RUSSIA - The Energy Base.

The energy sector in Russia, now in fairly good shape in contrast with the situation in 1998, is developing under a strategic plan to 2020 which will raise domestic fuel prices to a level that should stimulate efficiency and a switch to alternative fuels. Energy-saving technologies will be applied along with a scaling back of natural gas use in power generation.

Launched in late 2000 and developed under the supervision of the powerful Minister of Economic Development and Trade, German Gref, the plan calls for a 250% rise in gas prices. The share of nuclear power should rise from 14% to 21% and coal consumption will rise at the expense of gas. The Russian energy base, if things develop according to plan, should by 2020 produce a surplus for export from the crude oil equivalent of 506m t/y (about 10m b/d) in 2000 to 600m t/y.

Russia, the largest country on earth crossing 11 time zones and having a population of 150m, possesses vast reserves of oil, gas and coal. It has enough to meet its domestic requirements and, with proper management, to become once again the biggest energy exporter in the world.

In 1998 Russia fell to its most severe financial crisis since the collapse of the Soviet Union. A 400% rouble devaluation in August was followed by the government's default on its debts. Things began to improve after OPEC/non-OPEC's March 1999 agreement to defend crude oil prices. Since then GDP has been growing well and the economic data have been impressive (see following pages).

The Energy Market: Russian demand for primary energy sources has fallen steadily since 1987, in parallel with a drop in production. The decline in demand was reversed in 1999, and has since been stabilised at a little over 640m t/y of oil equivalent (oe).

There are 28 oil refineries in Russia, owned mostly by the integrated oil groups in the country, and a number of them date from before the 1917 Bolshevik revolution. Some of the integrated oil companies have invited foreign firms to invest in modernising or expanding their refineries and take equity in return. Foreign companies have been invited to invest in gas processing ventures as well. If the projects materialise, Russia would regain a position it once held as the world's biggest oil refiner, now being the third largest. It could become a major exporter of LPG.

                            RUSSIAN ENERGY CONSUMPTION
                         (million tons of oil equivalent)

            1987      1991      1995      1998      2000      2001     2002*
Oil        249.8     243.4     146.1     123.7     123.5     122.3     123.5
Gas        347.8     388.0     340.0     328.3     339.5     335.4     335.0
Coal       205.1     165.6     119.4     102.8     110.4     114.6     112.0
Nuclear     32.2      27.2      22.5      23.6      29.5      30.9      30.0
Hydro-power 14.0      38.0      40.1      35.9      37.4      39.8      40.0
Total      848.9     862.2     668.1     614.3     640.3     643.0     640.5

Source: BP Statistical Review of World Energy, June 1998 & June 2002 * The 2002 figures are estimates by APS Energy Group.