Russian energy producers continue to experience problems after losing the European market which was their main source of revenue not so long ago.
Against the background of the collapse of income from export following the start of the invasion of Ukraine, Gazprom is demanding an increase in gas prices in the Russian Federation. According to the Kommersant website, the company proposed to the Russian Cabinet of Ministers to set freely-regulated gas prices in the domestic market.
The publication stated that Gazprom believes that the Russian gas industry should reorient itself from an export-oriented model towards the Russian market.
Today, the company supplies gas at rates set by the government of the Russian Federation. At the same time, other market participants sell this type of fuel at a variable price.
Gazprom, which has a 63 percent share of the Russian market (approximately 377 billion cubic meters), is required to supply gas according to the tariff even in those regions of the Russian Federation where the price is below the economically reasonable level. The company complains that such a scheme causes other companies to take over high-income regions and push Gazprom out of the market.
The gas production giant proposes to increase the range of regulated wholesale gas prices to 10-20% of the tariff level.
Meanwhile, Reuters notes that the Russian revenue from gas exports is likely to fall by 50% in 2023. According to calculations based on export duties and volumes, Gazprom’s global sales (excluding the domestic market) have dropped in January to $3.4 billion from $6.3 billion compared to the same period last year, following a sharp fall in gas supplies to Europe.
Over the past year, the share of Russian “blue fuel” in the European market has decreased from 45% to 7.5%.
Gas export is critically important for Russia because it is one of the country’s most important sources of revenue. It relies heavily on the income it generates from gas exports to support its economy. In 2020, natural gas exports accounted for more than 20% of Russia’s total exports.
Since the start of the invasion of Ukraine in 2022, the country’s export of gas and oil has been reduced drastically due to sanctions imposed with the aim of limiting the ability of the Russian Federation to finance its military industry.