The state is taking measures to promote competition on the natural gas market

22 july 2016

“The government issued a resolution under which state regulation of wholesale natural gas prices will continue during a transitional period that will last until 2018 at which point all regulation of wholesale prices will cease and all NG suppliers will pay a single transport rate,” said the Deputy Head of the Division for control over natural gas and coal industry at the Federal Antimonopoly Service Maxim Timofeev in a keynote address at a roundtable titled “Targets and barriers for competition development on the Russian natural gas market” that was held at the Analytical Center.

According to Mr. Timofeev, wholesale NG prices must be based on several indicators, the foremost of which are the commodity exchange price index and over the counter price index that accounts for the regulation present in over-the-counter deals, as well as the netback indicator that smooths out the difference between export and domestic market prices.

After 2018, Gazprom, major traders and regional suppliers are going to be in the same position and will be acting within the competition principles. This will help do away with cross-subsidies between industry and the population. “Once state regulation is lifted, the prices will most likely go down, or at the very least we do not expect them to go up because market pricing is based on competition,” considers the FAS Russia’s representative.

The Head of the Center for the Research of Energy Markets at “NIIGgasEconomics” (LLC) Sergey Tomin noted that natural gas is the most important energy resource for Russia and is at the foundation of the country’s energy security. In his opinion, in order to improve the natural gas market, several components are of vital importance: one of them is economically justified prices and rates; another one is conditions under which Gazprom can compete with independent suppliers in a setup where they are together responsible for meeting peak demand in the fall and winter and last but not least Gazprom has to have the status of the default supplier in the single NG supply system after a mechanism for the compensation of expenses is introduced and a natural gas exchange is opened.

“Two topics have been discussed for quite some time now and it is high time we ensured non-discriminatory access to pipelines and introduced a single transport rate for Gazprom and independent supplies,” said Vice President for Energy of PLC “NLMK” Sergey Chebotarev. - Having natural gas exchanges would be one tool for ensuring competition and we, as an independent supplier, are all for more efforts being made in this department and for more independent venues opening to deal in natural gas. However, over-the-counter market for natural gas should also be developed and here we are dealing with mechanisms that have not been ironed out yet.

It is time to introduce non-discriminatory access to pipelines and introduce a singed rate for gas transport for Gazprom and independent suppliers.

Sergey Chebotarev, PLC “NLMK”

“Having natural gas exchanges is not yet a viable option for a lot of regions because for them the important bit is the pricing mechanisms for over-the-counter deals,” confirmed the Head of the Center for Market Analysis at JSC “Fortum” Anatoly Trukhin, noting that power plants are the largest consumers of natural gas and their efficiency completely depends on the flexibility of the natural gas market.

Gennady Shmal, the President of the Union of Natural Gas and Oil Industrialists of Russia, suggested allowing foreign producers to offer natural gas on the Russian exchanges while the Head of the Center for the Research of Global Energy Markets at the Institute of Energy Research of the Russian Academy of Sciences Viacheslav Kulagin explained: “Developing natural gas exchanges is a good thing but we also now understand that in Russia we cannot currently rely on the mechanism of exchanges alone, other mechanisms must be used in conjunction with it that would ensure more competitive pricing”.

At the moment the concept of the functioning of the natural gas market is still in development and experts agreed that a lot is going to depend on the FAS Russia’ pilot project currently being implemented in some regions. In addition, the roundtable’ participants noted that not all players are yet ready to hear each other and more meetings are needed to monitor and discuss the current innovations that aim to deal both with problems of competition and other aspects of the industry that need reform.