The more buyers and suppliers are there on the exchange, the more transparent the pricing becomes

5 july 2016 | Rossiyskaya Gazeta

Exchange-traded gas volumes in January-May 2016 increased fivefold against the same period last year. The Russian gas hub is still in its formative stage, compared with the US and the UK experiences, but this does not prevent trading volumes from putting pressure on prices. For instance, the average cost of gas purchased on the exchange in Russia is 9.8 % lower than with off-exchange contracts.

Svyatoslav Pikh
Svyatoslav Pikh
Department for Fuel and Energy Sector

 "The trend will continue as long as out of contract producers have surplus gas, which they sell on the exchange, supporting growth in supply," Svyatoslav Pikh, an expert of the Analytical Center, commented to the Rossiyskaya Gazeta. According to the expert, as soon as the surplus will come to an end, and the supply will no longer expand in sufficient volumes, the increased demand will lead to higher exchange prices up to the administered ones.

Pikh explained that in this case, with no intervention of regulatory authorities such as the Federal Antimonopoly Service, the Ministry of Energy and others, related to exchange trading, the fall of prices would be unlikely for consumers in the long term, while gas exchange trade will start to stagnate as well as the development of Russia's competitive natural gas market.

Since the beginning of the gas exchange trading in Russia, that is, October 2014, the quotations are lower than the prices offered in off-exchange contracts, regulated by the Federal Antimonopoly Service. If the trend continues, it will increase the demand on the exchange, which ultimately can lead to index-linking of long-term gas contracts on the SPIMEX and, as a consequence, to the abandonment of regulated prices, indicated in the bulletin.

Experts believe such an outcome is logical, because the more suppliers and buyers are present on the exchange, the more transparency of pricing we get; prices are available at any given time, and hence, the added value is lower. Under these circumstances, gas prices for industrial users can be reduced, meeting a limited increase for the population, mainly for the economically developed regions, which will not need the full volume of state subsidies, Pikh predicts.

“The designation of a guaranteeing supplier for certain regions would also be a significant factor, which can shift the responsibility for supplying the population from Gazprom to some independent producers, giving the latter an opportunity to embrace new consumers,” Pikh said. However, there is a risk that implementation of the concept can reduce competition on certain regional levels. The issue is now taken to the Federal Antimonopoly Service, the Ministry of Energy and Gazprom.