OAO Gazprom (GAZP) may lose its monopoly on natural gas exports to domestic competitors as long as the move doesn’t cut prices and damage Russia’s economic interests, according to Prime Minister Dmitry Medvedev.
“It is possible, because there are other, independent gas producers,” Medvedev said today in an interview with Bloomberg Television in Davos, Switzerland. “But we mustn’t lose money, that’s the most important thing. Money comes first.”
President Vladimir Putin granted state-controlled Gazprom, the world’s biggest gas producer and Europe’s biggest single supplier, the exclusive legal right to ship the fuel abroad in 2006. OAO Novatek (NVTK), Russia’s second-largest producer, is seeking to weaken the monopoly by exempting liquefied natural gas, which is shipped by tanker rather than through Gazprom’s pipelines.
Lifting Gazprom’s monopoly may be possible only “after considering all the consequences with the utmost thoroughness,” Medvedev said today. Putin, who brought in the law to prevent domestic rivals from undermining export prices, said in 2011 that while there were no immediate plans to end the monopoly, such a move may be possible in the future.
Russia’s government fears that producers jockeying for European customers in “uneasy” export markets will drive down gas prices, cutting into budget revenue, Ildar Davletshin, a gas analyst at Renaissance Capital in Moscow, said by phone.
The government received 50 percent of its 2012 revenue from the oil and gas industry, when the budget deficit was 0.02 percent of gross domestic product.
“This argument prevails so far, and I think the export monopoly will remain for at least two more years,” Davletshin said. Gazprom relies on export revenues to finance construction of pipelines at home and to export markets, which may mean broader changes are needed in how the industry operates, Davletshin said.
Gazprom battled weakening markets in Europe last year as the economy slowed and competition from Norwegian gas intensified, while the continent burned cheaper coal instead of gas. Gas demand fell 3.7 percent last year to the lowest level since 1999, Societe Generale said in a statement on Jan. 16. The bank cut its growth forecast to zero for 2013.
Gazprom’s gas output fell 5 percent last year, while exports dropped 8 percent. Sberbank Investment Research said in a note today that it cut its financial forecasts for Gazprom for the next four years as expectations of an export rebound recede.
Europe has sought to diversify supplies away from Russia. Pricing disputes between Gazprom and Ukraine disrupted Europe- bound exports in freezing weather at least twice before they reached a 2009 deal.
Medvedev, who served as Gazprom board chairman from 2002 to 2008, defended Gazprom as a reliable supplier to Europe.
“Gazprom doesn’t have the political role that it’s sometimes prescribed,” Medvedev said. “Gazprom is making money. Gazprom is needed in Europe just as the European consumers are needed by Gazprom.”
Novatek, which increased gas output 7.1 percent last year, is limited to selling natural gas domestically. It signed its first trading contract with EnBW Energie Baden-Wuerttemberg AG (EBK) last year to establish a market position and customer base in Europe.
The gas producer, controlled by billionaires Leonid Mikhelson and Gennady Timchenko, is developing the $20 billion Yamal LNG project with Total SA (FP), targeting European and Asian markets. The government may back an exception for LNG from the gas-export monopoly because the project will need to sign up customers to get financing, Davletshin said. Putin has called for Russia to keep pace with global increases in LNG output.
The Energy Ministry submitted proposals about Novatek’s export request to the government, which will probably make a decision in the next couple of months, Deputy Energy Minister Pavel Fedorov said today.
Mikhelson, who is also Novatek chief executive officer, said in an interview in Davos today that he still hopes for a “positive decision” on liberalizing LNG exports. The gas producer, based in Tarko Sale in Siberia, plans to boost output by 7.5 percent this year, he said.
Novatek rose 2.3 percent, the biggest gain since Dec. 5, to 341.44 rubles in Moscow today. Gazprom gained 0.5 percent.
“We need to understand whether this competition kills the price for Russian gas, whether it is sufficient for the global gas market that the market survives without Russian gas, First Deputy Prime Minister Igor Shuvalov said in a Jan. 18 interview. ‘‘When everybody is happy with this, maybe then we will provide competition.’’
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