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. Last Updated: 07/27/2016

Gazprom Plans to Share Market

Gazprom plans to reduce its share of the domestic gas market from 90 percent to 75 percent over the next decade, allowing other producers to fill in the gap, company officials said Thursday.

But to get access to Gazprom's pipeline monopoly, those producers will have to help pay for building new lines. "What they want is to get access to export pipelines, but this is a separate story," said Alexander Nemudrov, head of sales with Gazprom. "The domestic market is open to everybody."

Free access to the pipeline run by Gazprom has long been advocated by the World Bank, which insists on ending the gas giant's monopoly status. Gazprom managers, however, blame oil companies for wanting access to its system without sharing the cost of maintaining and expanding that system.

Oil companies burn most of the gas they produce as a byproduct of oil extraction because they say it is too expensive to sell.

Gazprom officials are confident that neither their Western counterparts nor the government are eager to undermine its privileged position.

"Our foreign counterparts, including Ruhrgas, Wintershall, Eni and Gas de France, are unwilling to enter in spot transactions," said Alexander Mikheyev, deputy head of marketing with Gazprom. "Even an inflow of an additional five [billion] to 10 billion cubic meters of gas will send the market in a spin."

Liberalization of the gas market has become a byword in the European Union, which has been trying to create competition in the market, currently dominated by several large players.

Gazprom is exporting some 120 bcm of gas a year outside the Commonwealth of Independent States, and is earning most of its cash on exports to Europe, for which prices are some six times higher than those in Russia.

"The task of the [European] suppliers is to not to rock the boat," said Mikheyev.

"And if the government is willing to share its profits with commercial companies, it may do so," said Nemudrov, adding that Gazprom pays about half of its total sales in taxes to the government.

However, at least one company — Rosneft — may shortly sign an agreement with Gazprom to build a pipeline linking its oil and gas fields to the southern Urals, namely the Chelyabinsk region, which will consume up to 15 bcm of gas extracted by Rosneft.

"We are now outlining the details of the agreement," said Vladimir Rezunenko, head of strategic development for Gazprom.

Another consortium is now being formed by several oil firms in northwestern Siberia to transport gas.

Gazprom officials say they are willing to share access to export routes with the oil majors, but only if they help pay the cost of extending the system.

Government statistics show that out of a total of 580 bcm of gas extracted last year some 523 bcm were supplied by Gazprom. About a third of this was exported by Gazprom, which has become the major creditor to three CIS nations — Ukraine, Moldova and Belarus — who together owe $3.5 billion for gas.

Ukraine alone owes $2.5 billion and only once in the past three years did it make an attempt to pay — it delivered bombers to the Russian army and Gazprom got a tax write-off.