Nikolai Rotmistrov , Siemens Russia
Release Date: 2010-06-30
Nikolay Rotmistrov, Head of Oil and Gas Division at Siemens, has been interviewed by Focus Reports in the frame of a Russian Special report for Oil and Gas Financial Journal to discuss Siemens’ main milestones in Russia in the recent years, the importance of these new investments in the oil and gas sector in Russia, the role that the oil and gas sector plays for Siemens Russia and Siemens' contribution in the actual success of some of Russia’s major oil and gas projects.Siemens is one of the few Western companies that has been present in the Russian market for over a century and a half. We know that you have recently invested in a facility for gas pipeline compressors in the Russian city of Perm. I’d like to start by asking what have been Siemens’ main milestones in recent years and what is the importance of these new investments in the oil and gas sector in Russia?
Siemens created its Oil and Gas Division globally and in Russia respectively only three years ago. That is not to say that Siemens wasn’t already present in the oil and gas market. In fact even in the past we had a turnover of €2 billion from the oil and gas industry. However, whereas before we simply supplied the oil and gas industry the products and solutions that we already had in our portfolio, now we have the oil and gas market as a primary focus. With the creation of the specific division we have changed our market approach; we are now acting as a complex solution provider to the oil and gas industry. Instead of just selling the products, we are now developing solutions to the actual needs of target clients.
Russia has always been considered as one of Siemens’ focus countries, since it has one of the leading oil and gas industries in the world. We have restructured the existing organization here, which was previously more focused on industrial power generation, through creation of local engineering capacity in oil and gas in order to be able to develop compression, automation and electrical solutions for the industry as well. We also started development of an account management team, which we were lacking in the past. These changes in the organizational structure that have been developing over the past three years, meaning that now everything that Siemens can offer to oil and gas industry is collected under one roof, even if we are talking about products from other departments. This is particularly important for Russia where all oil and gas majors are vertically integrated companies with a variety of requests, requiring a variety of products and solutions. Now they need only contact one ‘face of Siemens’ for all their oil and gas needs.
So three years on, what is the role that the oil and gas sector plays for Siemens Russia?
Although the oil and gas division is not the biggest one in the Russian Siemens organization, it is certainly one of the most rapidly growing. In certain years different divisions take the lead in terms of absolute projects volume. But it is the Oil and Gas Division which has over the last few years demonstrated a steady growth combined with a very good profit for Siemens in Russia. In this respect we are considered to be one of the most beneficial divisions for Siemens in the future in terms of revenues and of development of local competences. And this is what we are working towards.
Siemens Oil and Gas has a very wide product and service portfolio ranging from equipment for production, transportation and refining of oil and gas to implementation of various technological processes, complex solutions for automation and energy services, gas and petrochemical companies, as well as equipment for power generation. Based on such a broad scope, what have been Siemens Oil and Gas’ main growth drivers in the Russian market?
Naturally, the driver is the combination of what the market needs and what we have. Siemens Oil & Gas Division is traditionally more focused on upstream and midstream. Since we are not experts in refining technology our presence in downstream sector is limited. However, downstream we do provide power generation for refineries, energy automation, commercial measurements, complex electrical solutions, but just not going into the process of refining.
In the up-stream and midstream businesses, Siemens provides power generation, compression, automation and electrical solutions. Taking into account some typical Russian features such as the fact that most of the deposits are located in distant unpopulated areas with cold climate, we will try to develop modular solutions that, having been pre-assembled in the factory, can be just plugged in and then operated in almost men-less mode. For instance, Siemens is active in the area of gas depleted deposits that are also located in the Far-North and West-Siberia and require lots of effort to be operated.
The other area in which Siemens is closely involved is the associated gas utilization, which is one of the environmental tasks announced by the Russian Government – it wants to achieve 95% of associated gas utilization until 2013. One of the most obvious ways of utilizing associated gas is power generation for the fields own needs. This can be done by burning associated gas in gas turbines designed for respective chemical composition of the gas. This is something that Siemens is providing to Russian oil majors with great success and the potential in the market looking forward is considerable.
In the midstream sector, Siemens is localizing production of compressors for gas pipelines transportation. For this purpose we recently established JV RusTurboMash in Perm. In the near future we hope to also be able to offer to the Russian market locally produced entire compressor trains with GT or electrical drives. For electrical drives production we already have a joint venture in St. Petersburg. Now we are working on investment justification for gas turbine production in Russia, which is still to come. I hope we will be able to produce a solid business case and to justify additional investments into it. If we manage to implement our localization dreams, Russia will be the only country where Siemens has entire compressor train manufacturing and packaging capabilities. For instance, now Siemens produces compressors in Germany, turbines in Sweden and in the UK; it is not concentrated in one place.
It is also worth mentioning, that Siemens has good expertise in complex power, electrical and automation solutions for off-shore projects that we also offer to Gazprom, Rosneft and Lukoil in Russia.
How will you make sure that all the production in one country will be more competitive than the current internationally-integrated production process?
First of all, there is an important political advantage to having local production capabilities in a country like Russia. For instance, local manufacturing is a key buying criterion for Gazprom, which is the most politically engaged company in favor of Made-in-Russia products. Additional good opportunities are created by local outsourcing of many other components of compressor trains. Russia still has good enough engineering production capacity that, provided with the right supervision, could provide the necessary quality and reliability for our products. Thus Siemens widely utilizes local sourcing opportunities. Last but not least, the Russian market is so big that it creates the necessary scale effect for justification of investments, especially when we have a player such as Gazprom as our main partner.
It doesn’t mean that we consider Gazprom as a mono-costumer. It would be very risky to base the business case in only one client. The alternative is to focus in other areas such as gas turbines for co-generation power plants, both for municipal and industrial needs, as part of our participation in the recently announced Governmental energy efficiency program. This is certainly one of the solutions that will be in high demand on the Russian market, considering the decentralization of population in some areas, the extreme climate conditions and the often obsolete heat distribution infrastructure.
Could you highlight how Siemens is contributing to the actual success some of Russia’s major oil and gas projects such as CPC, Sakhalin and upcoming LNG terminals?
Different projects, different clients, different approaches. In some cases Siemens tries to play a role of general system integrator. The LNG projects in Russia, conducted primarily by Gazprom, are a good example. A few years ago Gazprom announced their wish to become one of the major LNG producers globally. Now situation slightly changed due to the shale gas boom in the USA, which seriously affected the international LNG market, but the task is still there.
It’s widely known that Gazprom prefers to be the owner of the core technologies that it employs. This was in fact the background of the Memorandum recently signed in St. Petersburg between Gazprom and Siemens concerning the common development of LNG technology. SIEMENS doesn’t have its own LNG technology and neither does Gazprom. But Siemens has very good relations with most of the companies that are actual LNG technology providers. At the same time, Siemens is able to provide up to 80% of the equipment and solutions that are used in LNG plants, except for the core heat exchange technologies. Therefore Gazprom is interested in using Siemens as some kind of technological advisor in the development of its own technology, and Siemens has a good opportunity to provide Gazprom with complex solutions for selected technologies.
Siemens is also working as a as sub-system supplier. For the CPC project we supplied gas turbine driven pumps and generating sets for pump stations. We won the first phase tender few years ago and now succeeded in winning the tender for the expansion project as well. The main reason for this was the fact that Siemens invested a lot in providing services to the CPC project. For instance Siemens has a service center in that region created specifically for serving CPC pump stations. Siemens is the only company able to do that in Caspian Sea region.
Sakhalin is still a white spot for us. To have a representative office there is quite expensive; however we recognize this is one of the areas in Russia where decision-making processes take place locally, therefore we are aware that we need to have an office there, it should come soon.
Siemens seems quite committed to investments in far away regions and in areas such as LNG when many in the market dispute their viability, how come?
In general, there are some facts that are indisputable. First of all, both oil and gas new deposits are being found in very distant and isolated regions such as the Far-North, even off-shore. As a result, it is necessary to have huge investments into exploration, which creates additional opportunities for companies like Siemens, who have extensive experience in working in the Far-North with cold climate conditions.
It naturally brings opportunities for the development of new transportation routes both for oil and gas since their distance to consumer centers keep increasing. I don’t want to be involved in all the discussions about the viability of the South Stream or Nabucco or any other. The fact is, even if shale gas is developed in Europe or some other resources come on stream, Russia will still be the biggest energy resources supplier for Europe and there will definitely be demand for additional transportation routes. The same is also true for the Far East and Asian markets, which appears to be an important diversification factor on energy markets.
With regards to LNG, I still believe that there is plenty of room for it to be developed. Maybe not booming as it was a few years ago, maybe Qatar was a little bit far away from reality when they commissioned one new LNG plant after another. But to be able to have the same market availability for gas as for oil one needs LNG technology. Sooner or later LNG will come because pipelines do not exist everywhere in the world. Gazprom is interested in this development and it is not alone in Russia as shows recently signed agreement with Novatek about another LNG plant in Yamal Peninsula. As I said, LNG is just a matter of time.
While there is a general international perception of the downsides of investing in Russia, such as lack of legal stability, IP protection, corruption and so on, Siemens has increased its presence in the country and reaped important benefits for its audacity. Still, how do you assess these common challenges faced by international investors in Russia and how does Siemens manage to overcome them?
In spite of all the problems, Siemens has 155 years of history in Russia. It means that we are not following the ‘come-in – go-out’ opportunistic approach but that Siemens is in Russia to stay. Like no other international player, Siemens has a wide understanding of how to do business in a correct and successful way on the Russian market.
Furthermore, Russia does not resemble 1920s’ Chicago, as some Westerners want to believe. The business environment has greatly evolved from the 1990s and there is a legal platform to resolve any business or cultural differences. If you know the local legislation and how to handle it with enough patience I believe you can work perfectly well in Russia. It is up to international investors as to whether or not they are able to be that patient.
As an incentive, the Russian oil and gas market, already the biggest in the world, will keep on growing and, thanks to the government’s efforts to diversify the economy, activities surrounding oil and gas production will thrive in the coming years. Siemens is therefore in a unique position to help Russia with this.
| Company: | Siemens Russia |
| Position: | Head of Oil and Gas Division |
| Country: | Russian Federation |