Deputy PM Instructs Gazprom to Ease Pipeline Access for Russian Gas Producers

An Important Signal?

On Saturday (5 July), Igor Sechin, Russia's deputy prime minister with responsibility for oil and gas issues, held a meeting with representatives from Gazprom, the Federal Anti-Monopoly Service (FAS), and Russia's leading independent gas producers, including officials from Novatek, TNK-BP, and Surgutneftegaz, among others. The session, organised at the behest of FAS, Russia's energy-sector competition watchdog, was geared to discuss the FAS's draft rules on access to Gazprom's domestic gas pipeline system, the Unified Gas Supply System (UGSS). Gazprom critics have long asserted that the state-run gas monopoly, which produces more than 85% of Russia's gas output and owns and operates the extensive UGSS, stifles competition from independent gas producers and blocks their access to the domestic pipeline network, which has a negatively effect on overall gas supply.

Gazprom, which has a legal monopoly on Russian gas exports, maintains that it allows third-party access (TPA) to its domestic gas pipeline network "except in cases when it is unfeasible for technical reasons", such as system overload. The reality, however, is that Gazprom has the ability (and, perhaps, the incentive) to limit pipeline access for oil companies and gas independents. As both the country's largest gas producer and the monopoly owner/operator of the domestic pipeline system, Gazprom has a clear conflict of interest, and the lack of a strong regulatory authority to keep the gas giant honest has exacerbated the situation. Indeed, the FAS has done little to ensure Gazprom abides by the nominal policy of allowing open access to the domestic pipeline network, often doing little if anything in the face of decisions by Gazprom to deny requests by independent firms for pipeline access.

However, the session chaired by Sechin on Saturday could be an important indication that the government plans to beef up the enforcement power of the FAS vis-à-vis Gazprom. Sechin instructed Gazprom and the FAS to ease access for independent gas producers to the UGSS, giving them a one-month deadline to draw up changes to the existing rules. Gazprom's immense size and political clout have in the past essentially allowed the firm to rebuff any attempts to force the company to offer real TPA to the domestic pipeline system, so Sechin's instructions could be a welcome attempt by the government to bring Gazprom to heel on the issue.

Outlook and Implications

Of course, Sechin is also the chairman of Rosneft, the state-run oil giant that also just happens to be the largest gas producer among Russia's oil companies. Easing access to Gazprom's domestic gas pipeline system would be a major benefit to Rosneft, which would then have the incentive to boost its gas production, capture more of its associated gas that is currently flared, and monetise its existing gas deposits. On the other hand, Russia's other oil companies, as well as leading independent gas producers such as Novatek, would also stand to benefit for these same reasons, so the implementation of true TPA to the UGSS is clearly not merely a change that would profit Rosneft alone.

Indeed, establishing a system in which real TPA, with open and equal access to the Gazprom domestic pipeline network, is guaranteed and enforced by the government would benefit the country as a whole, not to mention Gazprom itself. Not only would true TPA lead to an increase in Russia's overall gas production, it would also provide strong incentives to reduce gas flaring and free up more of Gazprom's own gas output for use to meet its export commitments as independent firms step in to supply more of the country's own needs (given the expectation that Gazprom will retain its export monopoly, see Russia: 19 March 2008: Could Gazprom Lose Its Monopoly on Russian Gas Exports?). Together with higher domestic gas prices and more efficient consumption of gas by the domestic market, these changes to the dynamics of the Russian gas market could help Gazprom ensure sufficient gas supplies to meet Europe's rising needs (see Russia: 20 December 2007: How Russia Can Make More Gas Available to Europe).

Find out more about Same-day Analysis