Competition for Customers in the Evolving Russian Gas Market: OIES paper: NG 73

This paper by James Henderson is published in conjunction with an Energy Comment by Simon Pirani. The paper and comment evaluate the development of competition in the Russian gas production sector and the impact of the recession and pricing policies on demand for Russian gas in its main markets. While Gazprom has generally been focused on developing giant, but remote, fields such as Bovanenkovskoye on the Yamal peninsula and Shtokman (postponed during 2012), it has seen the market for these relatively high cost base supplies at best static in Europe and shrinking within Russia as others gain market share. The rising tide of Russian domestic gas prices has ‘lifted all boats’. Certainly Gazprom has benefitted, but this has provided strong incentives for its domestic upstream competitors who have demonstrated robust production growth over the past few years. James develops this thesis with a wealth of analysis and insight based on his long experience of the sector. Simon Pirani’s Comment provides an update of the analysis in his paper ‘Elusive Potential: Gas Consumption in the CIS and the Quest for Efficiency’, OIES 2011. The three main markets for Russian gas; namely the domestic market, CIS and European markets have seen consumption levels significantly impacted by a range of factors in the last four years. These include the impact of the financial crisis and subsequent recession, the growth of renewables (and coal) in Europe, the increasing competition between suppliers of gas as well as the consequences of abrupt changes in gas price levels in specific market geographies. Given the scale of the markets involved (in aggregate some 650 bcma) and the conclusion that such changes have momentum yet to be spent before some form of equilibrium is attained, these studies have resonance beyond the CIS – Europe arena.