It's a long way to commodity indexes

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to Monocle magazine (No.50. 2024) on the prospects for exchange and over-the-counter pricing in the Russian oil and gas market.

According to the expert, this problem is specific to the gas section and is chronic, the same companies are more than active in the petroleum products section. There are only three main players in the area of the Unified Gas Supply System, which covers the European part of Russia and Western Siberia: Gazprom, Rosneft and NovaTEK.

"Paradoxically, the main problem lies precisely in the competition between them and in the very specific conditions of regulated gas prices for Gazprom," Alexey Belogoryev says. "In order to retain sales markets, all three companies prefer deliveries under long—term contracts that bind consumers to them not for a few days or a month, as the exchange suggests, but for at least a year, and often for years."

In addition, the FIEF Research Director continues, independent producers, the same Rosneft and NovaTEK, occupy Gazprom's over—the-counter market niches, offering customers lower prices compared to those set by the Federal Antimonopoly Service - Gazprom is legally deprived of such an opportunity. As a result, independent players have almost no free volumes of gas left to put them up for spot bidding: everyone chooses long-term contracts. Gazprom has free volumes, but mainly in the summer, when demand on the stock exchange is seasonally low. During the high heating season, it must supply unlimited gas primarily under long-term contracts, since, in fact, it performs the function of a guaranteeing supplier in Russia. The problem is not only with suppliers, but also with consumers.

He also believes that in the long term we can come to the use of Russian indices for budgetary purposes and calculation of export duties, but for this it is necessary that the main market participants and regulators verify the liquidity and representativeness of new price indicators — exchange, over-the-counter or valuation. And this, according to the expert, will require more than one year of joint efforts.