ENERGY VISION
A new era in Russian gas market: The diminishing role of
Gazprom
Volkan O¨zdemir *
EPPEN (Institute for Energy Markets and Policies), G:3 No: 24 P.K., 06530, Bilkent-2 Ankara, Turkey
Sohbet Karbuz
Mediterranean Energy Observation (OME), 32 Bis Boulevard Haussmann 75009, Paris, France
1. Introduction
After the breakup of the Soviet Union,
Russia’s natural gas sector developed in the
opposite way to the country’s oil sector. The
Russian oil sector was largely decentralized
and there was strong competition mainly between
the private oil ﬁrms in the 1990s and
the ﬁrst half of 2000s, which prevented any
ﬁrm from dominating the market. This started
to change mainly after the state oil company
Rosneft acquired TNK-BP in 2013. The deal
enabled Rosneft to control nearly half of Russia’s
total oil output and hence obtain a dominant
position in the sector. As a result, the oil
sector is progressively grouped around an
emerging national champion.1
The natural gas sector, however, has
remained highly centralized under Gazprom
a vertically integrated state behemoth. The
Gazprom model resulting from the reforms
that took place in the 1990s endorsed a
monopolistic structure in the transmission
and export segments and in the production
to a lesser extent. However, this model is
now being called into question as a result
of the developments in the domestic and international
gas markets, particularly in the
European gas market that is the core destination
for Russian gas exports. Two main factors
have caused Russian decision makers to
reconsider the country’s gas export policy.
The ﬁrst factor is the high possibility of a demand
driven market and the North American
shale gas revolution. The second factor is
about ﬁnding a way to deal with the EU’s
desire to create a competitive and integrated
European gas market as outlined in
the EU 3rd energy package in 2009. In addition,
starting from December 2013 the export
monopoly of Gazprom was abolished in LNG
exports. It is possible that the diverse group
of non-Gazprom producers2
will account for
more than one third of Russian production,
and over half of all domestic gas sales in
the future [1]. Such a situation will not only
have ramiﬁcations on Russian gas exports
but could also break Gazprom’s monopoly
in pipeline gas exports.
The aim of this article is to address the
question of whether the monopoly of Gazprom
is diminishing. In order to answer that
question the article looks at the issue from
several angles. First, an analysis is given concerning
the evolution of Russian gas market
from past to present with particular emphasis
on the role of non-Gazprom producers. Second,
the main reasons for the market liberalization
that caused the decline of
Gazprom’s share in Russian gas production
are investigated. Furthermore, the increasing
weight of non-Gazprom gas producers in the
market is also considered in terms of their
The Russian gas industry is in a transition, which can be characterized as modest decentralization.
While its gas production continues to decline and competition on the Russian
market intensiﬁes, Gazprom will have to adapt to changing conditions. Non-Gazprom producers
are increasing their share in total gas production. Major structural reforms may
make the market structure in gas and oil sectors more and more similar in the longer
term. Although liberalization is partly achieved for LNG exports, the pressure is now
building on breaking Gazprom’s pipeline gas monopoly. On the other hand, Gazprom is
currently facing several challenges on the European market. Gazprom might unbundle
transmission sector along with others. All these will, sooner or later, prepare the demise
of Gazprom monopoly.
* Corresponding author.
E-mail addresses: ozdemirvolkan@gmail.com
(V. O¨zdemir), sohbet.karbuz@ome.org (S. Karbuz)
1
Other than Rosneft, there are also several Russian
oil companies with signiﬁcant production such as the private
company, Lukoil and the state owned Gazpromneft
and Surgutneftegaz.
2
The term “non-Gazprom producers” is used rather
than “independent producers” in order to describe the
increasing role of gas companies in Russia.
Contents lists available at ScienceDirect
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Energy Strategy Reviews 8 (2015) 39e44
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relations with the Kremlin. Thirdly, an overview
is presented of the possible impacts of
the structural changes taking place in domestic
market on Russian gas exports and discussed
the role of export infrastructure. The
presentation of the evolving competition in
the Russian gas industry provides for a comparison
with the oil sector. Finally, the alternative
options to reduce Gazprom’s monopoly
are discussed.
2. The Russian gas market and the role
OF non-Gazprom producers
Until recently, the Russian domestic gas
market was characterized by the lack of
competition because of the highly centralized
Gazprom model. The state-controlled Gazprom
has had a monopoly on the main segments
of the gas chain, including the
transmission network. Gazprom’s daughter
transmission company, MRG, usually limited
access to the networks due to either available
capacities or the different caloriﬁc value of
the gas produced by other producers [2].
The most signiﬁcant restriction of competition
lay in the tariff structures and access
regulation by the Russian authorities. In
recent years the Federal Antimonopoly Service
played a signiﬁcant role in pressuring
Gazprom to open up norms for access to networks
with an aim of bringing competition to
the market. The Federal Tariff Service, on the
other hand, regulates gas prices in the domestic
market. Historically, prices have been very
low, even at times below the cost of production.
For example, when in 2006 the Putin
government set a target of gas prices reaching
European levels by 2011, the domestic gas
prices were very low [3]. Since then a
concerted effort has been made to increase
the domestic gas price towards the European
netback export prices although the ﬁrst
target of reaching this policy by 2011 failed.
Nevertheless, the increase in regulated gas
prices in the past decade3
and the subsequent
improvements in the economics of gas sales in
Russia have attracted a number of companies
to enter in the domestic market. NonGazprom
producers have enjoyed a tax incentive
in Russia since late 2011 after an amendment
in the tax law. According to this law, the
Mineral Extraction Tax was set for the companies
that have a transport system
(Gazprom) as 509 rubles for 2012, 602 rubles
for 2013 and 700 rubles for 2014 per 1000 cubic
meters of gas extracted.4
The same tax
burden, however, is much lower for nonGazprom
producers with a reduced coefﬁcient
of the established rate, which is nearly
half of that of Gazprom [4].
In addition, non-Gazprom producers have
started to exploit the opportunity to sell their
gas in the domestic market at negotiated prices,
which seems quite competitive relative
to Gazprom’s regulated price. In 2012, the
share of end customer sales of the total sales
of the two big non-Gazpromproducers, namely
Novatek and Rosneft amounted to 62% [5]. If
energy efﬁciency gains are achieved, especially
in the power and industrial sector, the
demand for gas in domestic market is likely
to be lower than expected. This could make
Russian gas sector more competitive since
the non-Gazprom producers, beneﬁting from
the lower marginal cost of production, already
have sold gas proﬁtably at prices below the
regulated tariff charge [6].
Non-Gazprom producers’ right to form
long-term contracts with end consumers is
the clearest evidence of the evolution in the
Russian gas market. The ﬁrst signs of signiﬁcant
competition between domestic suppliers
actually emerged in 2009 when Novatek
signed a contract to supply Inter RAO, a
Russian electricity trader, and its generating
subsidiary OGK-1 with 65 bcm of gas from
2010 to 2015. In 2012, Rosneft also signed a
gas contract with the state-controlled power
company Inter RAO to supply up to 35 bcm
of gas annually from 2016 to 2035 [7]. It is
clear that a new strategy in gas industry,
which pushes non-Gazprom producers to
enlarge their activities, is the main reason
for the reduction in Gazprom’s share. Moreover,
the domestic gas market in Russia has
tightened in recent years. Gas consumption
in 2013 was 456 bcm. For several reasons,5
the high growth rates of early 2000s are unlikely
to be repeated in the future. The
expectation for 2020 is around 500 bcm and
for 2030 close to 540 bcm [8]. Given the potential
for excess gas supply in the Russian
market in the next decade combined with
the increasing competitive threat from nonGazprom
producers, it seems that Gazprom
may lose more ground in the domestic market,
even if it is still the largest supplier of
gas to the domestic market, accounting for
approximately 70% of total gas supplies [9].
3. The decline in the Gazprom share of
Russian gas production
The slowdown of growth in both the domestic
market and Russia’s export markets
has caused Russia to limit production since
2008. Although Gazprom reduced its activities,
non-Gazprom producers have continued
to invest, albeit at a reduced pace given the
current economic and ﬁnancial conditions,
and increased their production. The share of
non-Gazprom producers in the total Russian
gas production has continued to grow. The
two biggest non-Gazprom producers, Novatek
and Rosneft, deserve special attention (see
Table 1).
The largest of the non-Gazprom gas producers,
Novatek, has more than doubled its
production since 2007, reaching 62 bcm in
2013 [10]. In 2011, Gazprom totally lost its
control in Novatek [11].6
In recent years
Novatek acquired gas assets and ﬁelds with
remarkable gas reserves such as Sever Energiya
and Sibneftegaz that were subject to
swap deals between the company and Ros-
neft.7
Most importantly, it was able to secure
incentives from the Russian Government for
the development of the Yamal LNG Project.
Novatek’s success is largely attributed to its
inﬂuential owners, namely Genady Timchenko,
the largest shareholder and owner
of Gunvor, an oil trade company, and Leonid
Mihailson, the CEO of Gunvor, who have special
relationships with political circles in the
Kremlin. This claim is supported by the fact
that after the sanctions, Novatek did not
ﬁnd any difﬁculty in obtaining 150 billion rubles
from the Government for its Yamal LNG
project under the National Wealth Fund,
which is supposed to be spent on the national
pension system [12].
Increasing competition between two State
companies, Rosneft and Gazprom, is a speciﬁc
characteristic of the institutional reform
in the Russian hydrocarbon sector since the
presence of competitors enables the Kremlin
to reduce the information asymmetry in its
relations with Gazprom, which has long
been seen as a State within the State [1].
The aggressive entry of Rosneft into the gas
sector constitutes a challenge for Gazprom’s
traditional domination of the political scene
of the country. Like Novatek, a large part of
Rosneft’s success is attributed to the company’s
CEO, Mr. Igor Sechin, who is a close
3
If the domestic gas prices had been increased in line
with the average inﬂation rate then domestic prices
would have reached European gas market prices in a
decade. As Henderson’s study explained the increase
in domestic gas prices had to stay at minimal levels
while the consumer price index was dramatically
increasing in Russia after the 2008 world economic crisis.
The inﬂation rate was 14.1% in 2008 and 11.7% in 2009
(http://www.inﬂation.eu/inﬂation-rates/russia/histor-
ic-inﬂation/cpi-inﬂation-russia.aspx).
4
1 $ ¼ 32 rubles in 2012, 33 rubles in 2013 and 40 rubles
in 2014.
5
These include economic slowdown, the Government’s
plans and investments to increase efﬁciency in
gas consumption and the impact of political
developments.
6
Gazprombank sold its 9.4% share in Novatek and
later French Total became shareholder with an option
to upgrade its stake up to 19%. Since then the company
has become a signiﬁcant player in the market.
7
Voice of Russia, Russian gas company ITERA to
own 99.9% stake in Sibneftegaz, 24 January 2014. Available
at: http://voiceofrussia.com/news/2014_01_24/
Russian-gas-company-Itera-to-own-99-9-stake-in-Sibnef-
tegaz-0828/.
Energy Vision / Energy Strategy Reviews 8 (2015) 39e4440
friend of Vladimir Putin from the KGB and St.
Petersburg years.8
In 2011, Rosneft had relatively insigniﬁcant
activity in the Russian gas market with
a production of 13.4 bcm, mostly in the
form of associated gas from the company’s
mega oil ﬁelds (such as Vankor). However,
Rosneft took a strategic step in 2012 by forming
a joint venture with Itera, an independent.
It further enhanced its position in
2013 through the ﬁnalization of its purchase
of TNK-BP. In fact, Rosneft acquired not only
Russia’s third largest oil producer but also a
company that has signiﬁcant gas production
growth ambitions of its own, due largely to
its Rospan subsidiary in West Siberia. Overall,
Rosneft appears to have the resource base
and marketing capability to rapidly increase
its sales in the domestic market.
Russia produced 668 bcm of natural gas in
2013. Gazprom is by far the largest producer,
with 480 bcm [13]. For the ﬁrst time in 2013,
the combined production of Novatek and Rosneft
has exceeded 100 bcm (62 bcm and
42 bcm, respectively) [14]. Both Novatek
and Rosneft are targeting at least 100 bcm
of production by 2020. These targets seem
ambitious under current market conditions,
but according to some estimates they will
reach, and even exceed, their targets: Novatek
from 62.2 bcm in 2013 to 115e120 bcm in
2020, and Rosneft from 42 bcm in 2013 to
100 bcm in 2020 [15].
According to the Russian Energy Strategy
up to 2030, gas production in Russia will reach
885e940 bcm by 2030 [16]. The Russian Academy
of Sciences expects a lower production
level by 2030 (772 bcm) under its baseline
scenario [17]. This means that unless Gazprom
substantially increases its future production
levels, the share of non-Gazprom
producers in the total Russian gas production
will likely increase.
4. Non-Gazprom producers eye for
breaking Gazprom export monopoly
The North American shale gas revolution,
competition from rival infrastructure projects
and increasing number of global LNG
suppliers combined with massive changes in
the European energy market where demand
outlook for gas is blurry9
have put pressure
on Russia to revisit its strategy or form a
new strategy that can overcome these challenges
and ensure Russia’s continued role as
the leading global gas exporter.
In 2013, Russia exported 196 bcm natural
gas, most of which to Europe (138 bcm) [18].
Exports to Europehave signiﬁcantly decreased
since 2008 (158 bcm in 2008) due to the considerable
decline in the demand for gas in Europe
in the past few years as a result of the worsening
economic situation as well as weather
conditions. According to Eurogas estimates,
European gas demand in 2014 was 11% lower
than in 2013 [19]. 2014 was an exceptionally
warm year with record high temperatures. In
addition, low coal and carbon dioxide prices
combined with increased amount of electricity
production using renewable energy
sources ampliﬁed the overall decline in gas demand.
Nevertheless, the share of imports from
Russia has been stable though Russian imports
dropped in volume terms. This is partly due to
the long term contractual obligations and
changing dynamics in the LNG markets after
the Fukushima incident in Japan which has
caused the average utilization rate of the
EU’s LNG regasiﬁcation capacity to sink to as
low as 25% [20].
Gazprom has managed to preserve the key
components of its contract terms (long-term
minimum take or pay obligations with prices
essentially linked to oil products). By making
small concessions, it strived to endure the
changing realities of the European market,
in which the price of the gas started to be
delinked from the price of oil [21].
Gazprom has been facing serious criticisms
centered on the price renegotiations
and even arbitration cases from its biggest clients
in Europe. Gazprom strategy may be successful
in the short term but with the new
wave of global LNG supply and unconventional
gas, these tactics may not be enough.
For Russia, there will be no option but to
adapt to the changing realities. Since Gazprom
is not willing to adapt to these changes,
Russian decision-makers encourage nonGazprom
producers that are eager to beneﬁt
from proﬁtable export markets.
The former Polish Prime Minister Donald
Tusk argued that Europe should not prolong
the contracts with Gazprom that will expire
in 2020s [22]. He offered to form a European
Energy Union. After the events in Crimea,
German premier Angela Merkel also supported
this initiative. Tusk has become the President
of the European Council in December 2014
and his Energy Union vision was put forward
by the European Commission in early 2015.
Following a more compromising way with
European actors will be helpful for Russia in
terms of not only securing exports but also
solving the big infrastructure problems with
Europe. To achieve this, in addition to Gazprom,
Russia needs additional instruments
and players in export markets.
In recent years, Moscow has come under
increasing pressure from independents led
by Rosneft and Novatek to revise the country’s
gas market. Gazprom proposed to purchase
LNG from the domestic players and
sell it on abroad as its own gas. However,
this formula did not suit non-Gazprom producers.
Non-Gazprom producers also call for
the government to change the country’s gas
transport tariff and the phasing out of crosssubsidization
while Gazprom urges the government
to get the right to discount prices
as its competitors do. Rosneft and Novatek
have been trying to challenge this and hope
to win the right to export their gas. In fact,
their lobby to abolish the export monopoly
of Gazprom, or de-Gazpromisation of Russian
gas exports, was partially successful. In
October 2013, the government approved
amendments to the law to liberalize LNG exports.
Putin approved the law on 1 December
2013. The new regulations limit future entrants
into the Russian LNG market with exports
being permitted only from three types
of project: those already holding LNG production
licenses before 2013; state companies if
they produce LNG from offshore ﬁelds; and
projects operating under production sharing
agreements. Currently only Novatek with
the Yamal LNG project and Rosneft with the
Sakhalin-1 project gain from the amendment.
Table 1
Russian gas production and reserves by the companies.
Gas production
2010, bcm
Gas production
2011, bcm
Gas production
2012, bcm
Gas production
2013 bcm
Gas reserves
tcm in 2014
Russia, total 665 687 671 668 47
Gazprom 513 519 487 480 35
Novatek 38 53 57 62 1.75
Rosneft 12 13 26 42 3
Others 102 102 101 84
Source: Numbers are derived from companies’ web sites.
8
Igor Sechin, who served as the deputy prime minister
responsible for FueleEnergy Complex long years, is
considered by many as the most powerful man in Russia
after Vladimir Putin. He is the president of Rosneftegaz
which has the largest share in Rosneft and owner of the
different energy assets in Russia.
9
This process has accelerated since the world economic
crisis of 2008 and resulted in a drop in the
amounts of gas imported from Russia. The legal restructuring
of the European market goes hand in hand with
the process of a new form of hub-based pricing mechanism,
which has the potential of signiﬁcantly reducing
the weight of oil price indexation in the continent. Moreover,
the European gas demand remains weak and the
outlook for future is still uncertain since the role of natural
gas in the European energy and electricity mix is
blurry.
Energy Vision / Energy Strategy Reviews 8 (2015) 39e44 41
This can be interpreted as the ﬁrst sign of demonopolization
of exports (see Table 2).
The rising competition in the Russian domestic
market and export ambitions of Novatek
and Rosneft should be viewed in light of
the Kremlin’s new understanding of the
Russian Energy Policy due to the changing dynamics
in the gas industry. The balance of power
in the gas sector is shifting from once
overpowered Gazprom to Novatek and Rosneft.
Although Gazprom still keeps its monopoly
over the existing pipelines, both
companies will most likely continue to lobby
to end Gazprom’s monopoly of pipeline exports.
The chairman of Rosneft, Igor Sechin,
has already proposed that Moscow should
grant the right to export gas via the pipeline
system to other gas producers [23]. The right
to export gas by pipeline will probably be put
forward in the future. However, if and when
this happens, liberalization will rather unlikely
to bring a real competition between
Gazprom and independent producers, in
terms of both volume and price due to the
direct and indirect inﬂuence of the Kremlin
on the main actors in the western markets.
Whatever the form, the competition between
the main players will advance as much and as
long as it aligns with the interests of Kremlin.
According to the Federal Custom Regulations,
Gazprom currently does not pay an
export duty for the supply of gas imported
from Azerbaijan and Central Asia; rather it
transports this gas as an international transit.
The big monetary loss in the Federal Budget
due to tax exemption could be remedied by
non-Gazprom producers supplying the
amount of gas. Russia, in turn, would beneﬁt
from the foreign trade surplus and an
increased budget revenue [5].
So far, it is unclear how exactly the Ministry
of Energy is going to coordinate LNG exports
and protect Gazprom’s market niche in
Europe; however, it is obvious that there
will be no legal ban on LNG exports to Europe
by non-Gazprom producers although the main
target is Asian markets.10
Despite the
numerous technical and economic problems,
LNG in Russia will grow, and Asia may become
one of the leading pillars in the gas export
strategy of the country.
According to the Energy Strategy of Russia
to 2030, Russia will export 340e360 bcm of
natural gas by 2030, and the share of LNG in
exports will reach 15%. The Ministry of Energy,
on the other hand, targets a 20% share
for LNG by 2030.11
However, Russia can only
begin delivering large-scale LNG supplies after
2018. After 2025, Russia may have a
considerable potential to increase its inﬂuence
on the market although the current
intention to achieve 20% of the global LNG
market is highly unrealistic when its current
share of 3.6% and sanctions are taken into
consideration [24].
5. The importance of the future role of
the gas export infrastructure
In order to guarantee its own ‘security of
demand’ and to avoid transit risks, Russia
aims to diversify its export infrastructure
developing ambitious pipeline projects and
investing in LNG. Russian policy makers also
consider these projects as an instrument
rather than an end in itself to achieve the
planned reform in the Russian gas industry
described above.
In May 2014, Gazprom and CNPC signed a
30-year natural gas supply contract. Gas will
be delivered via the 4000 km-long Power of
Siberia trunk line encompassing the Yakutia
and Irkutsk production centers designed to
supply gas to the Russian Far East and China.
The contract stipulates that 38 bcm/yr will be
supplied from Russia to China. Over the contract
period, more than 1-tcm gas will be supplied
[25].
There are plans to add two more strings to
the Nord Stream pipeline. In addition, Gazprom
is also considering a 27.5 bcm/yr link
for the ﬂow of the Nord Stream gas to the
UK (through Amsterdam before linking up
with the BBL pipeline).
A new gas pipeline project from Russia
through the Black Sea to the Turkish-Greek
border was offered to replace the previously
envisaged South Stream pipeline partly due
to the disputes with the European Commission.
Also because Gazprom may have lost interest
in trying to control the value chain all
the way to the ﬁnal consumer.
The Russian focus on pipeline gas has not
prevented its ambitions in the LNG arena.
Gazprom is a partner in the Sakhalin LNG,
Russia’s only operational LNG plant, which
started operations in 2009. About 65% of the
output is delivered to Japan. Gazprom and
other Sakhalin partners plan to construct a
third train which will take the total capacity
of the plant to 14.4 Mt per year. Gazprom
has a few other LNG plant projects; the Vladivostok
LNG plant12
and Shtokman LNG
plant.13
In addition, Gazprom signed a Memorandum
of Understanding with the government
of the Leningrad region in 2013 for the
construction of a 10 Mt/yr LNG plant on its
Finnish coast.14
It will not be easy to realize
all these projects. Gazprom has already
cancelled the Vladivostok project due to not
only the concerns that the liquefaction technology
might be added to the sanction list,
but also that the difﬁculty of ﬁnancing the
project and ﬁnding customers [26].
There are also several LNG projects15
that
are developed by the competitors of Gazprom.
In April 2013, Novatek and Total have
agreed, through their joint venture JSC Yamal
LNG,16
to build the $27 bn Yamal LNG plant
with a capacity of 16.5 Mt/yr. The ﬁrst train
is planned to be operation in 2017, to be followed
by the 2nd and 3rd trains of a similar
capacity by 2018 and 2019, respectively. In
June 2013, Novatek agreed to sell a 20% interest
in the Yamal LNG plant to the China National
Petroleum Corporation (CNPC) in a
framework deal that involves a long-term
contract for a supply of 3 Mt/yr from the plant
to China. CNPC will obtain ﬁnancing for the
plant from Chinese lenders [27]. In December
Table 2
Russian gas exports 2007e2013.
Total exports (bcm) Exports to Europe (bcm) Exports to CIS countries (bcm) Average price
$ per 1000 m3
2007 191.9 154.4 37.5 233.66
2008 195.4 158.4 37 353.69
2009 168.4 120.5 47.9 249.27
2010 177.8 107.4 70.4 268.48
2011 189.7 117.2 72.5 338.88
2012 178.7 112.7 66 348.33
2013 196.4 138 58.4 342.29
Source: Central Bank of Russian Federation.
10
Just a few days before the approval of the legislation,
Novatek announced a 25-year contract with the
Spanish Gas Natural Fenosa for an LNG supply of 3.
2 bcm/yr.
11
Russian Energy Minister Alexander Novak: Rossija
mozhet vdvoeu velichit dolyu na mirovom rynke SPG
[Russia might double its share in the world LNG market],
30 October 2013, available at http://top.rbc.ru/eco-
nomics/30/10/2013/885822.shtml.
12
The Vladivostok-LNG project involves the construction
of an LNG plant with a capacity of 10 Mt/yr expandable
to 15 Mt/yr (three trains of 5 Mt/yr each) on the
Lomonosov peninsula (Perevoznaya Bay). The ﬁrst train
is planned to begin operation in 2018. The target for
LNG is AsiaePaciﬁc markets, but Japan will probably
be on the top of the list. A feasibility study has been carried
out by Itochu (Japan).
13
The future of Shtokman LNG is dependent on Shtokman
gas ﬁeld whose development has been postponed
“until better times” as Gazprom puts it.
14
The site, start date and other related information
has not been provided.
15
Of these, the Pechora LNG project in the Barents
Sea, sponsored by the Russian Alltech Group, seems unlikely
to be realized.
16
The consortium is made up of France’s Technip and
Japan’s JGC Corporation.
Energy Vision / Energy Strategy Reviews 8 (2015) 39e4442
2013, Novatek and Total ﬁnally approved FID
on the Yamal LNG project, and according to
the Gazprombank assessment report, nearly
all the expected output of the LNG production
has already been contracted [28]. In
addition, in January 2015 Gazprom signed a
20-year contract with Novatek to offtake
2.9 Mt/yr of LNG from the Yamal LNG project
[29].
Rosneft is looking to develop the Sakhalin-
1 LNG project with an initial capacity of 5 Mt/
yr. In April 2013, Rosneft and ExxonMobil
agreed to investigate the possibility of building
the plant to liquefy gas from their
Sakhalin-1 oil and gas project. The project
aims to supply LNG to the AsiaePaciﬁc markets
by 2018, which in a way threatens Gazprom’s
Vladivostok LNG project. In June
2013, Rosneft signed a heads of agreement
with Japan’s Sodeco to sell 1 Mt/yr of LNG
starting from 2019 [30]. The plant is planned
to be built on the Sakhalin island or in the
far-eastern region of Khabarovsk.17
Some of the projects explained above may
helpnon-Gazpromproducers toexertpressure
on the Russian government to break Gazprom’s
monopoly in the future. The ﬁrst candidate
is the Power of Siberia pipeline from
Siberia to China. Rosneft has already threatened
to take Gazprom to court if Gazprom
refused to offer access to the planned capacity
of 60 bcm/year. If the pipeline will not be
part of the Uniﬁed Gas Supply System, Gazprom
must provide access to non-Gazprom
producers [31]. So far, the pipeline is considered
to be for the sole use of Gazprom; however,
Rosneft and other producers have the
potential to provide a substantial amount of
gas into the line in the future. This goes hand
in hand with non-Gazprom producers’strategy
to strengthen their presence on the growing
Chinese energy market.18
6. Centralizationedecentralization
trends in Russia’s oil and gas sectors
Russian gas industry is in a transition process,
which can be characterized by modest
decentralization and more competition in
the market. The evolving competitive market
structure will allow non-Gazprom producers,
or independents, to increase their stakes in
the market. Under the auspices of the Russian
Energy Policy, it will not be surprising to have
a gas market that is similar to the oil market
in Russia in near future. The gas sector is being
transformed into a four-actor structure
with a dominant player: Gazprom remains to
be the leader, followed by a Kremlincontrolled
private company Novatek, the
state Oil Company Rosneft, and other companies
(Lukoil, and small ﬁrms as well as international
oil companies).
In contrast to the evolving structure of a
competition-oriented gas market, the oil
sector in Russia is changing in the reverse direction.
Oil reserves and production are
more and more in the hands of statecontrolled
companies. In the past decade,
the share of state-controlled companies (Rosneft,
Gazprom Neft) in total oil production
has increased to 50%. The national champion
Rosneft now captures the biggest share in
the market, which was dominated by a ﬁerce
competition between private oil ﬁrms before.
A practical impact of the opposing centralizationedecentralization
trends in Russia’s
oil and gas sectors may lead to a
further reinforcement of the national oil giant
Rosneft with possible acquisition of Surgutneftegaz
deal, whereas the gas monopoly
Gazprom has started to lose its position both
domestically and abroad. In this regard, as
in the natural gas, the oil sector has also
evolved into having four actors: the stateowned
Rosneft (the leader), a Kremlincontrolled
private company Lukoil, the subsidiary
of a state gas company Gazprom
Neft, and others.
The main difference between the evolving
market structures in the oil and gas sectors is
that in the former, the dominant state company
was born from competition whereas in
the gas sector, a monopolistic company has
lost its power and is now expected to hold
only a dominant position. Considering the
high level of securitization of the RussiaeEuropean
natural gas trade, in contrast to oil,
this new trend may constitute grounds for
the de-politicization of energy relations. For
instance, decentralizations trends within Russia’s
gas sector can lead to a discussion of the
possibility of the full liberalization of gas exports
from Gazprom’s monopoly.
7. Conclusion
With the decline in its gas production and
competitiveness in the Russian gas market,
Gazprom will have to adapt to the changing
conditions. The effects of the major structural
reforms may not be seen in the short
term. However, in the longer term, the government
may move to restructure Gazprom’s
relations with independents to prevent it
from blocking strategically important projects.
In the end, Gazprom might be forced
to further open up its export network. This
may results in the full liberalization of exports.
Since the early 2013, the issue of the
liberalization of gas export has received support
from the Ministry of Energy as well as
Medvedev and Putin. Liberalization has
already been partly achieved for LNG exports.
The target now is to break the pipeline gas
export monopoly of Gazprom.
The full liberalization of access to the gas
transportation system is unlikely to happen in
the short term; however, the transmission
segment of Gazprom may be unbundled over
the long term. As the market structure of
gas becomes more and more similar to that
of the oil sector, like Transneft in the oil
sector, a new gas transmission company can
be created.
In general, there are three alternative options
to reduce Gazprom’s monopoly. The ﬁrst
is to oblige Gazprom to purchase gas produced
by independent producers from ﬁelds
located in the eastern part of Russia at prices
calculated as a netback to export prices, and
to export the gas into the foreign markets.
This way, Gazprom would still remain the
sole exporter and owner of the pipeline but
would collect a transport fee. The second option
is to encourage non-Gazprom producers
to construct a gas pipeline, ﬁrst to export
gas to China and then to other markets. The
last alternative is to create conditions for
fair access to the gas network for nonGazprom
producers in the Russian market
and allow them to access new gas export
pipelines.
It may be too early to announce the breakup
of Gazprom’s monopoly on transmission
and gas pipeline exports but it is clear that
Gazprom is facing serious challenges at
home and abroad. Some dramatic shifts that
are already taking place in the Russian gas
sector will, sooner or later, result in the
demise of Gazprom’s monopoly.
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