Monday, May 29, 2006

Energy security the G8 energy initiatives.Part 2 Russia

International energy security is of special significance to Russia, which has one of the world’s biggest fuel and energy potentials. It occupies 13% of the world’s territory and has less than 3% of the world’s population, but 34% of gas and some 13% of the prospected oil reserves. Russia’s energy complex is an inalienable part of the global energy market. Russia leads the world in international gas trade and is the second biggest oil and petrochemicals exporter. From 2002 to 2004, it posted the world’s highest growth rate for major oil producing countries.

Based on current estimates, we can conclude that Russia’s oil production can reach 530 million tons and export 310 million tons by 2015. Its role of a reliable energy supplier has been reinforced by the efforts to diversify oil export routes. The Russian government has made a decision on building an East Siberia – Pacific oil pipeline with the throughput capacity of 30 million tons and a terminal on the Pacific coast by 2008. The capacity of its trunk oil pipelines and sea terminals can be increased by 20% by 2010 and 40-50% by 2015 compared to 2005.
Its gas production can reach 740 billion cubic meters and export 290 billion cubic meters by 2015. Russia is energetically working on new projects, such as the North European Gas Pipeline, and is preparing to develop the Shtokman field and East Siberian and Far Eastern fields.

On the one hand, Russia is a full member of the G8, a group of countries that are the world’s biggest energy consumers. But on the other hand, it is one of the biggest producers, which makes it objectively close to hydrocarbons exporters, above all the OPEC countries. Taking this into account, Russia can act as the link between hydrocarbons suppliers and consumers, taking into account the opinions of all concerned parties and promoting the search for a balance of interests of all players on the global energy market.

This strategy will stipulate joint measures to ensure the stability of global energy markets, increase investment into the main links of global energy, develop alternative sources of energy, accelerate the introduction of energy saving and efficient technologies, and ensure access to modern energy services for everyone.
Russia will put forth a package of measures and an action plan to overcome economic and technological barriers to raising the efficiency of traditional and developing new energy technologies. As the holder of a considerable share of the world’s energy resources and a major energy producer and exporter with a high research and technological potential, Russia is ready to participate in the creation of a global energy infrastructure to ensure effective production, transfer and use of clean energy.

The initial initiatives are firstly for a stable global hydrocarbon market to allow reasoned investment and returns on investment and long term stability in pricing and purchasing.

With the longterm sustainability of the global energy markets Russia has announced the creation of a new trading bourse in Moscow for metals and hydrocarbon crudes and products.

The Russian Trading System, Russia's premier stock market, announced Monday that it would start trading in gold, oil and oil products on June 8.

The announcement comes in the wake of President Vladimir Putin's state of the nation address May 10, when he said Russia, as a leading oil exporting nation, should establish its own oil exchange to trade crude and petroleum products for rubles.

"The first trading in contracts for gold will commence in Russia on June 8," the RTS said in a statement.

The stock exchange also said it would start trading in futures and options on oil and oil derivatives, including Urals brand, diesel fuel, jet fuel and fuel oil. Trade will be in rubles based on prices calculated by the Platts agency. The settlement period for a contract is one month and the minimum security guarantee on a contract is 10% of its overall value.

Background Oil Production and Refining.

Since 1999, Russian oil production has been growing faster than anywhere else in the world, with the initial growth rate three times as high as in the Organization of Petroleum Exporting Countries (OPEC). Last year’s output was 470 million metric tons (3.45 billion bbl) compared to 323.5 million tons (2.38 billion bbl) in 2000 – a figure that the Russian Industry and Energy Ministry expects to increase to 530 million tons per year (10.67 million bpd) by 2015, primarily on the back of new explorations and developments.

Oil is transported through a unique world-largest pipeline system. Transneft, Russia’s state-owned pipeline company, operates 50,000 km (31,000 miles) of trunk and over 19,000 km (12,000 miles) of auxiliary pipelines; 856 oil tanks with a total capacity of 13.4 million cu m (84 million bbl), and 360 oil booster stations. Centralized management of the main pipeline network spanning 53 Russia’s regions enables unified economic, financial and technological policies and an ability to concentrate on the most effective projects and know-how.

Though Russia’s oil exports (the country is the second largest in the world after Saudi Arabia) are still focused on Europe (93%), supplies to the Asia-Pacific Region are also growing. The Asian dimension is largely about China, both in absolute numbers and in growth proportions. A future oil export system will rely as much on seaports as on pipelines. European supplies will increase as soon as the Baltic Pipeline System and the 62-million-ton seaport of Primorsk come on stream. The Asia-Pacific is to be covered by the proposed Eastern Siberia-Pacific pipeline network with the Perevoznaya transshipment terminal. The latest feasibility study of this system suggests a total capacity of 80 million tons (588 million bbl) per year.

In the long term, U.S. markets are going to be accessed through the Western Siberia-Barents Sea pipeline system that is also expected to pump through up to 80 million tons (588 million bbl) of crude annually by 2020. Another increase is anticipated from the Caspian Pipeline Consortium expected to transit up to 67 million tons per year (1.35 million bpd) through Kazakhstan. All these projects might raise Russia’s total pipeline and tanker export capacity to 303 million tons per year (6.1 million bpd) by 2010. Oil is also exported in steadily increasing quantities by rail.

Russia’s refining sector includes 28 facilities refining 295 million tons of oil per year (5.94 million bpd). Primary refining is increasingly concentrated at home: 2005 growth rate in this sector was 6.5%. Growth has also been strong in the production of automotive fuels (gasoline and diesel) and heavy fuel oils.

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