Use of market pricing mechanisms for natural gas: pros and cons

17 september 2014

The roundtable titled "Pricing of natural gas used as motor fuel" was held at the Analytical Center. Participants have discussed the draft amendments, developed by the Russian Ministry of Energy, to the Resolution of the Russian Government dated January 15, 1993 № 31 "On urgent measures to enhance the replacement of motor fuels by natural gas" that will change the pricing mechanism for natural gas used as motor fuel.

The marginal selling price of natural gas is currently 50% of the price of gasoline A-76 that is sold in the region and the project proposes to introduce a limit of 35% of the price of diesel fuel.

Deputy Head of the Oil and Gas Processing Department of the Russian Ministry of Energy, Maxim Lobanov reminded that the government pays great attention to the issue of renewing the fleet of vehicles, which will soon have to comply with all current safety and environmental requirements. In this regard, an order has been prepared by the Federal Government on May 7, 2013 № 767-p on the use of natural gas as the fuel for public automobile transportation and road and utility services by 2020, said the official. “According to our calculations, in cities with more than a million inhabitants, over 50% of public transport should switch to natural gas by 2020, in the cities of up to 300 thousand inhabitants - 30%, and in the cities of more than 100,000 inhabitants - 10% - said Mr. Lobanov. - During this time, the total amount of vehicles that needs to be renewed and switched to natural gas, will be 46 million units”. This way, at least 5-6 thousands vehicles should be renewed every year, he added. According to the official, this will require a significant increase in the production of gas motor vehicles and, as a consequence, the development of the appropriate gas fueling infrastructure.

"The lack of a marketing strategy among manufacturers, to promote natural gas vehicles, slow production and the lack of a long-term program for renewing the vehicle fleet - these are the main problems of motor fuel consumers" - believes Mr. Lobanov. The manufacturers also have issues in this area. According to the official, these are the lack of a sound consumer market forecast, marketing strategies for companies up to 2020 and a systematic approach in promoting the use of natural gas as a motor fuel, as well as the overrated performance of the planned facilities.

Chairman of the Board - General Director of "Gazprom gas fuel" Mikhail Likhachev believes that the current motor fuel market in Russia is still emerging as a new sector of the economy. "For a stable development of the market, it is important to create a balance of interests for all its participants, - he said. - Therefore, the price of gas fuel must meet the needs of everyone which means that it should be generated by the market itself”. Mr. Likhachev also noted that only the market regulation of natural gas prices will allow reaching an amortization period acceptable to investors, and will give the necessary impulse to the industry development. "We need to halt the state from regulating prices for natural gas and to ensure the use of market pricing mechanisms", - said Mr. Likhachev

The participants have repeatedly pointed out that the existing infrastructure facilities are unevenly distributed in the country, and in poor technical condition. According to the experts, the infrastructure of the area needs large-scale investments.