Russia’s gas export netback could change more often in future

Ekaterina Kravtsova

24-May-2016

The price of natural gas exports by independent Russian producers is likely to be linked to a new export netback price, if Gazprom’s long-term monopoly on pipeline exports ends.

A source said the price may depend on how Novatek and Rosneft agree export deals with gas major Gazprom.

Discussions about ending the monopoly have intensified after the two independent producers asked the government for permission to export gas earlier this spring.

Reports in the Russian media said that the companies were holding talks over a deal that would allow them to export gas to Europe by selling it to Gazprom Export at a netback price.

Currently there is only an archetype of an export netback price in Russia. It is an average price of gas exported by Gazprom outside the borders of the Commonwealth of Independent State, a regional organisation consisting of some former Soviet Republics.

The price is calculated by the Federal Tariff Service (FTS) once a year and does not include transport tariffs and customs duties. Last year, it was Roubles 6,086/thousand cubic metres (€81/kcm).

Once a year

Olga Kukanova, deputy director of the energy department within the Federal Antimonopoly Service (FAS), which recently took over FTS’s responsibilities, said that the current price could only be used as a template to calculate an export netback.

“It does not represent Russia’s export netback objectively because it is calculated just once a year,” she said.

“A netback will be calculated more often but the mechanism will remain the same,” she said.

FAS previously said that it was looking to boost domestic gas price transparency by creating a triangle of indices consisting of an over-the-counter gas index, an index for gas traded on the exchange and an export netback price.

The first two indices are expected to be formed by October this year, but there is still uncertainty over when an export netback can be created.

“It has not yet been decided who will take responsibility to create an export netback,” Kukanova said.

James Henderson, senior research fellow at the Oxford Institute for Energy Studies, said that Gazprom and independent producers may agree on a netback price themselves. He said the companies may form it either around a gas price in Germany or a price that Novatek and Rosneft agree to supply gas to their customers in Europe.

No talks

Gazprom earlier denied that it was in talks with Rosneft and Novatek over gas exports. The independent producers did not comment on the matter.

But deputy prime minister, Arkady Dvorkovich, told media earlier in May that the government was aware of the “discussion” between Gazprom and Rosneft on the export issue.

He said then no laws would be changed in order to break Gazprom’s export monopoly. He added that if Gazprom wanted to allow other companies to export gas, it would be able to organise that without a change in legislation.

Current legislation allows the export scheme with the use of a netback price.

Gazprom has said that allowing other companies to export pipeline gas would harm its position on export markets and reduce its profits.

Henderson said that in case Gazprom, Rosneft and Novatek agree an export deal, the former would charge the independent producers for the delivery of gas from the Russian border to a client in Europe and may ask Rosneft and Novatek to share a margin so that it has a profit on trading.

Neither Gazprom, nor Novatek and Rosneft replied to ICIS requests to comments for this article.

“It would not be as profitable for Gazprom to transport the gas of independent producers as selling its own gas,” Henderson said.

“It is important that Novatek and Rosneft do not steal Gazprom’s customers in Europe. But even if that does not happen there could be some competition as European customers would want to buy gas from different sellers,” he said.

It was reported earlier in May that Rosneft had found a client in Britain. Gazprom does not have long-term agreements to supply gas to Britain (see ESGM 5 May 2016).

In 2012, Novatek secured a deal to supply gas bought in Europe to Germany’s EnBW.

“It is possible that Novatek and Rosneft find clients in Europe that would be different from Gazprom’s clients,” Henderson said. “It would be good news for Russia as its overall gas exports increase.” ekaterina.kravtsova@icis.com


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