Gazprom in Russian Market

  • 307.0 billion m3 in 2005
  • 316.3 billion m3 in 2006
  • 307.0 billion m3 in 2007
  • 287.0 billion m3 in 2008
  • 262.6 billion m3 in 2009
  • 262.1 billion m3 in 2010
  • 265.3 billion m3 in 2011
  • 249.7 billion m3 in 2012
  • 228.1 billion m3 in 2013
  • 217.2 billion m3 in 2014

Gasification level in the Russian

Federation:

  • 53.3% in 2005
  • 65.4% in 2014

How much gas does Gazprom annually supply to companies and the population in Russia?

In 2014 Gazprom Group sold 217.2 billion m3 of gas from its resources to Russian consumers, 4.8% less than in 2013. The main reasons for the decline in gas supply were natural & climatic conditions as well as an increase in gas supply by independent producers.

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How does Gazprom decide on the amount of gas to be supplied to this or that consumer?

Gazprom’s gas sales to consumer groups in 2014
Length of gas distributions pipelines serviced by Gazprom subsidiaries and affiliated companies, thousand km

When planning gas deliveries to consumers, the Company relies on OAO Gazprom Gas Resources Allocation Procedure taking into consideration export supplies and independent producers’ gas.

In accordance with the said document, OOO Gazprom Mezhregiongaz – the major gas trading company in Gazprom Group – collects consumer requests for gas deliveries over the next year.

Gas is allocated on the basis of received data. Аt the same time, the consideration is given to whether consumers have fulfilled their gas payment obligations for previous years. If necessary, Gazprom provides solvent customers with extra gas volumes with due regard to the UGSS technical capabilities and effective export and domestic commitments.

In addition, gas is supplied to new consumers. To secure gas supply, a new consumer files an application form, attaches detailed spreadsheets showing the consumer’s heat and fuel requirements, and a report from a transportation organization on the technical capability to supply gas. A permit to use gas is issued on account of resource availability in Russia’s regions, optimal gas transmission system loading and feasibility of using gas as a fuel.

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At what prices does Gazprom sell gas to Russian consumers? How are these prices set?

In Russia wholesale prices for gas extracted and supplied by OAO Gazprom and its affiliates are annually set by the Russian state through the Federal Tariff Service (FTS).

In 2014 the wholesale regulated price for natural gas delivered to Russian consumers averaged RUB 3,673.8 per 1,000 m3 (net of VAT).

Moreover, Government Directive No. 333 of May 28, 2007 entitled Gazprom to supply certain consumers with gas at contract prices within the regulated range with the upper and lower limits set by the FTS.

Gazprom receives revenues from gas sales at the wholesale price. Revenues of gas distribution companies conveying gas to consumers via gas distribution networks are formed through regulated transmission tariffs. Regional gas trading companies receive charges for supply and marketing services rendered.

The retail gas prices for the population are set by administrations of the Russian Federation constituent entities.

Gas pricing for the population has some particular features, i.e. pricing for privileged consumer groups. Besides, if there are no gas meters in apartments, charges are calculated on the basis of established standards.

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What is the Russian gas market structure?

The Russian gas market is divided into a regulated sector and a deregulated sector. Gazprom is the main gas supplier for the regulated sector, while the deregulated sector is mostly supplied by independent gas producing and oil companies.

At that, the regulated market sector currently dominates. The Government regulates:

  • wholesale natural gas prices, which apply to natural gas sales by OAO Gazprom and its affiliated companies in the domestic market;
  • tariff rates forservices provided to independent producers and related to natural gas transmission via gas mains and those related to the transmission via gas distribution networks;
  • charges for supply and marketing services.

Independent producers sell their gas at deregulated prices, altogether they meet around one-third of Russia’s demand for the ‘blue fuel’. At the same time, the Government stopped regulating the prices of alternative fuels, notably coal and fuel oil, in the early 1990s.

On May 28, 2007 the Russian Federation Government adopted Directive No. 333 on Improving State Regulation of Gas Prices which proclaims a new pricing mechanism for gas supplied by Gazprom. This mechanism contemplates setting a regulated price ceiling (minimum and maximum price levels) for the separate consumer groups. Fixed gas prices set by the Russian FTS are identified as the minimum price levels. The maximum price levels are set forth by the above mentioned Directive of the Russian Federation Government. Excess percentage of the maximum wholesale prices over the fixed regulated prices was set as 10% since January 1, 2011. The right to determine gas prices within these limits is granted to suppliers and buyers. This pricing procedure is applied to new consumers that sign their first supply contract after July 1, 2007 and to natural gas supplies in excess of the contracted volumes. Long-term gas supply contracts play a crucial role in the Russian gas market development.

Long-term contracts are mutually beneficial both for suppliers and prominent gas consumers. The market based pricing method fixed in contracts will allow, as compared to the regulated method, for more flexibility in adjusting prices to gas consumption levels by different industries and to seasonal fluctuations as well as consideration, upon agreement with certain consumers, of such factors as price variations depending on the supply schedules, offtake patterns during a day, a week, etc.

The world gas market development experience shows that long-term contracts can steadily guarantee gas deliveries to the consumer and investments necessary for the gas industry development to the producer.

The balance of interests of natural gas consumers and producers in Russia will be achieved in the process of wider application of market based gas pricing methods along with the state regulation of tariffs for gas transmission services.

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How are natural gas exchange technologies used in Russia?

Exchange gas trading is an important means of forming market principles and increasing the transparency of pricing in the gas market as well as the possibility of obtaining market indicators for the price formation system.

Past experience shows that 5 to 10% of the industry output should be traded at an electronic platform for the exchange price to become a benchmark contract price.

From December 2006 to 2008 Russian gas market players gained necessary experience in using modern gas exchange technologies at the Electronic Trading Platform (ETP) of OOO Gazprom Mezhregiongaz, a trading company of Gazprom.

The ETP proved its high efficiency in providing independent producers with access to the gas transmission system, meeting extra demand for gas and creating a transparent mechanism for fair gas pricing.

The two-year experiment at the ETP allowed to approbate techniques for spot sales and supplies of actual gas volumes on a day ahead, a week ahead or a month ahead basis. The sales volume exceeded 13.3 billion m3 of gas (of which 7.5 billion m3 was supplied by Gazprom and 5.8 billion m3 – by independent producers) valued at RUB 20.7 billion in total.

Due to the expiry of the experiment term, gas trading sessions at the ETP were terminated on January 1, 2009.

With a view to promote the market pricing, starting with 2013 Gazprom was granted a government permission to sell up to 17.5 billion m3 of gas at deregulated prices via organized trading platforms (stock exchanges and trading systems).

Since October 2014, Gazprom jointly with the St. Petersburg International Mercantile Exchange (SPIMEX) and Settlement and Depositary Company maintained organized gas trading on a front-month basis at the SPIMEX. From October to December 2014 the first gas was traded here within the Natural Gas section, where Gazprom sold 429.4 million m3 of gas.

With a view to further advance gas exchange trading in the domestic market, Gazprom takes part in improving the regulatory framework governing the operation of the Russian gas market. Gazprom carries out a comprehensive study of the possibilities for promoting the exchange gas supplies to the domestic market as well as gas export amidst the competition with other types of fuel & energy resources and gas suppliers, factoring in the government regulation of the gas industry.

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How does Gazprom perform gasification activities in Russia?

Gazprom’s participation in the Russian Federation regions gasification is one of the most prominent and socially important aspects of the Company’s activity in the domestic market.

From 2005 to 2014 Gazprom channeled about RUB 242 billion to regional gasification (net of expenditures on construction of gas branches and gas distribution stations being an integral part of the regional gasification process). In 2014 Gazprom allotted RUB 28.8 billion to the Russian Regions Gasification Program. Over the mentioned ten years the Company built 1,802 inter-settlement gas pipelines with the length exceeding 25 thousand km, created favorable conditions for gasification of over 4 thousand boiler houses and 700 thousand apartments and households. As a result, by December 31, 2014 the average gasification level in Russia reached 65.4%: in towns and rural areas – 70.3 and 54.6% accordingly. In 2015 Gazprom is planning to earmark RUB 28.8 billion for the Russian regions gasification.

A well-adjusted system of interaction between OAO Gazprom and Russia’s regional authorities contributes to the successful implementation of the gasification program. This system hinges on cooperation agreements with regions.

In December 2009 a new version of the Concept for the Company’s participation in the gasification of Russian regions was approved. It provides for a multi-faceted approach to the gasification on account of regional gas resources availability, development of existing fields as well as the availability of alternative primary fuels including liquefied and compressed natural gas.

The Concept divides Russian regions into three groups subject to their gas infrastructure maturity level. Out of these three groups Gazprom pays special attention to the gasification of settlements being under-populated and remote from gas mains, which is particularly important in rural areas. In this respect the gasification of each region is carried out on a three-year basis.

In 2014 Gazprom constructed an LNG facility in the Perm Territory – the first self-sustaining LNG supply project implemented within the Russian Regions Gasification Program. It includes a mini LNG plant at the village of Kanyusyata (Karagay District) and three stations for receiving, storing and regasifying natural gas. With the capacity of 19 million m3 per year, the facility will allow for gasifying 2.2 thousand households and switching nine boiler houses to gas.

Gazprom’s large-scale gasification activities are aimed at achieving the maximum economically viable level of gas penetration in Russia. Being currently among the Company’s paramount objectives, gasification of Eastern Siberia and the Far East is carried out simultaneously with gas production and transmission infrastructure creation in these regions.

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