Russia’s gas “Triopoly”: implications of a changing gas sector structure

Abstract

The growth strategies of the two largest so-called independent Russian gas producers-Novatek and Rosneft-as well as developments in international markets and changing domestic energy needs-have put pressure on the present Russian gas sector model dominated by Gazprom. The three companies are involved in a struggle over export liberalization as well as the conditions in the domestic market. An analysis of the resource base of the two Independents indicates that liquefied natural gas (LNG) is top priority for Novatek and that Rosneft's main gas focus is on eastern Russia and Asia, but there is still room for considerable tension with Gazprom. The government is faced with a dilemma, as it both wants to improve Russia's position in export markets and maintain stable domestic supplies, including to socially disadvantaged regions and institutions. Gazprom is insisting that if further access to export markets is granted to the Independents, then they must take greater responsibility for domestic market obligations, while on the other hand the key Independents seem intent on stopping or slowing down their expansion in the domestic market in order to prioritise export sales, and will certainly not take broader domestic supply responsibilities without better access to export markets. The balancing of policies will be difficult since it involves strong players on the Russian economic and political scene, all with ties to the Kremlin.

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“…Additionally, the gas market is dominated by three large companies: Gazprom which has the monopoly on the gas pipelines and two independent companies Rosneft and Novatek. The struggle between these three players is focused on the access to export markets and assuming responsibility for provisioning the domestic market at reduced prices, with Gazprom insisting that independent companies should not obtain rights to export gas if they do not provide for the Russian market (Henderson and Moe, 2017). Because of their dominant position on the market, the three companies negotiate prices to their advantage when buying APG from oil producers.…”

Defining trends in the evolution of the Russian gas market

“…The gas supply market remains highly concentrated, dominated by three vertically integrated oil and gas companies (VIOCs) -Gazprom, Novatek and Rosneftwhich put pressure on the current model of the Russian gas market by fighting for liberalization of exports and for conditions in the domestic market (Henderson & Arild, 2017), according to the FAS Russia, they own over 70 % of the market. The shares of each of the economic entities in the domestic gas market are above 8 %, the access of new competitors to this market is hampered not only by administrative barriers.…”

POLI advantages of state-owned multinationals

“…The Russian government had previously given Gazprom the monopoly to export LNG. However, under constant pressure from Rosneft and Novatek, the government allowed these firms to also export gas, taking away Gazprom's monopoly (Henderson and Moe, 2017). Nonetheless, when the government shows a strong interest in a company's operations, internationalization is possible even if the firm lacks an element of OLI advantages (Musacchio et al, 2015), as recently evidenced by Russia's decision to complete the controversial Nord Stream 2 pipeline under the Baltic Sea despite sanctions from the USA and withdrawal of international contractors (Astrasheuskaya, 2020).…”