Russian Gas Market Perspective

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Russian Gas Market Perspective. Alexey GROMOV Ph.D, Deputy General Director Institute for Energy Strategy 14th December 2011. 1. Importance of Russian GAS for Russia and for Europe. 2. Current situation in Russian Gas Industry. 3. Regulation context. 4. Russian gas market perspective. - PowerPoint PPT Presentation

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  • Russian Gas Market Perspective

    Alexey GROMOVPh.D, Deputy General DirectorInstitute for Energy Strategy

    14th December 2011

  • 1. Importance of Russian GAS for Russia and for Europe2. Current situation in Russian Gas Industry3. Regulation context4. Russian gas market perspective

  • Source: IESEnergy sectorGas IndustryGDPExport revenuesBudget revenuesGAS industry is not dominate in Russian EconomyRussian revenue from fossil fuel exports exceeded$255 billion in 2010 (from which only $46 billion is GAS)

  • but Russian Economy strongly depends on GASDomestic primary energy consumptionFuel Mix in the Electric Power SectorSince 1990 till 2010 the gas share in domestic energy consumption has grown with 43 to 54%Since 1990 till 2010 the gas share in fuel mix in the Electric Power Sector has grown with 55 to 69%Source: IES

  • Europe depends on Russian GASbut the level of dependence is declinedSource: IES

  • however some European countries cant do without Russian GASMore than 50%Source: IESThe share of Russian gas in national domestic gas consumption, 2010

  • Russian GAS also strongly depends on European gas marketThe Structure of Russian Gas deliveries, 2010The Scheme of the Unified Gas Supply System (UGSS) EU-27 provides almost 70% of Russian gas export deliveries in bcm EU-27 provides more than 85% of Russian gas export revenues in $ The current Russian system of Gas pipelines (UGSS) is oriented to the Europe

  • 1. Importance of Russian GAS for Russia and for Europe2. Current situation in Russian Gas Industry3. Regulation context4. Russian gas market perspective

  • Structure of Russian Gas Industry: Gazprom and othersGas productionGas processingGas transportGas distributionGas exportGazprom (78%)Independent gas producers (70 companies 9%)Oil companies (9%)PSA-operators (4%)Regional gas companies (less than 1%)Sibur (95% owned by NOVATEK) more than 50%Gazprom (25%)Oil companies (25%)Gazprom (100%)Gazprom Export (100%)Gazprom (75%)Independent regional companies

  • Resource base : high level of concentrationThe Structure of Russian gas reserves (ABC1) by companiesDistribution of balance reserves of free gas (ABC1+C2,) by territories and offshores, tcm Russia provide more than 23% (1st place) of proven world gas reserves (48,2 tcm) 69% of Russian gas reserves owned by Gazprom 60% of Russian balance (registered) reserves being located in Yamal-Nenets Autonomous Region

  • Natural gas production: crisis is overcomeGas production in Russia, 2000-2010 in bcm and in % to the previous yearDuring the crisis 2008-2009 Russian gas production has fallen to 15% (on 81 bcm)

  • Independent gas producers attack GazpromLeading companies in the independent sector Since 2000 the share of IGP companies has grown from 10% to 22% in 2010

  • Gas transport system needs renovationAge structure of the UGSS*, 2010The dynamics of technically feasible capacity (TFC) of UGSS, 2005-2030Source: IES The average operating life of major pipelines has reached 25 years TF of UGSS has fallen to 7-8% compared to design specifications Only current TFS renovation need more than $ 2 billion per year* UGSS Unified Gas Supply System

  • Domestic gas consumption slowly growing Since 2000 domestic gas consumption has growth to 17% Average annual growth rate is not exceed 2,1% Gazprom provides 75% of domestic gas deliveriesSource: CDU TEK, Gazprom

  • Domestic gas consumption structure is stableDomestic gas consumption structure, 2000-2010Contribution of main consumer groups in gas consumption growth, 2000-2010 Electric power sector is the largest gas consumer in Russia (36%)

  • Russian gas export is stable tooRussian natural gas export , bcm (2000-2010)

  • Europe is the main export destination for Russian GASExport of Russian gas to Europe by country, 2010Export of Russian gas to the CIS by country, 2010 Germany, Turkey, Italy, France and Poland accounted for 60% of Russian gas export to Europe Ukraine and Belarus are dominated in the CIS region

  • Russian LNG: first steps to the East1994Start PSA Project Sakhalin-22007Entering Gazprom in the project2009LNG plant starts in operation2010LNG export exceeds 10 mtChronology of the realization of Sakhalin-2 ProjectSakhalin -2 Project 6,6% LNG share in Russian gas export 6,6% Share of Asia-Pacific in export Fast growth of LNG export covers the export decrease to the Europe

  • 1. Importance of Russian GAS for Russia and for Europe2. Current situation in Russian Gas Industry3. Regulation context4. Russian gas market perspective

  • GAS export regulation: one export channelFederal law about ONE EXPORT CHANNEL (on 20th July 2006) grants the exclusive right for gas exports to the organization that owns the UGSS or its subsidiary, i.e. Gazprom (Gazprom Export)LAW excludes the concurrence between Russian companies in the international gas marketThe unified rate of the custom duties is 30% (except the gas deliveries to the countries of Custom Union Belarus, Kazakhstan)The average level of taxes in the gas industry essentially is less than in the oil industryTransit regulation (transit rate through territory of Ukraine is $ 2,89 per 1000 cm per 100 km in 2011)The total volume of transit payment for Ukraine exceed $ 3,6 blnThe average cost price of Russian GAS (1000 cm) to the German border, 2011Gas extractionGas transportTaxes and customduties$15$30$24Transit payment$33$102Average cost price

  • Long term contracts and export pricesDynamics of average export prices of Russian natural gas, 2000-2010 ($ per 1000 cm)Prices at the NGC spot trading site (Germany) and the prices of Gazproms long term contracts at the German border, 2009-2011 The base of Russian gas export are long term contracts (for 20-25 years) take or pay The price of Gazproms long term contracts is linked to the world oil price with a delay of 6 months Long term contracts are predicted and reliable, but aren't flexible

  • Domestic gas market is still regulated The federal law of the Russian Federation About natural monopolies from August, 17th, 1995 147-; The federal law of the Russian Federation About gas supply in the Russian Federation from March, 31st, 1999 69-; The governmental order of the Russian Federation (with changes and additions) About measures on streamlining of state regulation of the prices (tariffs) from March, 7th, 1995 239; The governmental order of the Russian Federation About state regulation of the prices for gas and tariffs for services in its transportation for territories of the Russian Federation from December, 29th, 2000 1021;The governmental order of the Russian Federation About an order of an establishment of special extra charges to tariffs for transportation of gas for financing of programs of gasification from May, 3rd, 2001 335;The governmental order of the Russian Federation About carrying out of experiment on realisation of gas on an electronic trading platform from September, 2nd, 2006 534;The governmental order of the Russian Federation About perfection of state regulation of the prices for gas from May, 28th, 2007 333;The governmental order of the Russian Federation About perfection of state regulation of the prices for gas from December, 31st, 2010 1205.Domestic gas market legislationDomestic gas marketRegulated Sector70%Unregulated Sector30%

  • Domestic gas market: regulated sectorAverage wholesale gas prices for Russian consumers, 2000-2011 (roubles per 1000 cm) Gas prices are set by the Federal Tariff Service (FTS) Prices are differentiated by price zone and consumers categories (industry and households) Average prices for the industry are above than for the households

  • Domestic gas market: unregulated sectorUnregulated sectorFree contractual (negotiated) pricesElectronic trading floor(2007-2008) Independent gas producers (IGP) and oil companies Prices are linked to the Gazproms prices Contractual prices is a commercial secret Gazprom, IGP and oil companies Total sales volume of gas is 13,25 bcm Number of sellers is 14 Number of buyers is 59 Number of contracts is 3120 Average contract price for 38% above the average regulated priceExperiment with electronic trading floor will be continued in 2012-2014

  • 1. Importance of Russian GAS for Russia and for Europe2. Current situation in Russian Gas Industry3. Regulation context4. Russian gas market perspective

  • Program of long-term development of the fuel and energy complex of the Russian Far EastEastern Gas Program

    General scheme of development of the gas industry for the year 2030 (GS-2030)Conception of the state program for exploration and exploitation of the continental shelf of the Russian FederationEnergy strategy up to period 2030 (ES-2030)Investment programs of oil&gas companies

    System of strategic documents to developthe Russian gas industryFederal LevelIndustrial LevelRegional LevelBusinesslevel ES-2030 is an ideology of development GS-2030 is an industry roadmap of development Investment programs are the concrete realization of development

  • Russian gas production up to 2030Potential gas production is sufficient to meet any demandGas production up to 2030 (according to ES-2030 and GS-2030)ES-2030 (min)ES-2030 (max)GS-2030 (min)GS-2030 (max)Source: ES-2030, GS-2030bcm

  • new areasChanges of Russian gas production map New areas (Yamal, Eastern Siberia and Far East) will provide more than 40% of Russian gas production up to 20308

  • Targets of gas export: shift to the East

  • *Nord Stream-2 (end 2012)South Stream (projected) Preservation of the occupied share in the European gas market (more than 30% in EU-27)

    Increase of gas export revenues (275