Consumers. Economic and Regional Segmentation

Regional and Industrial Structure of Natural Gas Consumption

Problems of information collection and use

Statistical information on gas consumption may be divided into industrial statistical information and official state statistical information. The latter is gathered and processed by the Main Interregional Center for Processing and Distribution of Statistical Information of the Federal State Statistic Service. Industrial statistical information is collected by the Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation.

The information presented by the Main Interregional Center for Processing and Distribution of Statistical Information of the Federal State Statistic Service is intended for calculation of macroeconomic indicators. Thus, the classification adopted by the Federal State Statistics Service of the Russian Federation is of little avail for current operational analysis. The fact that the classification was considerably changed in 2005 aggravates the situation even more.

The information provided by the Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation is convenient for analysis. However, its serious drawback is that the data on production, transportation and sales of gas are provided by the companies according to semiofficial agreements rather than legal requirements. There are good grounds to suppose that the quality and completeness of these data will significantly deteriorate in near future.

Characteristics of Gas Export and Import in Russia

Prices of imported gas keep growing steadily

The last scheduled increase of the price of Turkmen gas for Gazprom took place in late 2005: the price rose from $44 to $65 for 1000 cubic meters of gas. At about the same time, the price of Kazakh gas increased from $36 to $45 for 1000 cubic meter and the price of Uzbek gas grew from $42 to %55 for 1000 cubic meters. The previous practice of relationship between buyers and sellers of gas showed that pricing agreements remain valid for at least one year.

However, the situation changes in spring 2006. The change was triggered by the January contract of RosUkrEnergo with Gazprom, according to which RosUkrEnergo paid $230 for 1000 cubic meters of Russian gas and sold it in Ukraine for $95. RosUkrEnergo covered the difference by earning higher profits on the European market and using cheaper gas from Kazakhstan, Uzbekistan, and Turkmenistan in the trading scheme.

Suppliers from Central Asia reacted to the new market situation with negotiations on a new increase of prices. Turkmenistan almost immediately started preliminary negotiations on a new price for gas and suggested to Russia should pay $80 for 100 cubic meters of gas, then $100 and even $120. Kazakhstan and Uzbekistan attained the first results fairly quickly. Kazakhstan was the first to raise the price of its gas for Gazprom: since April 1, 2006, the price grew from $45 to $60. In mid-May 2006, Uzbekistan increased the price of its gas for Russia up to $60 for 1000 cubic meters.

OJSC Gazprom does everything to increase gas import

In early September 2006, a meeting of A. Miller, Chairman of Gazprom’s Management Committee, and S. Niyazov, President of Turkmenistan, was held in the framework of a working visit of OJSC Gazprom to Turkmenistan. The negotiators agreed on the terms of supplying additional volumes of Turkmen gas in 2006 (earlier agreements between them implied supplies of 30 billion cubic meters of gas in 2006, but, according to preliminary estimates, this volume was already received by Gazprom by mid-September). They also agreed on the price of gas and volume of supplies. The price was agreed at the level of $100 per 1000 cubic meters of gas. Additional 12 billion cubic meters of gas is to be supplied by the end of 2006, and 50 billion cubic meters of gas a year in the period 2007-2009. The parties agreed on the principles of correcting the terms of gas supply for the next three-year period. The price should remain intact until the end of 2009.

More than 8 billion cubic meters of gas was purchased in 2005 from Uzbekistan, 9 billion cubic meters will be bought in 2006, and 10 billion cubic meters a year beginning from 2007. As to the price of gas, according to the currently effective preliminary agreement, beginning from 2007, gas will be supplied with a price formula depending on the world market prices (pegged to the prices of oil and oil products) rather than a fixed price.

The volume of gas purchased from Kazakhstan used to grow in recent years as from Uzbekistan. Approximately 7 billion cubic meters of gas was purchased in 2005, and approximately 8 billion cubic meters will be bought by the end of 2006. Gas is purchased mainly from the Karachaganak field via the Russian-Kazakh joint venture KazRosGaz. In near future, the volume of gas purchased from Kazakhstan may grow substantially up to 15 billion cubic meters owing primarily to the growth of production in the Karachaganak field. The Russian and Kazakh parties have reached an agreement on establishing a joint venture on the basis of the Orenburg gas processing plant where gas from the Karachaganak field will be processed. Negotiations are currently underway for determining the prices of gas and mechanisms of joint gas sales. Prices of $150 per 1000 cubic meters of gas were mentioned several times during the negotiations, but, anyway, it is safe to say that the price will definitely exceed $100 per 1000 cubic meters of gas. Certain confusion may be caused by the Karachaganak Consortium, which may refuse to sell gas at low prices.

The tendency to diversification of suppliers will make OJSC Gazprom actively fight for traditional markets

The European energy market is the main market for the export of Russian gas. The countries of Southern and Eastern Europe are more dependent on supplies of Russian gas due to some historical reasons. At the same time, in view of the intention of a number of countries to join the European Union, they are going to diversify their import of fuel and energy resources. This will not have a tangible impact on the volume of Russian gas export to Europe because of the steadily growing consumption of gas, but may significantly curtail the share of Russian gas in the structure of fuel import to Europe.

Important tasks for OJSC Gazprom in this context is maintaining its positions on the markets of transit countries, entering into new gas transportation and storage projects for maintaining the stability of contracts and gas supplies under them, and raising the sales profits through entering the market of end users.

The struggle for markets will diversify export directions

Transit of gas across the territory of Turkey and competition with the Nabucco project aimed at transportation of gas from the Caspian region through the territory of Turkey to the countries of Southern and Eastern Europe becomes very important for diversification of directions of natural gas transportation to European markets.

Forecasted directions of gas export from Russia, billion cubic meters

Source: estimates of ERTA-Consult

The volume of natural gas supplied to Turkey were lower than the contracted volumes even in 2003 due to the slower than expected economic growth and downward revision of forecasted demand of the economy for energy resources. Nevertheless, the Turkish market remains to be one of the most attractive markets for planning supplies and transiting natural gas through the territory of Turkey to Eastern Europe.

Forecasted export of Russian gas to Europe, billion cubic meters

Source: estimates of ERTA-Consult

The Blue Stream gas pipeline is connected to the gas transportation system of Turkey and the city of Ankara, from where the gas transportation route may be extended to European countries and to the city of Ceyhan for possible supplies of gas to Israel.

The contracted volumes of gas transportation through the Blue Stream gas pipeline for the Turkish market in the nearest future are as follows: 8 billion cubic meters in 2006, 10 billion cubic meters in 2007, 12 billion cubic meters in 2008, 14 billion cubic meters in 2009, and 16 billion cubic meters in 2010. Thus far, the growth of gas supply volumes falls far behind the schedule of contracts. Supplies of Russian gas to Turkey are expected to run up to 28 billion cubic meters a year by 2030.

Apart from the fully loading the Blue Stream gas pipeline in view of the growing consumption of natural gas by the countries of Southern and Eastern Europe and transiting gas across the territory of Turkey, construction of a second line of the Blue Stream gas pipeline (Blue Stream 2) is expected in near future, which, in its turn, implies construction of a third line of the gas pipeline with a throughput capacity of 8 billion cubic meters on the Black Sea floor. Presumably, gas will be transported through the new line of the gas pipeline and exported via Turkey to the Balkans and Apennines and then to Europe. This will raise the efficiency of the Blue Stream gas pipeline. First supplies through the Blue Stream will start in 2012.

Turkey will become a transit country with expansion of supplies of Russian gas to the countries of Southern and Eastern Europe. One of the possible new markets for Russian gas may become Israel in near future.

Forecasted export of Russian gas to far-abroad countries, billion cubic meters

Source: estimates of ERTA-Consult

The forecast also takes into account gas transportation through the North European Gas Pipeline (NEGP) expected to be put into operation by 2010 for supplies of Russian gas to the countries in the zone of operation of this pipeline, such as Great Britain, Belgium, Denmark, Germany, Netherlands, and Sweden.

Forecasted average export price of Russian natural gas, $ per 1000 cubic meters

Source: OJSC Gazprom, estimates of ERTA-Consult

Role and Characteristics of Gas Distribution and Gasification

Social functions of gasification clash with the economy of projects

Creation of an efficient system of gas distribution and utilization in Russian regions is considered today as one of the necessary conditions for socioeconomic development of the country. The state policy implies growing consumption of gas by the population. The level of end-user prices of gas must meet the public requirements of gas affordability. At the same time, the inevitable growth of gas production costs is accelerated by the necessity of return of the considerable investments made into development of the gas distribution and utilization system.

It is usually assumed that gasification creates a basis for raising the productivity of labor, speeding up the social and economic development of regions, improving the working and living conditions, narrowing the gap between the living standards of the population in rural and urban areas, etc. and facilitates relieving the social tensions, boosting the agricultural sector, and reducing the import of foodstuff. This assumption was indeed valid for the low gas prices of the past. However, the situation is changing and the prices start growing tangibly, for which reason gasification no longer remains to be an undisputable and unquestionable boon.

Dynamics of gasification level in the Russian Federation, % of the total housing stock

Source: OJSC Rosgazifikatsiya

The scale of financing of gasification projects grows for political reasons

More than 160,000 km of gas distribution pipelines (over 30% of those existing today) was constructed unsystematically and gas was supplied to more than 5 million apartments as a result of the mass construction in Russian beginning from 1996. OJSC Gazprom allocated 1.5 billion rubles a year for gasification purposes in 2004, increased the sum up to 5.2 billion rubles in 2005, and is going to spend 61 billion rubles by 2008. The political management of the country called gasification the «fifth national project.» Investments into gasification of the country may become the political justification of the expenditures incurred by the Government in the period of high export prices of energy resources.

Level of gasification of the Russian Federation

Source: OJSC Gazprom

Gasification as a factor of growth of internal gas consumption

Large-scale gasification led to uncontrolled growth of gas consumption by the population and the housing maintenance and utilities sector. Traditionally, these groups of consumers do not have devices for metering the quantity and quality of consumed gas. However, by virtue of the highest priority of the social function of gas supplies, the demands of these groups of consumers are satisfied in the first place even at the expense of contractual supplies of gas to industrial consumers. This principles underlies the procedure of formation and application of what is called List No.1, which is the sequence of cutting off consumers from gas supply at abnormally low ambient temperatures.

The economic efficiency of gasification strongly depends in the wholesale price of gas

Analysis of the already implemented projects of gasification reveals their inefficiency. Very often this is associated with the low level of elaboration of these projects. As a rule, after completion of construction, new gas distribution networks are characterized by a low level of load, which results in a high relative cost of their operation. The low load on the gas distribution networks is associated with the lack of synchronization between the periods of construction of gas distribution networks, inter-village networks, and feeding gas pipelines. Analysis of tariffs for services provided by gas distribution organizations is inadequate and inefficient. The tariffs for newly constructed gas distribution networks may reach 1,000-1,200 rubles per 1000 cubic meters of gas. This makes the expediency of gasification questionable, because the end-user price of gas in a number of cases exceeds the price of alternative energy resources.

The tariffs of gas distribution organizations grow as major consumers go away

To a considerable extent, decisions about investments into gasification are based on the policy of putting practically the whole burden of expenses for operation of new gas distribution networks on the existing industrial consumer as it was done earlier. Currently, however, the possibilities of investment support of gasification through raising the level of cross subsidization in the tariffs for services of gas distribution organizations are shrinking tangibly. In conditions of substantial growth of gas prices in recent years, industrial consumers are looking for ways and possibilities to optimize their expenditures, and rejection of the services of gas distribution organizations through construction of own feeding gas pipelines is one of such possibilities. In this case, the tariff for a feeding gas pipeline falls from 100-120 rubles to 1-10 rubles per 1000 cubic meters.

The tendency towards rejection of the services of gas distribution organizations continues

In 2004, the volume of gas rejected by major consumer amounted to 3 billion cubic meters.

In 2004, 7 billion cubic meters (including OJSC Tolyatiazot in the Samara Region)

In 2005, 4 billion cubic meters (including OJSC Omskenergo in the Omsk Region)

Consumption Structure in the Regions of Russia

Volume of natural gas consumption in the regions of interest relative to 2000

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Gas consumption in the regions of interest in 2005, billion cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

In the marketing aspect, the Perm Region is characterized by the highest absolute growth of consumption in the last five years. The Omsk Region and the Republic of Mordovia are also fairly interesting for studies as the regions with low consumption volume but high rate of its growth.

Regulated wholesale price for gas of OJSC Gazprom, rubles per 1000 cubic meters

Source: Federal Tariff Service of the Russian Federation (fall 2006)

Regulated tariff of gas distribution organizations for consumers groups, rubles / 1000 cubic meters

Source: Federal Tariff Service of the Russian Federation (fall 2006)

Tariff for supply and distribution services for consumer groups, rubles per 1000 cubic meters

Source: Federal Tariff Service of the Russian Federation (fall 2006)

Differentiation of consumers according to the size of their payment for supply and distribution services is very important for determining the market level of the regional gas price. On the one hand, this is the size of competitive edge of independent producers selling gas directly to consumers (as tariffs for supply and distribution services are not applied to gas of independent producers), and, on the other hand, this is the estimated minimal rate of return of the sales companies of OJSC Gazprom (Regiongazes) using the regional gas prices for selling gas of independent producers.

Kemerovo Region

The growth of gas consumption by OJSC Gazprom in the region is associated with the activities of OJSC Kuzbassgazprom. OJSC Kuzbassgazprom was established in accordance with the program of pilot industrial production of methane from coal beds in the Kemerovo Region. This program was adopted in the framework of agreement between OJSC Gazprom and the Administration of the Kemerovo Region in the fall of 2000.

The Kemerovo Region is one of the largest suppliers of coal. However, the electric power industry of the region is also using associated gas from the West Siberia Metallurgic Plant (coke oven gas and blast furnace gas) and OJSC Koks (coke oven gas).

The growth of gas consumption by electric power generation facilities is associated with the lower price of gas and the transition of coal stations to using coke oven gas. In March 2005, a decision was made to use gas for temporarily covering the shortage of coal and switch some of the facilities of the Kemerovo State District Power Plant, Novo-Kemerovo Heat and Power Plant, and South-Kuzbass State District Power Plant over to using natural gas. The equipment of these combined heat and power plants and state district power plants is universal and can use coal as well as gas fuel.

The largest consumers of natural gas in the region are metallurgic enterprises (West Siberia Metallurgic Plant, Novokuznetsk Metallurgic Plant, OJSC Kuznetsk Ferro-Alloys, OJSC Novokuznetsk Aluminum Plant, and OJSC Koks) and agricultural chemistry enterprises (OJSC Azot, OJSC Khimvolokno-Amtel-Kuzbass, OJSC Khimprom, CJSC Firma Tokem, OJSC Znamya, and OJSC Organika).

Structure of natural gas consumption in the Kemerovo Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Novosibirsk Region

The Novosibirsk Region is traversed from west to east by the Omsk-Novosibirsk-Kuzbass trunk gas pipeline with a rated throughput capacity of 14 billion cubic meters a year. The northeast part of the region is crossed by the Nizhnevartovsk Gas Processing Plant-Parabel-Kuzbass trunk gas pipeline with a throughput capacity of 8.2 billion cubic meters of gas a year. Today, only less than a half of the throughput capacity of these gas pipelines is used.

Consumers in the housing maintenance and utilities sector and electric power generation industry account for the dynamics of gas consumption in the Novosibirsk Region.

The rated fuel of the Novosibirsk heat and power plants (Heat and Power Plants No. 2, 3 and 5) is gas or coal. Coal is used as the main fuel of these plants by virtue of their proximity to the Kuzbass coal basin. Gas is used in these plants as a reserve fuel. Overproduction of coal and the increase of gas price in 2002 made Novosibirskenergo revise the fuel policy of the region in favor of coal. However, new facilities designed for covering the peaks of consumption of electric power and coal (such as, for example, the steam boiler BEM-25/1.4-270) use gas beginning from 2004. OJSC Novosibirskregiongaz supplies gas to OJSC Novosibirskenergo.

The Energy and Water Supply Administration of the Siberian Division of the Russian Academy of Sciences (UEV SO RAN), the Novosibirsk Electrode Plant, and the Kirovsk Regional Boiler House are large industrial consumers of natural gas in the Novisibirsk Region.

Structure of natural gas consumption in the Novisibirsk Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Omsk Region

The strategy of socioeconomic development of the Omsk Region till 2020, adopted in 2006, contains a requirement to increase the share of natural gas consumption in the housing maintenance and utilities sector for eventually switching 200,000 apartments and houses, 680 boiler houses, and heat sources to the use of natural gas.

In December 2006, OJSC Gazprom decided to allocate 70 million rubles in 2007 for gasification of populated areas in the Omsk Region. This has become possible owing to the early implementation of the pilot project of Omsk Region gasification in 2006.

Development of the Tevriz gas condensate field in the Omsk Region made it possible to supply gas to three northern populated areas of the Omsk Region. Gas is now supplied to 23 out of 32 districts of the Omsk Region. Traditionally, liquefied petroleum gas (propane-butane) was used for gasification of the region. Now, it is more economically expedient to replace gasholders of liquefied gas by natural gas pipelines.

The fuel balance of the electric power industry in the Omsk Region did not change much, and coal from the Ekibastuz coal basin still accounts for approximately 60% in it. Nevertheless, natural gas is the main fuel for a number of heat and power plants (Heat and Power Plants No. 2, 3 and 6). The key suppliers of gas are Omskregiongaz LLC, Tsentrrusgaz LLC, and OJSC Gazprom.

In 2005, OJSC Sibneft started supplies of gas to the Omsk Rubber Plant. The natural gas supply contract is signed for 5 years and supply of 340 million cubic meters of gas a year. Natural gas is supplied from the fields of Sibneft-Noyabrskneftegaz after processing at the facilities of OJSC AK SIBUR.

Structure of natural gas consumption in the Omsk Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Orel Region

Gas is supplied to the Orel Region from three trunk gas pipelines: Tula-Shestka-Kiev gas pipeline, Urengoi-Pomary-Uzhgorod gas pipeline, and Shebelinka-Bryansk-Kursk gas pipeline.

Natural gas consumption in the Orel Region is very conservative. The total volume of gas consumption in 2005 was 1.7 billion cubic meters, one third of which was consumed by the electric power industry and another third by the population. The dynamics of growth of gas consumption by the housing maintenance and utilities sector is fairly interesting. The growth of gas consumption by 160 million cubic meters in 2001 is associated with the extensive transition of boiler houses of the housing maintenance and utilities sector to the use of gas.

Gasification of the Orel Region continues in spite of the arrears in payments for supplied gas. In 2003-2004, the arrears of the consumers in the Orel Region reduced by almost 244.5 million rubles and amounted to more than 271 million rubles as of January 1, 2005. However, immediately after that the arrears started to grow again and reached 517 million rubles as of May 1, 205.

Electric power is generated in the Orel Region by the Orel Heat and Power Plant and the Livensk Heat and Power Plant. The largest supplier of gas for these plants (accounting for 98% of all supplies) is Orelregiongaz LLC.

Structure of natural gas consumption in the Orel Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Penza Region

OJSC Penza Generating Company (incorporating Heat and Power Plant No.1, Heat and Power Plant No.2, and Kuznetsk Heat and Power Plant No.3) uses gas and since April 2005 is incorporated in Territorial Generating Company 6 (TGK-6). The main suppliers of fuel for the electric power industry of the Penza Region are Penzaregiongaz LLC (65%) and OJSC TNK-BP (35%).

The Penza Heat Distribution Company annually consumes 215 million cubic meters of gas sold by OJSC Gazprom at regulated prices.

The level of gasification is 78% in the entire Penza Region, 89% in urban areas, and 60% in rural areas. Works for switching boiler houses to the use of gas are continuously underway. Thus, 44 modular boiler houses were constructed in 2005 and 11 boiler houses were switched to the use of gas. Two opposite and antagonistic tendencies are observes in the Penza Region: the fast pace of gasification increases gas consumption by the population, whereas the severe measures of Penzaregiongaz LLC for ensuring proper payments for supplied gas result in cutting off oil consumers.

In the period of peak cold snap, the above-plan gas consumption in the Penza Region amounted to 30% of the daily norm.

Structure of natural gas consumption in the Penza Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Perm Region

Since December 1, 2005, the Perm Region is part of the Perm Krai.

Gas consumption growth is most dynamic at the petrochemical enterprises CJSC SIBUR-Khimprom (Perm), OJSC Metafrax (Gubakha), and OJSC Uralorgsintez (Tchaikovsky).

Ferrous metallurgy in the Perm Region is represented by integrated works (OJSC Chusovoy Metallurgic Works) and semi-integrated metallurgic works (the largest of which is ОАО OJSC Lysva Metallurgic Works).

Nonferrous metallurgy in the Perm Region is based on processing of ore from the Verkhnekamsk field of potassium salts containing magnesium and rare metals. Nonferrous metallurgic works are located in Berezniki (the titanium and magnesium plant of the VSMPO-Avisma Corporation) and in Solikamsk (OJSC Solikamsk Magnesium Plant). There is secondary aluminum production plant in Perm (OJSC Permtsvetmet).

The leading branch of the chemical industry in the Perm Krai is production of mineral fertilizers. The Verkhnekamsk field of potassium salts, which is the largest field of this kind in the world, is in the Perm Krai. Production of ore and potassium fertilizers is based in Berezniki (OJSC Uralkalii consuming 160 million cubic meters of gas a year sold by OJSC Gazprom at regulated prices) and Solikamsk (OJSC Silvinit). OJSC Uralkalii and OJSC Silvinit are the largest producers and exporters of potassium fertilizers in the world. Production of nitrogen fertilizers is based in Perm (OJSC Mineral Fertilizers consuming 600 million cubic meters if gas a year, of which 420 million cubic meters is gas sold by OJSC Gazprom at regulated prices) and in Berezniki (ОАО OJSC Azot consuming 1.2 billion cubic meters of gas a year sold by OJSC Gazprom at regulated prices).

Own production in the Perm Krai amounts to 700 million cubic meters of gas a year. Fifteen lines of trunk gas pipelines with a total length of 10,280 km traverse the territory of the Perm Krai and pump 343 billion cubic meters of gas every year.

The key suppliers of gas are:

· Permregiongaz LLC.

· CJSC Permgaztekhnologiya, which used to supply more than 4 billion cubic meters of gas a year to companies such as OJSC Perm State District Power Plant (approximately 3 billion cubic meters of gas a year), OJSC Mineral Fertilizers, OJSC Azot, OJSC Metafrax, and a number of facilities of Territorial Generating Company 9 (TGK-9). The main business of the company is based on its ownership of pipelines feeding gas to enterprises.

· Permgazenergoservis LLC, a private operator on the market of housing maintenance and utilities. Apart from gas transportation, the company is engaged in supply of heat with the assistance of the former boiler houses of MP Gorteploenergo, JSC Velta, and the sales company Regionenergosbyt LLC.

The largest consumers of gas in the electric power industry of the Perm Region are:

· Perm State District Power Plant consuming 3.6 billion cubic meters of gas a year supplied by Permregiongaz LLC (90%) and Permgazenergoservis LLC (10%).

· Yaivinsk State District Power Plant consuming 1.0 billion cubic meters of gas a year, of which 590 million cubic meters is gas sold by OJSC Gazprom at regulated prices.

· Perm Generating Company consuming 3.7 billion cubic meters of gas a year, of which 2.5 billion cubic meters is gas sold by OJSC Gazprom at regulated prices. The company incorporates twelve electric power stations, 98% of the fuel balance of which is natural gas.

Structure of natural gas consumption in the Perm Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Republic of Mordovia

Despite the limited capacity of the gas transportation system (2.9 billion cubic meters), the administration of the Republic of Mordovia predicts growth of gas consumption in the republic up to 4.8 billion cubic meters by 2015. Currently, up to 80% of natural gas is supplied to the republic from the Saratov-Gorky trunk gas pipeline constructed in 1960, which technical possibilities have already reached their limits. For this reason, reconstruction of the gas pipeline in the Pochinki-Ruzaevka segment and construction of a feeding pipeline branch from the Urengoi-Pomary-Uzhgorod trunk gas pipeline running to Saransk and Ruzaevka is very important for the republic. Construction of these gas pipelines is financed by OJSC Gazprom. Tentatively, the pipelines will be commissioned and put into operation in 2009.

The electric power industry of the republic is represented by the Mordovia Generating Company, which consumes 650 million cubic meters of gas a year, of which 460 million cubic meters is gas sold by OJSC Gazprom at regulated prices. There is also the Mordovia Heat Network Company, which consumes 33 million cubic meters of gas a year sold by OJSC Gazprom at regulated prices.

Construction of the fourth line of Saransk Heat and Power Plant 2 with a rated capacity of 110 MW is underway in the Republic of Mordovia. Works are currently suspended. Construction of the Mordovia State District Power Plant with a capacity of 2040 MW has started.

OJSC Mordovcement is the largest enterprise of the cement industry in European Russia.

The level of gasification is 98% in the entire Republic of Mordivia, 95.3% in rural area and nearly 100% in urban areas.

Gas consumption in the housing maintenance and utilities sector may be overestimated

In 2002, the administration of the Ardatov District alone did not (want to) notice, together with the gasmen, that the district consumed 126,000 cubic meters of gas more than was thought. The scheme of such machinations is as follows. Mezhregiongas, Mordovgas, and the district administration used to sign gas supply and payments contracts passing by the immediate consumers. According to contracts, payments for gas were made by the financial department of the administration. Subsidies for the republic were also used for payments. Thus, in this way, Ardatovmezhraigaz increased the gas consumption of all 12 consumers in the district subsidized from the budget two to seven times in all papers.

Structure of natural gas consumption in the Republic of Mordovia, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Ryazan Region

The Ryazan State District Power Plant consumes 1.6 billion cubic meters of gas a year sold by OJSC Gazprom at regulated prices. The Ryazan Generating Company consumes 190 million cubic meters of gas a year sold by OJSC Gazprom at regulated prices. The main type of fuel is gas for the Dyagilev Heat and power Plant, fuel oil and seasonal surpluses of natural gas for the Novo-Ryazan Heat and Power Plant, and gas for State District Power Plant 24. The boiler and furnace fuel balance of fuel-consuming facilities in the Ryazan Region is distributed as follows: approximately 70% of gas, approximately 11% of fuel oil, approximately 18% of coal, and approximately 1% of other types of fuel.

The total consumption of gas by consumer in the city of Ryazan for generation of heat and electric power is 1.5 billion cubic meters a year, including

· 650 million cubic meters a year for generation of electric power; and

· 850 million cubic meters a year for generation of heat.

The level of gasification is 69.4% in the entire Ryazan Region, 89% in urban areas, and 37.2% in rural areas. The Governor of the Ryazan Region set a task for the regional administration to raise the level of gasification of the populated areas of the region up to 80% in 2008.

The growth of gas consumption in the oil industry is apparently associated with the transition of process furnaces of the Ryazan Refinery to natural gas.

Currently, there are 3 natural gas vehicle refueling compressor stations and 5 mobile refueling gas tank trucks in the Ryazan Region. The sales of compressed natural gas from natural gas vehicle refueling compressor stations in the Ryazan Region in 2004 amounted to 6.6 million cubic meters.

Structure of natural gas consumption in the Ryazan Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Samara Region

In 2003, OJSC Zhigulevsk Construction Materials was fully switched over to the use of natural gas in all processes. The growth of gas consumption in the cement industry is associated with the growth of cement production based on the use of gas.

In 2002, OJSC NOVATEK signed a five-year contract with OJSC Samaraenergo for supply of 1.1 billion cubic meters of gas a year. OJSC Gazprom supplies approximately 12 billion cubic meters of gas a year to the Samara Region at regulated prices.

OJSC Samaraenergo accounts for approximately 40-45% of gas consumption in the region equal to 6.2 billion cubic meters of gas a year, of which 4.8 billion cubic meters of gas a year is sold by OJSC Gazprom at regulated prices. TNK became one of the first independent companies to sign contracts with regional electric power generating companies.

The level of gasification of the Samara Region today is 94%.

The largest consumers of gas in the city of Samara are Energozavod LLC, federal state unitary enterprise Samara Kommunar Plant, municipal unitary enterprise of the housing maintenance and utilities association of the Volzhsk District, Samarsky Stroifarfor LLC, municipal entity of the Russian Federation Chernorecheskaya Housing Maintenance Department, Resal LLC, local privatization center Volzhskselkhozenergo, municipal unitary enterprise Zhilkomservis, OJSC Household Chemistry Plant, OJSC Privolzhsknefteprovod of the Samara Regional Oil Pipeline Management, OJSC Samara Distillery and Alcoholic Beverage Plant Rodnik, OJSC Vensanutilzavod Bone Meal Plant, and municipal unitary enterprise Dubravskoe Housing Maintenance Trust.

The largest consumer of gas in the city of Tolyatti are the Heat and Power Plant of the Volzhsk Automobile Works (VAZ), Tolyatti Heat and Power Plant, OJSC Tolyattiazot, CJSC Kuibyshevazot, Tolyattikauchuk, JSC AvtoVAZ, municipal unitary enterprise Housing Maintenance Production Association of Tolyatti, and OJSC Volgotsemmash.

The largest consumers of gas in the city of Novokuibyshevsk are Heat and Power Plant 1, Heat and Power Plant 2, CJSC Novokuibyshevsk Petrochemical Company, Novokuibyshevsk Plant of Lubricants and Additives, Central Production Support Base, OJSC PKF Novokuibyshevskkhleb, and CJSC Novokuibyshevsk Hear and Power Company.

Structure of natural gas consumption in the Samara Region, million cubic meters

Source: Central Dispatching Agency at the Ministry of Industry and Energy of the Russian Federation

Forecast of gas consumption in the regions of interest

The data of forecasts based on analysis of the gas stream dynamics in the Unified Gas Supply System (transportation load limitations) are presented below:

Source: estimates of ERTA-Consult

Summary

1. Serious problems with sources of trustworthy industry-related information are expected in near future due to the inconsistence of state regulation reforms and reforms in the gas industry.

2. OJSC Gazprom let export gas prices out of control. The countries of Central Asia do not want to restrict themselves to the proposals of the Russian gas monopoly and want to enter European markets on their own. Still, imported gas is a considerable part in the gas balance of Russia.

3. The production and investment programs of OJSC Gazprom are mainly based on positive forecasts of European prices and consumption volumes. Europe cannot fully renounce Russian gas. OJSC Gazprom will have to defer to the position of European consumers, which pay for the main part of Gazprom’s production costs. An aggressive position of Russia may force the existing customers reconsider their plans and scare away new customers.

4. The large-scale gasification of Russia is mostly political. The Russian internal market will not pay European prices for gas and, if the prices keep growing, gas consumption by the population and the housing maintenance and utilities sector will reduce significantly. The gasification economy is still largely unprofitable and loss-making.

5. The overall gas consumption in Russia over the last five years has grown by 10% with an almost 40% increase in the Omsk Region and only a 5% increase on the Samara Region, one of the largest consumers of gas in Russia.

6. The most interesting enterprises in terms of gas marketing are power generating companies. Reforms in the gas industry make companies shift their business interests and allow them to wedge into the existing schemes of gas supplies with fresh and original proposals.

7. Greater attention should be paid to metallurgic companies. In the face of gas supply problems, these companies are ready to tackle problems with power supply themselves and possibly unchain themselves from their dependence on OJSC Gazprom. They are even ready to build their own electric power stations using alternative fuels and enter the gas market as independent players.

8. Petrochemical enterprises depend badly on supplies of natural gas. However, this factor played one of the main roles in the redistribution of property and ownership of these enterprises. Most of the petrochemical industry is directly or indirectly controlled by managers of the OJSC Gazprom group.

9. One of the promising directions is selling natural gas to consumers of liquefied petroleum gases (Omsk and Novosibirsk Regions). This will make it possible to use a part of the existing gas distribution infrastructure and commercial relationships and eventually reduce the price paid by consumers for energy resources.

10. The system of relations between local sales companies of OJSC Gazprom (Regiongazes), gas distribution companies, and regional administrations should be taken into account for working in regions, where personal relations between managers are often very important.

Other Links:

Report Outline
General Outline of the Gas Market
Prices and Tariffs
Infrastructure of the Gas Industry
State Regulation of Natural Gas Transportation and Sales
Market Participants and Their Strategies
Consumers. Economic and Regional Segmentation
Key Problems of the Market
Risks and Limitations
Market Development Prospects
Conclusions

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Russian Version:

Оглавление и сокращения
Краткое содержание отчета
Цены и тарифы
Центральная отраслевая инфраструктура
Государственное регулирование
Участники рынка
Сегментация потребителей
Проблемы рынка
Риски и ограничения
Перспективы рынка
Выводы

PDF-версия с диаграммами