Oct 20 - Datamonitor

As the world's largest gas producer and the source of a third of Europe's gas imports, the dominance of Russia on the global energy stage is undisputed. Plans to construct a number of coal-fired power stations along the Russian/Chinese border will serve to increase this dominance, further boosting the continued rise of the energy superpower.

Plans are currently under development between Russia and China to construct a number of coal-fired power stations in the Far Eastern region of Russia, close to the border with China. The $10 billion project would see around 10GW of capacity constructed over the next five years, equivalent to around 2% of China's current installed power generation fleet. Assuming standard thermal efficiencies and load factors, this capacity has the potential to produce around 60TWh per year, equivalent to twice the current power output of the Far East region of Russia.

Expansion to the Chinese electricity supply portfolio is badly needed given the rapid growth in demand that has been seen in recent years, a phenomenon showing no sign of abating. In the first half of 2006, the Chinese economy expanded by nearly 11%, continuing the strongly upward GDP trend seen in recent years. This expansion in the economy has been a key factor driving annual power demand growth rates of around 12%.

However, despite the mutual benefits that will be achieved by the proposed deal, there remain significant potential problems that may ultimately prevent the construction of the power stations. Despite the advanced nature of the talks between Russia and China, agreement is yet to be reached on the price to be paid for the power output, as well as the ownership of the power stations and related transmission infrastructure.

However, if the project does progress, it will serve to significantly advance the already strong role of Russia in the global energy sector. Currently, Russia is the world's largest gas producer, accounting for more than 21.5% of global production. Given that its proven gas reserves base stands at around 48 trillion cubic meters, 27% of the world total, the future outlook for the growth of the Russian gas sector remains bright.

A similar situation exists in the oil market, with Russia currently producing around 12.1% of the world's crude oil output, putting it just 1.4% behind Saudi Arabia, the world's largest producer.

This significant resources base, combined with declining European indigenous production and rapid demand growth in Europe, will serve to further advance the Russian energy sector. Additionally, the plans mooted to build a gas pipeline between Russia and China will provide yet another fillip to the prospects for Russian gas.

Whether or not the proposed power generation deal with China is executed, Russia is rapidly growing its already significant plans to further penetrate the European and global energy sectors. The geographic and value chain expansion of Gazprom, Russia's main gas producer, is continuing apace. As such, further deals of the type currently being pursed with China (in both the gas and power sectors) can be expected. The security of supply implications of this should not be lost on European energy consumers, governments and EU officials alike.