Demand for energy in the fomer Soviet Union has fallen owing to recent declines in GDP, energy price increases, and some improvement in what has characteristically been inefficient use of energy in the region's economies. Ukraine is the main country through which Russian gas flows to foreign markets. There is scope for some increased gas exports from countries of the former Soviet Union, but concerns about security of supply and limited expansion of the gas market are likely to prevent a large-scale expansion of gas exports. Since Russia's gas sector produces large amounts of low-cost gas and is a monopoly, it should generate significant revenues from sales and, potentially, large tax revenues. The supply and demand conditions and market structure for oil are very different from those for gas.
Oil is supply constrained.
Output stabilized in 1997. Production could be increased from old fields and completely new oil fields, particularly those in the Caspian Sea region. In Russia, ownership and control of substantial oil and gas assets have been transferred to new domestic owners and managers. The energy sector was privatized in a nontraditional manner by issuing and trading vouchers encompassing large stakes in oil, gas, and power companies and by other means. In Russia, private owners received majority equity stakes in oil companies that account for 85 percent of oil production.