Novatek Sees No Need to End Gazprom’s Pipeline Export Monopoly

Russia is unlikely to end OAO Gazprom (OGZD)’s monopoly on piped natural gas exports after President Vladimir Putin removed curbs on liquefied natural gas shipments abroad last year, domestic rival OAO Novatek (NVTK) said.

“We welcomed the liberalization of LNG export, but I don’t think this is going to happen to pipeline gas in the near future,” Russian billionaire Leonid Mikhelson, Novatek’s chief executive officer and its largest shareholder, told reporters in South Korea. Gazprom’s monopoly maybe reasonable to some degree because of its contribution to Russia’s economy, he said.

Gazprom, the world’s biggest gas producer, invests billions of dollars building and maintaining Russia’s mainline gas pipelines, carrying fuel from Siberian fields to Russia’s largest cities and beyond to customers in Europe. The Moscow-based company gets about 40 percent of its annual revenue of more than $150 billion from its gas-export business.

Gazprom’s average gas prices in Europe last year were almost four times higher than in Russia, the second-largest global gas market by consumption.

Mikhelson said that Gazprom explains its need to have export revenue to compensate the state-run company for higher gas extraction taxes than other producers have, and supplying a greater proportion of gas to households, which pay a lower price than industrial consumers.

Nevertheless, the situation in the Russian domestic gas market has changed, Novatek also has regions that fully rely on its supplies, including households.

“If we are speaking about equal economic conditions, there is no need to amend the law on gas export,” Mikhelson said. “It would be enough for Gazprom to buy gas from independent producers, which supply gas to all consumer categories” at prices that give similar margins to exports based on a producer’s domestic market share.

Gazprom may purchase fuel from its Russian rivals at prices agreed by both sidea, something the state doesn’t control under current legislation, the Energy Ministry’s press service said in an e-mailed comment. Gazprom has been always against granting other companies’ access to its export because of its higher costs, the ministry said.

To contact the reporter on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Amanda Jordan

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