My decision to stick my neck out has proven to be mostly correct; Gas Decision Put Off until Next Month. I could claim that I was completely correct however, the job of blogs like this is to try to explain the nuance that the MSM either cannot or will not.
The apparent decision not to progress with the deal which seems to have been worked out between GAZP, UES and Gref's MEDT Ministry is that the fundamental answers on energy balance between gas, coal and oil (mazut) going forward have not been worked out. It's a point which has some merit after the failure of the Energy 2020 policy. Adopted in mid/late 2003 it was already out of date by mid-2005. With the government forecasting a requirement for $60bn of annual investment in the gas industry (by GAZP) some clarity on the return on that investment is needed. Given the personal economic interests at stake it is hard to believe that some understanding has not been reached on future gas price liberalization.
UFG/Deutsche note in their morning comment that;
“the President requested the government to work out a consolidated position on whether to benchmark the domestic gas price in the long-term contracts against the international price.”
From other comments elsewhere there is a sense of basic economic misunderstanding from the Kremlin. VVP thinks that as much gas as possible should be exported west where it will earn $250/mcm. Yet the long-term price for gas in Europe, assuming $40-ish/bbl of oil is closer to $140/mcm. More importantly GAZP, UES and MEDT have been basing their forecasts on netback parity pricing (the price where it makes no difference whether you export gas or not.) I genuinely feel that this point has been missed somewhere out there.
Conspiracy theorists will wonder why VVP is so concerned that Russia should be shielded from international price movements. Is Russia seeking to corner the European energy market?
The main reason for the delay in the decision seems to me to have two interrelated causes. Firstly the good Tsar can't be seen to be hurting “his” people. Secondly with so much media coverage being provided by the main participants (who were clearly muzzled after yesterday's meeting) it will be difficult for the bad news to be buried. I reiterate my forecast that whatever decision will be, or has been, made will be made public in late-December.
Meanwhile, Mezhregiongaz held the first public trading session for gas. GAZP and Novatek both participated with the average price being around $60/mcm.
“The market was not very active today. It is probably because of the mild weather. The main buyers were utilities from near Moscow and farther down to the Urals”
Whilst it would be naiive to describe this as the open market it is at least an indication of real pricing. For specialist interests it is as yet unclear where the price is quoted. If delivered the real price increases are not as huge as they would seem upfront.
The contracts are for physical delivery.
[composed and posted with ecto]