| Abstract: |
This descriptive study discusses the effects of increases in domestic gas
prices on the Russian gas market. Domestic natural gas prices have remained
below their long-run marginal cost for more than a decade since Russia’s
movement toward a market economy in 1991. As a result, the ability of the
Russian gas sector to meet future growing demand from domestic and foreign
consumers has come under question. In an attempt to avoid gas shortages in the
future, Russian government wishes to introduce netback pricing of natural gas
after 2011. Netback pricing refers to the process of equalizing the gas price
in Russia to the gas price in Europe after adjusting for export taxes,
transportation costs, and transit tariffs. The paper concludes that netback
pricing can help Russia to avoid a gas deficit. However, the gas supply in
Russia will remain tight until 2011. The downside of netback pricing is that
it increases the ability of Gazprom to strengthen its control over the Russian
gas industry. |