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Russia: Gazprom Production Fall Raises Concern About Winter Preparations

  • Michael Lelyveld

Russia's gas production has plunged at a time when the economy continues to expand. It seems unlikely that current trends and low tariffs can continue without the risk of winter shortages and damage to economic growth.

Boston, 16 October 2001 (RFE/RL) -- Russia's gas monopoly Gazprom has suffered a steep drop in production at a time when the country is reporting strong economic growth. The fall in gas output may prompt concerns about Russia's preparations for winter this year.

In the first nine months of 2001, Gazprom's production plunged 13.1 percent from the comparable year-earlier period, Interfax reported last week. The decline may be one of the sharpest in the post-Soviet period in relation to the country's economic performance.

Last week, President Vladimir Putin said that Russia's gross domestic product could rise by as much as 5.8 percent this year. The nation's production of goods and services was up 5.9 percent in the first eight months, according to the State Statistics Committee.

Although Russia's economy keeps rising, Gazprom's production keeps falling, raising questions about the factors behind the current trends.

According to Interfax, Gazprom supplied 3.7 percent more gas to Russian consumers through August than it did a year earlier, apparently providing barely enough fuel to meet demands for economic growth.

But the volume of gas exports to Europe fell 8.8 percent, the Petroleum Argus newsletter said, quoting Gazprom figures. The industry cited mild weather in Europe last winter and higher prices for the decline.

Gazprom recorded an equally large 8.8 percent decrease in the amount of gas pumped into underground reservoirs. It is unclear whether the situation will lead to a shortfall of winter supplies.

None of the separate categories seems to account fully for the double-digit drop in Gazprom's output. The monopoly, which is 38 percent state-owned, is simply producing less.

The falloff is at odds with Gazprom plans announced last January to increase output this year. Last year, production fell about 4 percent at the world's largest gas company.

About two-thirds of Gazprom's resources come from depleted fields in Siberia. The company seems to have counted on production from its giant Zapolyarnoye field in the fourth quarter of this year. The deposit in western Siberia is supposed to come on line later this month.

But Gazprom is also in the midst of an unresolved dispute over whether it will be allowed to raise tariffs. The company's investment has lagged, but it may have little incentive unless domestic prices are increased.

Last week, Georgii Kutovoi, who heads the Federal Energy Commission, said that Gazprom's tariffs could soon be raised by 20 percent for industrial users and 25 percent for consumers, the Reuters news agency reported. The move has been anticipated for months.

But Deputy Prime Minister Viktor Khristenko appeared to rule out any increase until a study of gas sector reforms is finished sometime early next year, the Concise Energy news service said.

Economic Development and Trade Minister German Gref has also been cautious about rate hikes because of concern about inflationary pressures. Gazprom may be holding back until it sees how the dispute will be resolved.

Sergei Glaser, an analyst at Alfa Bank, told Concise Energy: "If something as prudent as this hike is delayed, the question arises as to what the schedule of further tariff increases will be. Tariffs need to be increased by at least 80 percent to make economic sense."

Few experts believe that any such increase is in the cards. But little progress has been evident in Putin's plans for energy reforms. Although the government has replaced top officials at Gazprom, the monopoly appears to be carrying on much as before.

Despite the establishment of the Federal Energy Commission to coordinate tariff hikes among the country's natural monopolies, the new body has yet to take its first step. In the meantime, winter is approaching while the tariff issue remains unresolved.

Last year, some Russian regions were hit with severe shortages of power and heat. But Gazprom has been reluctant to supply gas to Unified Electricity System because of its low tariffs. Instead, it has urged the company to convert over 80 of its power plants to coal and oil.

Unless the Federal Energy Commission can agree on a tariff formula that will provide incentives without sparking inflation, it may soon find that low gas production will lead to shortages and stifle economic growth.

While Gazprom and the government have been slow to change, their reform plans have been greeted by independent oil companies, which are eager to develop resources and sell them through Gazprom pipelines. But little has happened since the plans were announced.

Gazprom still accounts for nearly 90 percent of all the gas produced in Russia. And as long as tariffs are low, the oil companies will have no more reason than Gazprom to produce the fuel that Russia needs.