GGP: Historical development of the Russian domestic gas market
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This paper was written by Abarkina, D. & Bartelet, H. of DynaMundo.
The development of the Russian domestic gas market: historical perspective, current developments and strategy for the future
The European gas market has been in a process of liberalization for the last decade. To European policy makers, Russia is mostly viewed as an exporter of natural gas. However, the Russian domestic gas market has also seen several developments in recent years. This paper will provide an overview of the most important developments and regulatory changes on the domestic Russian gas market. The overview reveals the development of the market starting from the 1900s but with a particular emphasis on the period 2000-2017. The paper concludes with a section about the expected future developments on the domestic gas market in Russia.
The Russian gas market before 2000
The gas industry of Russia has existed for over 100 years. The Soviet Union had started searching for deposits of natural gas in 1920s in southern regions which eventually led to the discovery of the first large gas deposit in Kyrdymo-Elshan (Abyishev et al. 2015, p.359). In 1933 the first state-owned entity – Glavgas – emerged in order to manage the entire gas industry, separately from the oil industry. Glavgas, and Russia’s newly emerging gas industry slowly increased in importance within the Russian energy industry with total production increasing to 2.3 billion m3 by 1939 (Abuishev et al., p.357). 90% of the total production of natural gas was produced in Russia’s territory in the Caucasus (current day’s Azerbaijan). Compared to the total energy balance of the Russian state, natural gas still accounted only for about 2% (Abuishev et al., p.357). Many interesting developments, such as large investments in transmission pipelines and distribution grids happened during the following period. However we limit our analysis to the period which is mostly interesting with regards to the current developments on the Russian domestic gas market. In that regard, the 1990s were very important because of the collapse of the Soviet Union (USSR) and the period following it with new country borders and political regimes.
After the collapse of the USSR, large parts of the prior internal energy system of Russia became external as divisions of the USSR became separated as independent countries. As a consequence, the Russian government had to reconsider the entire natural gas industry including regulatory provisions, management, infrastructural facilities and pricing for the domestic market.
During that period, total natural gas production in Russia decreased from 643 billion m3 in 1991 to 590 billion m3 in 1999 (Korshak, 2017). There are three important reasons for this large decline in production volumes. Most importantly, because of the fall of the USSR, the country lost access to large natural gas deposits and facilities in regions which now became independent countries including Azerbaijan, Turkmenistan and Ukraine. Secondly, a large part of the transregional delivery of natural gas now became an export activity. This is because natural gas that before 1991 was exported through the USSR’s borders now fell under the responsibility of independent states. Finally, the collapse of the USSR and the economic crisis that followed had a serious impact on the purchasing power of the population. This naturally led to a decline in demand for natural by both households and industry.
Abarkina, D. & Bartelet, H.