The domestic gas sector in Russia – gradual progress towards a competitive market?

• Main Author: Henderson, J
• Format: Article in Journal/Newspaper
• Language: unknown
• Published: 2015
• Subjects: Bovanenkovo; Yamal Peninsula; Yamal fields
• Online Access: https://ora.ox.ac.uk/objects/uuid:6e492137-7d5b-4b28-b357-c0bbce3a913f

In the mid-2000s the Russian authorities were firmly in control of the country’s gas sector; their influence was primarily reflected in their right to set the regulated price for gas sold by the dominant producer, Gazprom. This regulated price was on an upward trajectory, growing at around 15 per cent per annum, as the government attempted to balance Gazprom’s needs for more funds with the desire of domestic industry and the population for low gas prices. However, demand was rising across all the markets for Russian gas at that time, with increasing exports to Europe and the FSU, mainly for use in power generation. Meanwhile, economic growth at home was catalysing annual gas demand growth of 2–3 per cent per annum as gas retained its position as the most important fuel in the energy economy by far, accounting for 50 per cent of primary consumption. The key issue, therefore, appeared to be the need to incentivize the development of Gazprom’s new Yamal fields, in order to secure sufficient supply to meet anticipated demand. With this in mind, President Putin stated in 2006 that domestic gas prices should reach export netback parity by 2011; this meant a doubling of the tariff to reach a level of approximately $120–130/mcm, given the prevailing oil price of $50 per barrel at the time he spoke. This price would have allowed Gazprom’s new Bovanenkovo field on the Yamal peninsula to break even in the Moscow market.