Gas market in Russia will change beyond recognition

On May 28, 2022 Russian analyst, Alexander Pirozhkov, noted that gas market in Russia will change beyond recognition due to reduced exports to Europe

Photo by: TASS


The specific marginality of blue fuel production will drop sharply in the second half of this decade. Along with it, the revenues of the Russian budget will also decrease, which, on the one hand, will receive less revenue from gas producing companies, and on the other hand, will have to subsidize the construction of new gas pipelines to China and projects to liquefy natural gas. This opinion was shared during the conference "Russian Gas Market. Exchange Trading 2022" held in St. Petersburg by Alexei Belogoriev, Deputy Director of the Institute for Energy and Finance (FIEF). According to the fund's estimates, unfriendly countries have accounted for more than 75% of Gazprom's gas exports in recent years. At the same time, in the structure of the monopoly's revenue, sales to non-CIS countries in 2021 amounted to 48.6% (3.1 trillion rubles).


During 2022, Europe intends to significantly reduce the purchase of gas from Gazprom. According to the plan of the European Commission, published on March 8, 2022, the reduction should be 50% (from 155 bcm to 72.5 bcm). The version of the International Energy Agency is less bold - the reduction is possible only by 30%, to 108.5 billion m3.


According to Sergey Kapitonov, a gas analyst at the Energy Center of the Moscow School of Management Skolkovo, Europe's reduction in Russian gas purchases by 40–50 billion m3 this year looks real, while plans for 70–80 billion are political speculation.


However, in mid-May, European officials unveiled a plan under which the EU is going to completely phase out Russian fossil fuels by 2027. Russia will be able to redirect part of the released volume to friendly countries. According to FIEF estimates, by 2025, exports to such countries may increase by a third compared to 2021 and reach 95 billion m3.


The volume of the domestic market, according to the FIEF, last year was 68% of the total demand in the gas balance, but the share of gas sales in Russia in Gazprom's revenue did not exceed 20%. This part of income, by the way, will also be reduced in the next year or two due to the fall of the economy. Published a week ago, the basic version of the forecast of the Ministry of Economic Development assumes a decrease in Russia's GDP in 2022 by 7.8%.


Nevertheless, according to Aleksey Khmelnitsky, General Director of AG ERTA, the domestic gas market for the industry will become more significant every year: by 2027, the share of Gazprom's revenue on it may reach 40%. This will sooner or later lead to pressure on tariffs.


“If export flows dry up, all the costs of maintaining the gas transportation system will have to be invested in the domestic gas tariff,” the expert warned. all over the world they pay for it. We didn’t pay because there was export. What follows from this? They will come to consumers with the words: you better plan consumption, and if you deviate from the plan, pay a fine."