Is a Russian domestic gas bubble emerging?
Is a Russian domestic gas bubble emerging? / James Henderson. Oxford Institute for Energy Studies, March 2012, 17 p. (Oxford energy comment)
Recent forecasts for gas supply in Russia produced by Novatek and Gazprom highlight the large amount of gas available to meet demand in the next 10 years and also point to contrasting views about which companies’ production may be preferred in a potentially oversupplied market place. In light of this potential oversupply situation, it is becoming clear that a number of Non-Gazprom producers (NGPs), including Novatek and some Russian oil companies, are taking the view that the Russian gas market will soon become much more competitive and that access to end consumers will become essential for any company wishing to maximise its gas sales. Rosneft’s announcement in February 2012 that it is to form a joint venture with Itera provides a prime example of this trend. However, this suggests the possibility that Gazprom, which is becoming more reliant on production from remote and relatively high cost fields, may soon find itself at a competitive disadvantage and facing the possibility that it may fail to meet its own production targets by some distance. As a state-owned company, it may hope to rely on political support to achieve its objectives and maintain its dominant position in the Russian gas market, but the Russian Administration then faces a potentially awkward consequence of a higher domestic gas price than might otherwise be necessary, as the lower cost gas owned by Non-Gazprom Producers is crowded out to leave room for Gazprom’s gas. This comment examines this impending dilemma for the Russian government and suggests that one conclusion is that what is good for Gazprom may no longer be good for Russia. (© OIES)