The Viability of Deregulation in the Russian Gas Industry

Russia, with total production of 581 bcm (billion of cubic meters), is the world’s leading producer of gas. Despite that, however, the problems currently faced by its gas industry are many and significant. On one hand, questions are still being asked on the capacity of Gazprom, the national company, to face up to the considerable financial needs to renew the major gas deposits developed under the Soviet days. The Russian gas company is already heavily indebted, while the profitability of a significant portion of its domestic market sales has still to be demonstrated because of very low gas prices and a significant level of nonmonetary relations. On the other hand, the progressive deregulation of the European gas market, its principal export market, carries stakes of a different kind for Gazprom. Its most likely effect will be to bring about significant changes to the future long-term gas contracts that form the basis for the long-term financing of investments and therefore the development of industrial capacity.