Thursday, September 14, 2006

Russian shift signals new nukes, increased oil production

Russian president Vladimir Putin announced this week that his country will shift its energy mix significantly over the next 20 years as it installs new nuclear generating capacity. Putin says new nuclear generation will provide about a quarter of the country's electricity, up from the current 16 percent.

In the next 10-15 years, he also plans a tenfold increase in the Russia's oil exports to Asia. Russia currently exports about 3 percent of its domestic oil production -- Putin intends to push that to 30 percent.

Russia presents an energy paradox -- it has abundant resources and technologies, but lacks the infrastructure to deliver them. Right now, Soviet-era pipelines need repair, the grid is overtaxed, key energy companies are privatizing and spinning apart, and the energy market is lurching to deregulation.

On September 14, Unified Energy System chairman Anatoly Chubais announced that his company would have to restrict power supplies to 16 regions this winter to avoid over-stressing the grid. UES had to adopt similar measures last winter. Most of the restrictions will affect industrial customers.

Yes, despite the restrictions, Russia has enough excess capacity in some parts of the country to wheel electricity into the Nordic region, selling as much as 1,300 megawatts through Fingrid.

Meanwhile, electricity consumption in Russia is soaring -- up 150 percent in just the last eight months, according to Chubais. The government announced in August that it will spend about $6 billion in 2007 on non-nuclear generation and infrastructure to help meet electricity demands. The figure represents nearly twice Russia spent on the sector this year.

Prime Minister Mikhail Fradhov said on September 14 that the Russian government also intends to invest about $80 billion "in the near term" to meet demand. Projects will include new power stations and infrastructure improvements, co-financed through public/private partnerships.

UES could also find itself with plenty of cash on hand by the end of this year. Chubais is considering on IPO for UES's generating divisions that could net about $17 billion. Chubais is in talks with Germany's E.On and Italy's Enel about possible investments.

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