Grigory Vygon informed the participants of the XV International Forum Gas of Russia 2017 about reforming the gas market

Dec 5, 2017

VYGON Consulting Managing Director Grigory Vygon took part in the XV International Forum Gas of Russia 2017 held by the Russian Gas Society on December 5 in Moscow. His report, presented at the plenary session, was devoted to reforming the gas market.

President of the Russian Gas Society and Chairman of the State Duma Committee on Energy Pavel Zavalny moderated the plenary session. Deputy Minister of Energy of the Russian Federation Kirill Molodtsov, Deputy Chairman of the Board of PJSC Gazprom Valery Golubev, Head of the FAS Energy Regulatory Department Dmitry Makhonin, President of the St. Petersburg International Commodity and Raw Materials Exchange Alexey Rybnikov, Director of SKOLKOVO Energy Center Tatyana Mitrova, Secretary-General of EUROGAS Beata Raabe also attended the event. They discussed the achievements, trends and strategic directions for the development of the Russian gas industry.

Pavel Zavalny highlighted the tightening of competition among gas producers in view of the slowdown in demand growth rates and reduced cost of renewable energy sources. Nevertheless, Mr. Zavalny stressed that the country demonstrates strong increase in gas output against this background and may reach the highest gas production growth rates since 1990 in 2017.

Ministry of Energy predicts the growth of gas production by 8-9% compared with 2016 by the end of 2017. "This year sees a record production growth, fulfillment of commitments to our partners. Our international contracts have grown by 8%. We expect gas production at the level of 690 bcm by the end of the year," Deputy Minister of Energy Kirill Molodtsov stated. According to him, Russia remains ready to increase the volume of gas exports significantly. Implementation of such large infrastructure projects as the "Power of Siberia" and "Yamal LNG" will help to ensure growth of these indicators.

Grigory Vygon noted in his report that regulatory changes and initiatives on the European market create risks for maintaining gas exports volume, despite the growing niche and high competitiveness of Russian gas. According to the Head of VYGON Consulting, domestic gas consumption, including household consumption, will stagnate. The main reason for this is the intensification of gas saving. Increased demand for this fuel may be observed only in gas chemistry and power generation, but even in the case of these industries, there is a significant potential for consumption decline.

In the long term gas supply exceeds domestic and external demand. Due to implementation of less efficient projects of independent gas producers, the unrealized potential of Gazprom's gas production amounts to more than 150 bcm. Export netbacks have approached parity with the domestic market, for that reason, the MET gas formula (according to which Gazprom’s payments are twice as high as these of independent producers) is not justified.

Grigory Vygon believes that all these factors indicate the necessity of reforming the current model of Russian gas market. "The issues of changing transport tariffs, export admission, pricing on the domestic market, security of supply, development of exchange trading and taxation should be addressed in a comprehensive manner, rather than separately. Gradual alignment of the economic conditions for Gazprom and independent gas producers carries the least risks for all market participants and creates conditions for normal competition," he concluded.

Managing Director