Experts Discuss the Idea of Introducing the Status of a Default Natural Gas Supplier

12 may 2016

"In October 2015 the Presidential Commission on the Fuel and Energy Sector issued an instruction requiring that responsibility of regional NG suppliers be expanded, specifically, creation of an institue of default NG suppliers in Russian regions was to be looked into," said Alexander Kurdin, the Head of the Department for Strategic Studies in the Energy of the Analytical Center.

The expert noted that it was not a clear-cut issue and was currently being actively discussed by experts. For this reason, according to Mr. Kurdin, the Analytical Center and the non profit partnership Russian Natural Gas Association held a round table titled Creating the Institution of Default Natural Gas Suppliers in Russian Regions, whose participants included representatives of federal executive authorities, fuel and energy companies, expert organizations, and the academic community. Experts discussed the ways the natural gas market could be optimized and natural gas supplies could be stabilized at the level of specific regions. They also looked at the conditions that would need to be met in order to balance the interests of all market players when introducing the institute of default suppliers.

The chair of the State Duma Energy Committee Pavel Zavalny believes that under the current conditions the institute of default natural gas suppliers simply must be introduced. "There are a lot of problems we’re now facing in the NG sector and in this tool would work and as a transitional institute it would be of paramount importance," he explained.

"20 years ago when Gazprom was the only player in the NG market, default NG suppliers were a non-issue as we only had one company that performed all the functions in the market. However, as soon as independent NG producers began emerging, the NG market changed drastically," said Alexander Gladkov, the director of the Department for the Production and Transport of Oil and Natural Gas of the Russian Ministry of Energy. According to the expert, the independent NG suppliers that have appeared in the domestic market have stratified the types of services that in the past were all provided by Gazprom. ‘If we are to promote free market relations in the domestic market, there’s a whole host of other functions that Gazprom will have to abandon," Mr Gladkov summed up, "And we will have to think about what to do with those: whether some ways would have to be found to compensate for them or they wouldd have to be transformed into something else."

In this respect, a default supplier would ensure uninterrupted delivery of natural gas to consumers, the expert is sure. So companies acting as default suppliers would need to explore new deposits and have resources that could be used to build and maintain main NG pipelines and distribution pipelines. "Having a default supplier is important not just in the markets that are going the laissez fair way but also in new markets that NG utilities are just entering. East Siberia and the Far East are a good example of the latter: what’s needed there is a default supplier that would not only have the right to deliver NG to customers but would also guarantee such deliveries," Mr. Gladkov believes.

Representatives of the Federal Antimonopoly Service begged to differ. "We do not support the idea of default suppliers for Russia’s NG markets," said the head of the NG transport unit of the Federal Antimonopoly Service of Russia Fatima Abayeva. The expert does not think the issue has been properly researched yet. "Introducing an additional element into the market will simply hinder the functioning of the entire system. In addition, nobody really knows how the institute of default supplier should operate so we do not really know what the consequences of introducing default suppliers would be," Ms. Abayeva believes.

List of Participants