Russia Forum Buzz: The Domestic Gas Market: on the Path to Increased Competition?

April 19, 2013

 

The panelists concentrated on the biggest questions in the domestic space: is demand growing, and is the price growth justified?

Gazprom believes consumption will not expand at the existing industries, and that the battle among producers will be for new customers. Rosneft’s Nikolay Eliseev agreed, and said the company needs to look at new segments – potentially, the auto sector. Sergey Kogogin, CEO of truck producer KAMAZ, said that switching 50% of the nation’s truck and bus fleet, and 25% of the car fleet, to natural gas engines would create 70 bcm of additional annual demand for gas, meet the Euro-4 standards immediately, and be easily upgradable to Euro-5 and potential cleaner standards down the line.

However, Vladimir Feygin of the Energy and Finance Institute said switching cars en masse to gas is unlikely due to the weight of the conversion equipment. He used to work at Gazprom in the early 1970s when he first encountered that idea, and it remains a tiny fraction of Russia’s car fleet (KAMAZ says it sold about 300 gas-powered trucks in 2012, though it expects the figure to rise to 1,000 this year).

On the tariff front, Dmitry Strezhnev, CEO of EuroChem, a fertilizer producer for whom gas is the main feedstock and which consumes 4.7 bcm per year, said that the lack of a proper definition of “export netback” makes it difficult for consumers to forecast the possible upper level of prices. He also mentioned that because regional price bands are not in sync with Gazprom’s transport costs, independent producers are incentivized to stay close to the producing regions. Feygin agreed, calling such regions of independents’ concentration “ghettos.” He added that the gas transport tariffs charged by Gazprom should not be rising as fast, something, of course, seconded by Novatek CEO Mark Gyetvay.