Gas prices in Russia should not be lower than in the US

20 april 2016 | MIR 24

Alexander Kurdin, the Head of the Department for Strategic Studies in Energy of the Analytical Center, appeared on MIR 24 TV channel where he talked about the link between the price of oil and the price of gas at the pump.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

What is the link between the price of oil and the price of gas?

Alexander Kurdin: In Russia, raw materials make up about 40% of the gas price so naturally oil prices affect gas prices at filling stations very much. It should be noted, though, that it is not the dollar prices of oil that we are watching so closely that play a role here, but ruble prices. And since as dollar prices fall, the ruble exchange rate falls too, but the ruble prices do not change as much.

So when the oil price collapsed in late 2014 early 2015 we did not see a significant decline in the ruble prices of oil. Last year the price of gas at the pump was not changing very much. The consumer inflation was 12-13% while the price of gas went up 5-7%. Things have not been too bad so far, the prices have been going up but very slowly.

When it was announced that the gas excise was to be raised in April, some people were saying that the gas price would sharply go up as well but so far it has not happened. Will the price of gas rise eventually?

Alexander Kurdin: The excise was raised on April 1st; however, there was no sharp increase in the gas price primarily because of the low price of oil. We are now expecting to see a seasonal increase in prices in the second half of summer or in August. But I do not think we are going to be seeing any catastrophic price increases.

In other words we are not likely to see gas selling at 50 rubles a liter this year?

Alexander Kurdin: The price of motor fuel will not be rising faster than the inflation rate. Since gas is a socially important product, the government is trying to regulate its price and to prevent any sharp increases in the run-up to the elections. If companies should try to raise prices, the Antimonopoly Service will put a stop to that.

Why is it that in a country where so much oil is produced the price of gas at the pump is so high?

Alexander Kurdin: And why should gas be cheap in an oil producing country? I mean if we have a common market for oil and petroleum products the prices should be the same. And if we compare Russia with the US, which also produces a lot of oil, we will see that the gas prices are roughly the same, about 50 cents per liter. I do not think gas prices in Russia should be lower than in the US.

Low gas prices help car owners but at the same time we should increase supply in the domestic market and that means reducing exports, for example. In this case the treasury would get less revenue, and there would be less money for pensioners and state employees.

Source: «MIR 24»