Russia's gas sector: the endless wait for reform? (original) (raw)
OECD Economics Department Working Papers, 2004
The gas industry is perhaps Russia's least reformed major sector. Prices are regulated, exports are monopolised and the domestic market is dominated by a state-controlled, vertically integrated monopolist, OAO Gazprom. Gazprom combines commercial and regulatory functions, and maintains tight control over the sector's infrastructure and over information flows within it. The sector as it is currently constituted is highly unlikely to be able to sustain sufficient output growth to satisfy both rising export commitments and domestic demand. There is significant potential for accelerating the growth of non-Gazprom production and making gas supply in Russia more competitive, but this will require fundamental reform. The proposals for reform advanced in the paper address two sets of issues. First, there is an urgent need to increase transparency in the sector and transfer many of the regulatory functions now performed by Gazprom to state bodies. Secondly, there is a longer-term need for a considerable degree of unbundling of Gazprom. In particular, it would be desirable to remove control of the sector's transport infrastructure from the company and to revise the arrangements governing gas exports to non-CIS states, which are currently monopolised by Gazprom. At the same time, recent increases in domestic gas tariffs must continue until internal gas prices rise above full, long-term cost-recovery levels.
The export of Russian gas to Europe: breaking up the monopoly of Gazprom
2007
Having exports from more than one Russian gas producer has been an important issue in the Russian–EU energy dialogue during the last decade. Nevertheless, in June 2006, Russian Federal law legalized the de facto export monopoly of Gazprom. Political and commercial interests have regularly explained the Russian strategy for the European gas market. However, it is important that economic efficiency
The transformation of Russia's gas export policy in Europe
Proceedings of the ICE - Energy, 2015
After years of unchallenged commercial domination of a sizeable portion of the EU's gas market, Gazprom is confronted with a statement of objections issued on 22 April by the EU Commission for abusing its dominant market position. The company was already prevented from going ahead with its South Stream project aimed at consolidating Gazprom's grip on Southeast Europe's markets by bypassing Ukraine -due to alleged non-compliance of intergovernmental agreements with the EU regulatory framework. Furthermore, it walked away from negotiations that could have allowed it to access more than 50% of the OPAL pipeline -an onshore branch of the offshore Russian German Nord Stream pipeline -, whilst its attempts to go downstream through the acquisition of European distribution and transmission operators, such as Wingas and DESFA, failed due to current political tensions and the risk of a negative Commission ruling on the operation.
SSRN Electronic Journal, 2000
Gazprom, Russian's prime state owned gas producer, is facing severe pressure stemming from international gas market dynamics, EU regulation and the Ukraine crisis. Slowing gas demand coupled with shifting pricing models and a persisting transit issue pose significant challenges for Gazprom's business going forward. Domestic pressure emerges from competition arising from private companies, mainly Notatek, but also state owned rival Rosneft, and is reinforced by governmental moves toward more market oriented Russian gas sector organization. Gazprom's options include pivoting to alternative markets, notably China; reverting to international legal bodies and market principles to counter EU regulatory pressures; and to depoliticize gas trade in order to generate long term expectations on its prime market -Europe. We pose that neither of these options is likely to fully solve Gazprom's dilemma, whose competitive position will arguably further weaken both domestically and internationally. We believe that Gazprom's best option would be to aim for depoliticizing gas trade, by way of giving up its de facto monopoly on gas exports to Europe.
Unnatural monopoly: the endless wait for gas sector reform in Russia
Europe-Asia Studies, 2005
THE NATURAL GAS INDUSTRY is probably the least marketised major sector in Russia. The transitional institutions and structures created in 1992 have proved highly resistant to change, and attempts to increase the role of market forces in the sector have had little success. It is increasingly clear, however, that lack of reform represents a threat to the sector's long-term development and, by extension, to Russia's longterm growth. 1 This article examines the state of the gas industry today, as well as options for reform. The first section describes the structure of the sector and its role in the Russian economy. This is followed by an analysis of the domestic market. These two sections highlight the anomalous position of the vertically integrated gas monopoly OAO Gazprom. Though constituted as a joint-stock company, Gazprom operates in many ways as an arm of the state, combining commercial and regulatory functions, and maintaining tight control over the sector's infrastructure and over information flows within it. Gazprom's control over information is particularly important, as it renders opaque much of what happens in the sector. The third section considers the major sources of pressure for change, chief among which is the need to stimulate investment in gas production in order to sustain output over the long term.
The Political and Commercial Dynamics of Russia's Gas Export Strategy
Gas exports have historically provided a foundation of economic and political strength for Russia and a source of significant revenues for its leading gas company, Gazprom. However, lower commodity prices, the imposition of sanctions on Russia in light of the Ukraine crisis, lower gas demand in Europe, the EU’s desire to diversify away from Russian gas and increasing competition from new global LNG supply are presenting multiple challenges. A search for new markets in Asia, and especially China, has begun, but is currently not progressing as fast as Russia would have hoped, while domestically Gazprom’s position is being challenged by third parties who are keen to break the company’s export monopoly. This paper, jointly authored by James Henderson and Tatiana Mitrova, examines the emerging trends in Russia’s export strategy, identifying the key political drivers as well as the commercial factors that are influencing policy making. It analyses the catalysts behind Russia’s “pivot to Asia” in the gas sector, assesses the likelihood of this strategy being a success and argues that Europe will remain of vital importance as a major market for Russian gas for the foreseeable future. In light of this, the paper also examines Gazprom’s evolving gas marketing strategy and asks whether the company is adapting to the changes in European regulation and legislation in a positive manner. It considers the competitive position of Russian gas in Europe and Asia, delivered both by pipeline and by potential new LNG projects, and argues that Russian gas can have a pivotal role in both markets as its cost of supply is relatively low. Indeed, although it would currently appear that Gazprom’s strategy is being somewhat improvised in reaction to political and commercial events, the authors’ conclude that the company is gradually edging towards a more market-based outlook that could ultimately allow it to prosper even in a more competitive global gas market. It will need to continue this trend if it is to fend off competition from expanding global LNG supply but also from domestic competitors such as Novatek and Rosneft, who are keen to provide their own solutions to the challenges facing Russia’s gas export business.
Post-Communist Economies, 2016
Gazprom enjoys a dominant and privileged position in the Russian energy sector, and indeed in the economy as a whole. This article analyses the company's failure to achieve the Russian state's objectives for the country to become a force in the global LNG (liquefied natural gas) market. Has it weakened the company's standing relative to other industry players and the authorities, with the possibility that they could unleash broader reforms in the Russian gas sector? Short-term political and economic considerations may slow progress towards a radical outcome, with Gazprom's importance as a domestic and foreign policy tool providing some protection at a time of uncertainty for the Kremlin, but in the longer term it may well be the case that the liberalisation of LNG exports in December 2013 comes to be seen as the first step in a much broader reorganisation of the Russian gas sector.
An evaluation of alternative scenarios for the Gazprom monopoly of Russian gas exports
Energy Economics, 2012
Russian federal law legalized the exclusive right of Gazprom to export natural gas to Europe, and thus thwarted efforts by the European Union to bring competition to the Russian gas industry. An understanding of the motivation of the Russian government to support this export monopoly is important if Europe wishes to reduce its dependence on Gazprom. The principal aim of this paper is to contribute to a better understanding of this important question. Our analysis employs a theoretical model and several numerical simulations of an alternative organization used for gas exports, where independent gas producers in Russia are permitted to export gas to Europe. We evaluate the effects of this alternative organization on consumer surplus, industry profits, and Russian welfare. The results demonstrate that while export by independent producers reduces Gazprom's export profits, it may also increase the total domestic and export profits earned by the Russian gas industry. However, the results also suggest that Russian gas consumers will not benefit if independent gas producers are able to supply both the domestic and international markets.
A new era in Russian gas market: The diminishing role of Gazprom
Energy Strategy Reviews, 2015
Other than Rosneft, there are also several Russian oil companies with significant production such as the private company, Lukoil and the state owned Gazpromneft and Surgutneftegaz. 2 The term "non-Gazprom producers" is used rather than "independent producers" in order to describe the increasing role of gas companies in Russia.
When is Mighty Gazprom Good for Russia?
2007
In the late 1990s, several proposals for a structural reform that would bring competition and market prices to the Russian gas industry were intensely debated. Splitting up Russian gas monopolist Gazprom into several producing companies was a considered option. In this paper, I examine theoretically and numerically how a split-up of Gazprom would affect Russian national welfare. Results show that
Monitor Strategic / Strategic Monitor, no. 3-4: 71-80, 2010
This paper analyses Russian Federation’s energy policy as defined by relevant governmental documents drafted by Kremlin and as resulting from Moscow’s behavioural dynamics (especially those actions with a certain energy dimension). In this context, the paper identifies that although Kremlin’s energy strategy orbits around the core concepts of Gazpromization and Restauration it is still far from being the exclusive result of a monolithic arch-strategy of Kremlin, but rather a flexible implementation of Moscow’s interests (deeply linked with global energy market’s price volatility). Finally, the manuscript claims that that conventional vision of Russia being an energy superpower is over-dimensioned, because although Kremlin’s actions reflect a certain hegemonic approach, they are fuelled by important survivalist elements (the demographic vulnerability of Russian Federation Eastern provinces, the gas deficit which can severely hit the domestic economy, etc)
Gazprom vs. other Russian gas producers: The evolution of the Russian gas sector
Energy Policy, 2013
Other Russian gas producers, especially Novatek and Rosneft, are taking market shares from Gazprom. Gazprom has a monopoly on exports and has had a de facto monopoly on the domestic pipeline grid through its control over trunk pipelines. Gazprom's greenfield projects are more expensive than those of other producers. Gazprom's loss of market shares to other producers in the domestic market may actually be in Gazprom's interest.
Russian natural gas sector: current situation, perspectives, and its importance for Europe
Przegląd Europejski 4/2019, 2019
The aim of the article is to outline the prospects for the Russian natural gas market in the future and to present the Russian gas sector in comparison with the strategic “players” of the global market. The author examines the issues related to the production, transmission and sale of Russian natural gas. The main problem concerns the possibilities and limitations, that influence the power of the Russian “blue fuel” sector. The article presents briefly the results of the research, which were obtained mainly through the method of case study. The verification of the main hypothesis will be made from the top–down perspective, considering analysis of the actions of state decision-making centres. Less explicit impact, including the interaction of non-public actors (such as economic items), will be skipped, because their more precise consideration would provide to the interesting, but different direction of analysis of the sectoral groups of interest.
When is a break-up of Gazprom good for Russia?
Energy Economics, 2010
In the late 1990s, several proposals for a structural reform that would bring competition and market prices to the Russian gas industry were intensely debated. Splitting up Russian gas monopolist Gazprom into several producing companies was a considered option. In this paper, I examine theoretically and numerically how a split-up of Gazprom would affect Russian national welfare. Results show that under the current gas market structures in Europe and Russia, the split-up of Gazprom's monopoly might not be beneficial for Russia. However, analysis in the paper indicates that the market shares that Gazprom has in both Russian domestic and European gas markets are important in determining whether Gazprom's dominance is supported under the national welfare criteria. When Gazprom has small market share in Europe and large market share in Russia, a break-up of Gazprom might plausibly result in increase of Russian national welfare.
Russia’s gas “Triopoly”: implications of a changing gas sector structure
Eurasian Geography and Economics
The growth strategies of the two largest so-called independent Russian gas producers-Novatek and Rosneft-as well as developments in international markets and changing domestic energy needs-have put pressure on the present Russian gas sector model dominated by Gazprom. The three companies are involved in a struggle over export liberalization as well as the conditions in the domestic market. An analysis of the resource base of the two Independents indicates that liquefied natural gas (LNG) is top priority for Novatek and that Rosneft's main gas focus is on eastern Russia and Asia, but there is still room for considerable tension with Gazprom. The government is faced with a dilemma, as it both wants to improve Russia's position in export markets and maintain stable domestic supplies, including to socially disadvantaged regions and institutions. Gazprom is insisting that if further access to export markets is granted to the Independents, then they must take greater responsibility for domestic market obligations, while on the other hand the key Independents seem intent on stopping or slowing down their expansion in the domestic market in order to prioritise export sales, and will certainly not take broader domestic supply responsibilities without better access to export markets. The balancing of policies will be difficult since it involves strong players on the Russian economic and political scene, all with ties to the Kremlin.
Russia’s gas export reorientation from West to East: economic and political considerations
The Russia–China deal in May 2014 opened a new page in Gazprom's efforts to orient its exports to Asia. The political logic behind the new agreement resembles the first Soviet gas export contracts with European states. However, the international gas markets favour Asia's position in general and China's in particular. Moreover, China is now having a leverage on its future liquefied natural gas suppliers. The new context makes Russian negotiating positions weaker and, moreover, Russian gas export to China might not be a subject of Gazprom monopoly any longer.
EU-Russia Gas Relations: Challenges and Possible Solutions.
Focus of this work is on Gazprom, the biggest gas company in Russia and main trade partner of the EU. The main question is: are EU-Gazprom gas relations politicised and by how far? Working with the empirical data proved that EU-Gazprom trade relations are politicised due to the decisive role the Kremlin has in this energy company. The way it works on the internal market as well as its relations with foreign investors to major Russian production fields allows speaking of general behavioural trends that ought to be taken into account. The problem of politicised relations with Gazprom and a need to find a way to negotiate for more liberal and market-oriented relations urges either to look for other trade partners, or to resolve existing disagreements with Gazprom and the Kremlin.