Can Fuel Oil Meet the Challenges of the Russian Power Sector? Possible Consequences for Producers and Consumers

Rising power demand and its call on domestic gas have become a high priority issue for Russian policymakers. Residual fuel oil has been called upon to fill the potential gas gap and reestablish its role in the power sector from decades ago. CERA expects the growth in fuel oil consumption to increase fuel costs to the power sector in 2007, which will put pressure on policymakers to increase power tariffs, since it is a bellwether year for the UES privatization program for thermal power generation assets.

* The Russian refining industry has sufficient slack capacity to meet the power industry's needs.
* A gas supply constraint in the power sector would have its greatest impact in 2007, but would decrease in subsequent years if fuel oil prices follow a declining international trend.
* However, fuel oil will remain a transition fuel as the power sector makes long-term adjustments in response to changes in the overall Russian gas balance.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.