Alexey Gromov, Principal Director on Energy studies of the Institute for Energy and Finance, commented on the reasons and consequences of the planned increase in gas prices in Russia to the Internet portal "Oil and Capital".
The Federal Antimonopoly Service of Russia (FAS) has proposed to increase gas tariffs for all consumers in the Russian Federation, including the population and industry, by 8% from July 2024 and again from July 2025.
In his opinion, there are several ways out of the situation in the future:
"Russia has lost the premium market in the European Union, and, it seems, either forever or for a very long period. It will not be possible to compensate for it at the expense of other export destinations quickly. It will take a long time to wait for the same profitability from them, because the creation of infrastructure and sales channels is years of work. Completely switch to the domestic market in order to sell there the same volume that went in the European direction, too, will not work. From a strategic point of view, of course, it is necessary to do this. But now it will not be possible to earn the same amount on it, if only because it is used to working in the mode of subsidies due to export revenues, which have seriously decreased today”, Alexey Gromov said.
The first is to reduce Gazprom's investment programs in accordance with the current schedule of income from gas sales in all markets. A side effect of this approach is a gradual slowdown in the development of the gas production industry and everything related to it.
The second is reforming the Russian domestic gas market to a full—fledged state, i.e. where, as in the case of wholesale purchases of electricity or fuel, prices are formed by the balance of supply and demand, as well as competition.
"We need to create conditions so that Gazprom, like other companies, could earn more and more inside Russia. Then a full-fledged domestic market will be honest with the consumer and the seller. The problem is that to do this, we need to provide infrastructure so that buyers can purchase more and more gas. This will be possible when they implement programs for gasification of the Far East, social gasification, and bring communications to households that are not able to pay for such work on their own. As a result, a vicious circle — to avoid rising gas prices, you need to increase domestic consumption, and for this you will need a lot of money to build communications, and there are fewer funds from exports, so you need to recruit them by increasing tariffs within Russia until all projects are implemented," Alexey Gromov concluded.
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