Russian Natural Advantages Give Way to Natural Disadvantages

Russian gas will become 4-8 times as expensive

Russia has the largest gas reserves in the world. But this does not mean that the gas industry does not experience the difficulties that other businesses in the country do. In addition, the problems of the Russian gas industry are becoming bigger and bigger. The deputies of the Russian State Duma and the participants of the Russian oil and gas conference tried to decide what should be done with the Russian gas industry.

Independent gas producers were definitely concerned about the development of competition on the gas market. However, it would be an exaggeration to talk about this competition taking into consideration the fact that the Russian gas market is basically held by the gas monopoly Gazprom. Yet, Gazprom is trying to create more comfortable conditions for independent companies.

Gazprom has recently established a gas exchange, where one half of the trading pits were given to independent companies. Both the deputies and representatives of gas companies welcomed the efforts of the gas giant. They promised to participate in the tender, but on equal terms. The participants of the discussion pointed out that an exchange was just a market tool, whereas the whole gas industry needs to be reformed.

Gazprom chief Aleksey Miller stated that the prime cost of Russian gas is going to increase four to eight times during the next couple of years. According to Miller, cheap gas has been practically exhausted in Russia. The extraction of gas on the Yamal Peninsula of Russia will cost a lot more. Furthermore, the extraction will directly depend on huge investments. Gazprom has the goal of increasing gas extraction from the current yearly rate of 520 billion cubic meters to 700 billion cubic meters by the year 2020. That is why Russia will have to institute market prices on fuel. In this case, one has to believe that Russia’s natural advantages are over. Russia has to deal with natural disadvantages now.

Alaxander Ananenkov, a member of the Gazprom administration, informed that the company is expecting fundamental changes in the pricing policy of the state. He pointed out that the real price on the home market is $16.4 dollars per one thousand cubic meters of gas. However, only the price of $30 per one thousand cubic meters will provide the minimum profitability from extraction. As far as the Yamal Peninsula is concerned, gas extraction will not be profitable there if the price is lower than $75 per one thousand cubic meters. Ananenkov also said that spending on the development of the Yamal Peninsula will be $69 billion for a period of 20 years.

Thus, Russia is rapidly going to equalize home and foreign gas prices. Russia will not have to conduct more negotiations with the WTO for a couple of years. The WTO will easily make Russia a member without any problems. It might turn out that, in two years, Russia’s cheap crude will be exhausted as well and there will be no money for the development of deeper deposits. Russian exports will apparently be limited to ferrous and non-ferrous metals, along with wood and excessive grains. It seems that Vladimir Putin should not have told Europeans that there are lots of natural riches in Russia’s remote areas. In reality, there are very few.

Akhtyam Akhtyrov PRAVDA.Ru

Translated by Dmitry Sudakov