Market-based pricing mechanisms emerge in the Russian natural gas market

25 june 2018

The Analytical Center and the Russian Gas Society have held a roundtable on the development of market-based pricing principles in the domestic natural gas market.

Alexander Kurdin, the head of research at the Department for the Fuel and Energy Sector of the Analytical Center, noted that in December 2017 the president of the Russian Federation issued order No 618 dated December 21, 2017, approving the National Competition Development Plan, which calls for a transition to market based prices for natural gas by 2020. A draft government resolution developed by the Federal Antimonopoly Service of the Russian Federation is also being considered at the moment; it seeks to promote the market-based pricing principles in the domestic natural gas market. This draft contains a number of steps to ensure the transition to market prices in the wholesale market of natural gas by at least July 1, 2019.

"In our domestic market the price of natural gas must always be constant," believes Alexander Gladkov, the head of the Department for Oil and Gas Production and Transportation of the Russian Ministry for Energy. In addition to issues related to the price of natural gas, there are other issues having to do with rates, balance and storage, the expert noted. "If we consider the situation in its entirety, we will see that in the past 5 years there have not been any radical changes in the domestic natural gas market. What we are seeing is essentially trench warfare between independent companies and Gazprom with either side simply fortifying their existing positions," Mr. Gladkov said.

"The wholesale market of natural gas is no longer monopolistic but it's still highly concentrated. The 3 largest suppliers, Gazprom, Novatek and Rosneft together control over 70% of the market with the share of each of them exceeding 8%, wрich means that these companies dominate the commodity natural gas market,"said deputy head of the Federal Antimonopoly Service of Russia, Anatoly Golomolzin. The expert noted that there are currently market pricing mechanisms emerging in the Russian market of natural gas; these mechanisms include an indicator in organized trading, the same transportation rate, an over-the-counter indicator calculated on the basis of registered deals.

The deputy head of FAS Russia also presented proposals for how best to go about deregulating the natural gas supply market. "We need to scrap the state regulation of the wholesale price of natural gas sold by Gazprom, set the same rates for all for the transportation of natural gas through main pipelines, including for independent natural gas producers, Gazprom and its affiliates, as well as change the procedure for determining the coefficient used in the calculation of the tax on the extraction of natural resources," Mr. Golomolzin said.