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Russia Wrestles with Gas Export "Liberalization"

When Russia signed a long-awaited $400 billion gas deal with China, the state-owned Russian gas company Gazprom was likely popping champagne corks and opening cans of caviar. The agreement, which included the construction of a pipeline connecting the two countries, will send trillions of cubic feet of gas east, over which Gazprom will have a monopoly.

This state of affairs isn’t sitting well with another state-owned Russian energy firm, Rosneft, which sees exports as critical to its future growth. Putin reportedly ordered the Russian government to consider breaking Gazprom’s monopoly on exports this week—the closest thing to market liberalization Moscow seems willing to stomach in the oil and gas industry. The FT reports:

Gazprom has fought for full control of the Power of Siberia pipeline, insisting it will pay for its construction itself…. But the gas export monopoly has come under increasing pressure from Rosneft and its head Igor Sechin, which view the pipeline as a key tool in fulfilling its growth targets.

Earlier this month Rosneft threatened to sue Gazprom if it refused to grant it and other producers access to Power of Siberia, insisting that not doing so would prevent Siberian residents from fulfilling their heat and electricity needs.

But a Kremlin economic advisor has poured cold water on this idea, saying that “Gazprom’s monopoly on [pipeline] network gas exports remains unshakeable,” according to Reuters. Gas export liberalization, even when contained within state-owned firms, seems to still be unpalatable in Moscow.

Clinging to the status quo won’t do Russia favors in the long-term, though. Most of the country’s mature oil and gas fields face declining production. To counter this, Moscow needs to encourage unconventional drilling in the Yamal Peninsula and the Arctic. To do that, it will need multiple players willing to take risks. Allowing Rosneft access to markets abroad seems prudent in that light. Whether Putin can push that through remains to be seen.

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