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Oil, gas and chemical, petrochemical

Russia contributes enormously to the world energy market. It has ample oil reserves in western Siberia. Russia generates nearly 60% of its total revenue from oil and gas exports, as it is the second largest oil exporter. It possesses 35% of the world’s natural gas. It is also the third largest energy consumer in the world. The energy sector employs nearly 10 million people in Russia. The energy sector was considered the best target for foreign investment in the mid 1990’s.

Russian oil production companies are fully integrated and are involved in both exploration and distribution of oil. After Yukos, formerly the world’s largest producer of oil was taken over by the Russian government; its units were sold to several state owned companies. Today, Lukoil is Russia’s largest oil and petrochemical company and is considered one of the biggest in the world. Rosneft and Sibneft are two other leading oil companies in Russia. Gazprom is a joint stock company, which involves in gas production and exploration of which 40% shares are owned by the state and 35% are sold to the public.

The Russian government solely controls the country’s energy sector. It has plans to increase buyers for oil and natural gas. The problems that plagued oil productivity in Russia are likely to change as the Russian Government is adopting western technology and efficient management techniques. It is laying fresh and expanded pipelines across the Baltic Sea to export natural gas supplies to Germany and the UK. Lukoil currently has a capacity of producing 2.3-bcm gas a year.

The Russian chemical and petrochemical industries are undergoing rapid growth as well. Several international companies have raised eyebrows and are planning to invest heavily in what happens to be a promising sector. Lukoil owns a pyrolysis unit, which is the largest in Russia. 

In 2004, Russia set up a stabilization fund to counter windfall in oil prices. In 2007, this fund grew to $158 billion. The World Bank and the European Bank for Reconstruction and Development (EBRD) are 2 major investors in the oil and gas sector in Russia. Statistics show that Foreign Direct Investment into Russia has grown by 8.3 times from 2002 to 2006. 30% of the FDI in Russia comes from the oil and gas sector. Shell has introduced Sakhalin, which is the largest FDI in Russia. BP owns 50% interest in Russia’s TNK-BP.

Russia has ties with central Asian countries in the energy sector. The Chinese have had great interest in exploring the rich oil and gas reserves in Russia. In 2006, Sinopec (China Petroleum Corporation) acquired the Russian oil company, Udmurtneft. This was one of the significant investments of China in the energy sector. It plans to invest $12 billion in 2020 in Russia’s energy sector.

Japan has currently invested $5 billion in finance construction and $2 billion in oil field exploration in Russia. The European Union also possesses a major interest in Russian energy sector. Russia faces a stiff competition from Kazakhstan is the supply of oil and natural gas to China. To improve output in energy, Russia relies heavily on foreign investments.

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