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

Friday, April 19th, 11:30-12:45

The domestic gas market is becoming more interesting for Gazprom and independent Russian gas producers. Oil companies and gas independents believe that higher regulated domestic prices – which are approaching the European netback benchmark – and cost advantages create the opportunity to sell gas to domestic customers on more favorable terms than those offered by their main competitor, Gazprom. In fact, Russian industrial and utility customers are looking to diversify their gas supply portfolio to reduce their dependence on supplies from Gazprom.

Exports are by far the main source of revenues and profits for the gas giant, even though the company sells the bulk of its output domestically. Due to this focus on external markets, Gazprom has ceded part of its domestic market share to Russian independents in recent years. Meanwhile, the terms for the company’s gas exports to Europe are deteriorating (lower demand, stiffer competition and regulations, the development of spot trading and price discounts) and gas exports to new Asian markets remain largely on the drafting table. On the other hand, Gazprom substantially built up its production potential with the recent launch of the Bovanenkovskoye field on Yamal.

The natural solution for marketing problems would be for Gazprom to increase supplies to domestic customers. However, the domestic market has posted very weak growth, if any, due to the general macroeconomic environment and higher gas prices, and 40% of Gazprom’s long-term gas supply agreements with domestic customers expire by end 2013. Last year, the company failed to restrict purchases of gas produced by independents and preserve its domestic market share. This would appear to imply very tough competition for domestic gas customers in the years to come, but the issue of burgeoning competition on the gas markets is not that simple.
The panelists are welcome to discuss the development of Russia’s gas market in the medium term, gas independents’ plans to expand their businesses, and the best ways for Gazprom to adjust to the new competitive environment.

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