Gazprom Gets Bigger Quota for Gas Sales through Exchange

Russian energy giant Gazprom will be allowed to sell up to 25 billion cubic meters of gas per year at unregulated prices, after the Russian government approved a 40% increase in the company’s quota for natural gas sales through exchange trading, Vedomosti reports. 

The government decree also canceled the parity principle between Gazprom and independent producers, the business newspaper wrote. 

“The gas industry needs to move from state regulation to market relations in the gas supply sphere,” Igor Artemiev, head of the Russian Federal Antimonopoly Service (FAS) said, commenting on the move.

So far, maximum gas sales through exchange trading of all Russian companies was limited to 35 billion cubic meters per year. It was assumed though that all gas producers would trade on the St. Petersburg International Mercantile Exchange (SPIMEX). Gazprom’s quota was 17.5 billion cubic meters (50%) to observe the parity principle between the state-owned company and independent suppliers.

This decision has long been overdue, the paper quotes Alexey Grivach, Deputy Director of Russia’s National Energy Security Fund, as saying. The situation in the domestic gas market had changed while it was being made, he pointed out. Gas production by the largest independent producers for Russian consumers has been dropping for the second year in a row, and they cannot fulfill their contracts on their own and have to conduct negotiations with Gazprom on purchasing gas to their portfolio.

According to Dmitry Marinchenko, Corporations Department Director at Fitch Russia, the market would be much more competitive, if quotas were abolished. Gas prices would reflect the real balance of supply and demand to a large extent and could vary depending on the region and the season. However, the government is unlikely to do that so as not to “offend” Rosneft and Novatek, which, unlike Gazprom, have no excess production capacity, the expert stressed.