Shifting Political Economy of Russian Oil and Gas by Mitrova Tatiana;

Author:Mitrova, Tatiana;
Language: eng
Format: epub
ISBN: 4504154
Publisher: Center for Strategic & International Studies

The Federal Antimonopoly Service started recently to promote an alternative idea to move from regulated to spot prices, referring to the prices of the Saint Petersburg International Commodity Exchange (see Box 2).

Currently, despite all the efforts from Novatek and Rosneft’s side, the government is not developing any regulatory framework to unbundle Gazprom, which means—bearing in mind the long period of time that would be needed to implement such a regulation—that this question is not on the agenda at least for the next few years. The government`s reaction is very cautious: it is frightened by the prospect of a transitional period when something might go wrong. These fears are understandable, taking into account the huge economic and political role of gas and its unique role as an internal and external policy tool.

Box 2. The Russian Natural Gas Exchange

The first gas trades started in Russia in 2006–2008: there was a government-sponsored experiment that envisioned the sale of natural gas at free market prices at the electronic trading facility (ETF) of the Gazprom’s sales division, PLC Gazprom Mezhregiongaz. Gazprom was permitted to sell up to 5 bcm of natural gas, as were all independent gas producers put together. With the expiration of the term of the experiment, ETF trade was terminated. Since then Gazprom and the government have been discussing new principles of exchange trade in natural gas. It took nearly six years to restart trading.

After nearly six years of hiatus, in October 2014 trades resumed at Saint Petersburg International Commodity Exchange. Planned volumes of gas trade were 35 billion cubic meters per annum (bcma), to be provided on equal basis by Gazprom and other producers. In reality, during the first year they hardly exceeded 5 bcm. Initially gas companies have taken this idea without much enthusiasm. After all, they understood that in the situation of a superfluous supply of natural gas, spot trading was likely to push the price down (which will serve as an additional argument for the government to freeze the price for a longer period). Indeed, gas prices at the Gas Exchange are 4 percent to 5 percent lower than the FTS-regulated gas price. But, on the other hand, during the summer 2015, when domestic demand dropped even further, gas producers (especially Gazprom) realized that the Gas Exchange could be the last hope for them to sell gas at least at any price (the alternative being to leave it in the ground). As a result, sales volumes have increased dramatically—up to 1.3 bcm in September (25 percent of the total sales during the first year of the trades). In October 2015, 1.6 bcm were sold, mainly by Gazprom, which is markedly changing its attitude toward the trades. For the company, which is not allowed to provide any price discounts, it seems to be the only way to protect its sales volumes and to provide competitive price to the customers. Thus, paradoxically, Gazprom has started to promote a more competitive pricing mechanism. There are many uncertainties concerning its future development,

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