Suspended Mezhregiongaz exchange awaits new directive
The Russian government is continuing talks regarding the granting of permanent status to the Mezhregiongaz (MRG) gas exchange – hitherto it has had experimental status. It is hoped that the exchange will resume trade in a month’s time but a government directive needs to be issued first. Trading on the exchange was suspended in December last year to await the new directive.
In 2008 total sales on the exchange reached 6.09 Gm3, according to MRG. Of this, the independents sold 2.98 Gm3 with Gazprom selling 3.10 Gm3. This was well below the permitted maximum trading volumes which came to 7.5 Gm3 each for Gazprom and the independents, with Gazprom allowed an extra 15% on top of that allocation. Gazprom sells most of its gas in Russia at regulated prices set by the Federal Tariff Service (FTS).
Day-ahead trading was introduced to the exchange in 2008 in addition to the existing month-ahead and 10-day ahead trades.The average weighted sales price at the balancing points (Vyngapurovskaya, Yuzhno-Balykskaya and Nadymskaya) came to RUB 1481.23/thousand (K)m3. The average price prices of gas sold on the MRG for delivery to the inlet to the buyers’ distribution networks was RUB 2247.66/Km3 – 38.1% above the average weighted regulated price of gas to industrial consumers in Russia.
MRG said that over 2008, the most active buyers of gas on the electronic exchange were Lukoil, Rosneft, Novatek,, Sibur-Holding, Itera and Transnafta. The main buyers were gas marketers, power and metallurgical companies and the construction industry.
Normally trading on the MRG exchange has been particularly active during the cold winter months, but that was not the case over November and December last year due to warm weather and the effects of the downturn in the Russian economy. Reduced industrial demand with meant that some companies were not even taking their full quota of gas under long-term contracts at low regulated prices. Gas demand was further squeezed by the situation in the Russian oil market. In order to avoid a high oil export tax at a time of dropping oil prices, Russian oil companies increased gasoline production in order to sell more gasoline within Russia. This led to a surfeit of heavy fuel oil (mazut) and a rapid decline in its price, making it very competitive with gas. Normally regulated gas prices are cheaper in Russia than unregulated HFO prices.This led to substantial substitution of HFO for gas.
One reason for the delay behind preparation of the new directive has been objections from Russia’s Federal Antimonopoly Service (FAS), according to several Russian sources. FAS wanted to see the introduction of a clause that would allow consumers to re-sell gas on MRG. Currently only gas producers are allowed to actually sell gas on the exchange. However, the Federal Tariff Service (FTS) is taking issue with the idea of resale of gas on the exchange, saying that the parties wanting to do so effectively want to resell gas bought at low regulated prices from their long-term contracts quotas with Gazprom, and not gas bought on the exchange.
The Russian government has been saying it wants to simplify access to Gazprom pipelines. Lack of pipeline access has long been a bone of contention for Russian independent producers and an effective TPA system could mean that market participants would bypass the MRG exchange in favour of direct spot business. This could be bad in the short term for MRG but better in the long term - normally exchanges are formed only after the development of a viable spot market in a commodity, not the other way round, as happened in Russia. A functioning spot market would provide a better basis for an exchange. As things stand one of the attractions of the MRG exchange has been pipeline access guaranteed by Gazprom. Voices in the Russian government have on several occasions in the past called for improved access to Gazprom pipelines, with no results, so perhaps the exchange has nothing to fear on that score.
ICIS Heren understands that the draft directive allows Gazprom to sell 7.5 billion cubic metres (Gm³) on MRG in 2009, and a further 2.5Gm³ on the planned St Petersburg exchange. On the St Petersburg exchange, gas would be sold as futures but it is still unclear what progress is being made there.
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