Gas production in Russia reaching pre-crisis level

According to the Central Control Department of the Fuel and Energy Sector, gas production in Russia stepped up by 11.6% to 650.3bn cu m in 2010. In the pre-crisis year 2007 gas output was 654.1bn cu m, which gives us ground to speak about the return of a favorable period in the Russian gas industry like the one observed from 2006 to the first half of 2008.

Growth in Gazprom's parameters should be pointed out; in late 2010 positive news for Gazprom arrived from the European market where prices on the spot market surpassed prices on long-term contracts. Yet, this success is relative as the price conjuncture on the exchange changes constantly. Now the gas giant hopes that weakening of its positions in Europe will stop, while profitability of sales in Russia will advance. Gazprom has reported about increase in its 2010 production by 10% to 508.6bn cu m. With continuation of the current trend Gazprom expects to reach its pre-crisis level of production by the end of 2011 (the peak production of 556bn cu m was in 2006).

More substantial success of the whole gas industry compared to Gazprom's parameters is attributed to growth in the share of independent gas producers that was 21.8% in the total amount of production in Russia in 2010. Independent producers advanced gas production by 62.5%. The largest contribution was by NOVATEK, not oil firms - the company raised its 2010 output by 15%. NOVATEK has received many taxation preferences from the state and managed to acquire valuable production assets. The company also managed to secure a conditionally independent channel of gas exports - Gazprom had to make concessions having loosened its export monopoly stipulated by the law. Independent producers will have even more prospects in case Gazprom liberalizes access to the Single System of Gas Supplies, which is actively sought by powerful Rosneft with its very ambitious plans in the gas sector.

By Stanislav Mitrakhovich, NESF leading expert