Russia's energy ambitions have fuelled controversy
Russia has the world's largest proven natural gas reserves - though these are largely undeveloped - and significant oil reserves.
The economy is heavily reliant on energy exports, with 2005 being a particularly successful year due to high world oil prices.
President Vladimir Putin has said that Russia's ambition is to become the world leader in the energy sector.
Oil production grew by 2.7% in 2005 to 9.44m barrels per day (bpd). During the same period, oil majors increased refining by over 10 per cent to above 4m bpd. Russia exports around 5m bpd of crude oil and 100m tonnes of refined products.
The state has been the main driving force behind recent developments in the oil sector. The state-owned gas company Gazprom diversified into this area, acquiring a 75% in the Sibneft oil company.
Lukoil still has close ties to the state
Meanwhile, state-owned Rosneft became the second largest oil company in Russia after controversially acquiring Yuganskneftegaz, the main production arm of the Yukos oil company.
About 30% of Russia's oil is produced by state-owned companies. In the private sector, LUKoil is the largest Russian oil group accounting for 19% of Russian oil production. However, it still has close ties to the state.
This situation has led to speculation that the Russian authorities are trying to regain control of the oil sector. Experts predict that in 2006, Rosneft and Gazprom will seek to expand further by acquiring other, smaller companies.
The gas sector in Russia is dominated by state-owned company Gazprom. Production of natural gas increased by 1.13% in 2005 to 640.634bn cubic metres, while exports increased by 8.04% to 152.478bn cubic metres.
The recent gas dispute with Ukraine has caused concern that Russia is trying to use its role as a major gas exporter as a means of securing influence or pursuing its own geopolitical goals in neighbouring countries.
Russian refineries have some way to go to catch up with the rest of the world in terms of production. Outdated plant and a lack of efficient technology mean that in Russia one tonne of crude yields just 470 litres of petrol, while the world average is about 700 litres.
Major investment is needed to meet the rapidly growing demand triggered by the rising number of cars. This pressure saw petrol prices soar by 16% in 2005. Experts say domestic petrol production has practically reached its limit and in three years Russia may face a severe petrol deficit.
Projects are under way to build an Eastern Siberia-Pacific Ocean oil pipeline to feed growing Asian markets and a North European gas pipeline under the Baltic Sea to ensure stable supplies to Western Europe.
Billions of dollars in investment are needed to develop Arctic offshore gas fields and reserves in Eastern Siberia and fund the major pipeline projects. State companies, burdened by debts, are unlikely to provide this.
Twenty years after Chernobyl, Russia is planning more nuclear plants
In December 2005, President Putin lifted all restrictions on the trade of Gazprom shares to allow the gas giant to attract new foreign investment. Rosneft is also preparing to issue shares on one of the world stock exchanges. However, foreign investors remain somewhat wary of the emerging Russian market.
Russia is the fourth largest generator of electricity, after the USA, China, and Japan. Roughly 63% of Russia's electricity is generated by thermal plants, 21% by hydropower and 16% comes from nuclear reactors. Russia exports significant quantities of electricity to the countries of the former Soviet Union, as well as to China, Poland, Turkey and Finland.
Russia has enormous potential in renewable energy resources, but this sector is largely undeveloped. The only exception is geothermal energy that is used for heating and electricity production in the Northern Caucasus and the Russian Far East.
After a 20-year lull following the Chernobyl disaster, Russia announced ambitious plans for new nuclear facilities. Russia is set to increase the proportion of its energy that is nuclear-generated from the current 16% to 25% by 2030 and build at least 40 new reactors. Costs are estimated at $60bn.
Russia currently has 31 reactors at 10 plants and is building three more at home and another five abroad, including the controversial site at Bushehr in Iran.
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