policy in order to get rid of the “dictate” by the major consumers, i.e. Europe and the USA.

On the other hand, half a century ago internal supplier and consumer markets were isolated from each other. Over the recent years crucial developments have taken place. Interdependence of suppliers and consumers has increased tenfold, or, should we say, hundredfold.

The current market state is no longer determined by the negotiation positions of consumers and suppliers, but by the excellence in operations of key “energy corridors”, that ensure production, transportation, and refining of feedstock, as well as marketing of finished products.

Such a “corridor” is not just a supply chain, but a system of strategic partnership between consumers and suppliers. Excellence in using such a system is subject to the following conditions:

- mutual trust and openness to dialogue;

- encouragement of mutual investments;

- no intermediaries;

- information transparency.

I am convinced that the crisis will induce both the consumers and the producers to seek new forms of cooperation.

Today, as we are facing low oil prices and lack of access to credit resources, it is the producers, who are most interested in partnership development, since they need investments and guaranteed market outlets for their products.

Tomorrow, as the global economy begins to recover, while the oil and gas sector sees a major decline in production volumes resulting from underinvestment, it will be the consumers, who will seek cooperation opportunities.

In any case, only closer relations between producers and consumers can help avoid development of the financial and economic crisis into a global energy crisis.

This is ever so true for the relations between Russia and the European Union. The issue of energy cooperation between Russia and the EU is especially of utmost importance for LUKOIL. Europe is our key sales market. Three out of eight Company’s refineries and almost third of the Company’s filling stations are located in the EU.

LUKOIL’s total investments into Eurozone economies currently exceed 5 billion dollars. We comply with the EU legislation and consider ourselves a European company just as much as we are a Russian one. Therefore, we cannot but be concerned with the fact that Russia-EU “energy corridor” is not as stable as we all want it to be.

The level of mutual investment penetration in the oil and gas sector is still low. We are yet to resolve the issue of transfer of the energy carriers through third-party states. Cooperation in the fields of renewable energy, energy saving, and environmental protection is not developing fast enough.

I believe we should take advantage of the crisis to address system issues in our relations. This is necessary if we want Russia and the European Union to enter the new economic cycle, which will begin in a few years from now, as strategic partners, including those in the field of energy.

Thank you for your time.