MOSCOW. (RIA Novosti economic commentator Vasily Zubkov) - The first electronic natural-gas trading session was held in Moscow on November 22 by decision of the government.
The event marked the beginning of an experiment that will last through 2006 and 2007. At first, trading will take place once a month, and later, every ten days.
Gas exchanges operate in the United States, the United Kingdom and Belgium. To be fair, it should be mentioned that several years ago Russia did try to sell gas at free prices. In 2003, for example, it offered 40 million cubic meters for sale. A volume 250 times bigger (10 billion cu m) was allocated for the latest experiment.
Half of it will come from Gazprom and the other half from independent producers. Hence the 5 + 5 trading formula. If all goes well, then next year the Industry and Energy Ministry will increase sales to 30 bcm, or 10% of all gas supplied to the domestic market. Among the mandatory government conditions is that Gazprom's sales must not exceed independent sales.
What is new compared to the earlier auctions? Incidentally, it would be an exaggeration to describe them as such - then, a buyer was invited either to agree or disagree with the seller's price. Vyacheslav Kravchenko, head of the gas department at the Ministry of Industry and Energy, said prior to the sales that Gazprom has liberalized information about available pumping capacities, because without giving independent producers access to pipes, free trade is nonsense. This time the gas concern guaranteed delivery in December of all the gas purchased on the exchange, regardless of who sold it. Perhaps spot deliveries will be made within several days in the future. The system of bidding has also been made transparent and easy to understand. Another important point is that Gazprom and independent producers now enjoy full parity, with no distinction made in values depending on the supplier.
Trading was done via central compression stations on long-distance gas pipelines covering the principal consumer areas. Buyers included mainly energy and metals companies, firms selling gas in the regions and Mezhregiongaz subsidiaries, as well as free traders.
Most of the gas - 70 million cu m (60%) - was sold to OGK-4 (Generation Company Four). The deal was large enough to affect the price. After the first two auctions, the price was above $60 per thousand cubic meters. The final average weighted price at compression stations was $36.89, and at regional gas distribution stations it was $51.07.
Ahead of trading, experts had forecasted a 45% to 47% rise, but the real figures proved modest - 31.6%. All in all, 119 million cu m was sold, although 150-200 million cu m was expected to be bid on. Many explain the relatively small quantities sold by the warm weather in most of the country.
Specialists forecasted that between 150 and 200 companies might trade. Itera, Novatek, TNK-BP, LUKoil, Rosneft and others were supposed to be among the sellers. In the end, however, only Gazprom and Novatek took part in the gas auction, while the other producers held back.
Long before trading began, experts commented on the lack of interest among independent suppliers. The main reason is that the latter can always sell their gas at negotiated, or free, prices, at least inside the country. Gazprom takes a different approach. It benefits from exchange trading because it can sell a combination of its own gas and gas imported from Turkmenistan.
The exchange has sold less gas than it was expected to. Is this a poor result? Perhaps it would be wrong to think so. According to Deputy Industry and Energy Minister Andrei Dementyev, the experiment will help to improve the trading technology, get adequate price signals, and create incentives for more effective use of gas.
The second exchange session is scheduled for December 15 and is expected to generate more interest because its gas volumes will be counted on the 2007 balance sheet.
