Lukoil will spin off or sell its European downstream operations to focus on production, both in Russia and abroad. These downstream operations are quite solid and a source of stable revenues for Lukoil as for all other oil companies, helping many of them survive the recent price crisis.
Now, however, many are expecting a reversal of fortunes for the industry and, apparently, Lukoil is eyeing big rewards. It’s already back in Iran and it certainly has ambitions there as well as at home and, for some reason, Norway. Vagit Alekperov told Reuters refining and retail was a “volatile” business. Something tells me that not all of his peers will agree. After all, if it wasn’t for refining and retail even giants such as BP and Chevron may have really risked going under.
So, I admit for me this announcement was initially a surprise, especially in light of the latest news from the renewables front. OK, oil won’t perish from the global energy mix for decades yet to come but its share is set to decline, and steadily. Perhaps that’s why the initial hype around Arctic oil and gas deposits that just became accessible thanks to climate change soon subsided. Or maybe it was because accessible is not exactly the same as economically viable but whatever the reason, there’s no rush to drill for oil in the Arctic. There is, however, a rush for Iranian oil and gas.
Lukoil is definitely looking to Asia’s emerging markets for its future output. These are the markets that will drive demand for crude in the years to come and they are still years away of adopting green energy in a big way. In this context, Lukoil’s exit from Europe starts to make perfect sense. Europe is going green, fast. Asia is much slower — it can’t afford the subsidies, at the very least. So, Asia is a natural focus not only for Lukoil. Lukoil is just closer, in poll position, as it were.