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James P. Henderson

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James P. Henderson

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The Globalization of Russian Gas

Political and Commercial Catalysts

James Henderson and Arild Moe

Since the collapse of the Soviet Union, Gazprom has dominated the Russian gas industry. However, the markets in which it operates have changed dramatically, with the company increasingly being challenged at home and abroad. At this critical moment, this insightful book analyses the involvement of the Russian gas industry in the changing international gas market and the dramatic implications for Russia’s role as a global supplier of gas in the future.
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James Henderson and Arild Moe

Chapter 1 explains the purpose of the book, briefly reviews recent changes in the framework conditions for the Russian gas industry and gas exports, refers to recent contributions in the research literature and explains the perspective of the book, presenting the main issues covered in the following chapters.

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James Henderson and Arild Moe

The domestic gas scene has changed with the rapid rise of independent gas companies, and Chapter 2 examines the reasons for their expansion and their growing competition. The companies’ further growth potential and strategies are evaluated. Recent developments in Russian gas politics and policies are presented showing conflicting visions and the link between organization of the domestic gas sector and exports. The chapter also discusses how the gas industry plays important roles beyond the delivery of energy, and concludes that functions related to political interests could provide obstacles to reform.

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James Henderson and Arild Moe

Despite increasing price competition, a real market for Russian gas where prices reflect economic realities does not exist. The launch of a gas exchange in St Petersburg has offered the latest, and most serious, opportunity for a true market price to be established. Chapter 3 discusses potential consequences and implications of the gas exchange: could it eventually provide a foundation for further liberalization of the domestic gas market, and given the location of the exchange at one end of the Nord Stream pipeline could it also impact the trading of gas exports to Europe?

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James Henderson and Arild Moe

Chapter 4 briefly reviews the history of Soviet and Russian gas exports to Europe. The main discussion is on how changes in the way gas is traded and the market in Europe is regulated by the EU have affected Russian gas exports. While the movement from long-term to short-term contracts and market-based pricing has been very much against the will of Gazprom, the company has adapted. Indeed, the chapter argues that the development of an integrated European gas market, which partly was intended to limit the need for more Russian gas, has actually worked in Gazprom’s favour.

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James Henderson and Arild Moe

The attitude to Russian gas in Europe has been ambiguous, with on the one hand a strong interest in securing the continuation of Russian gas supplies, while on the other various policy initiatives have been introduced to limit further expansion of Russian gas exports. Efforts to stop Russian pipelines have had mixed success, mainly because there are disagreements within the EU. The politicization of Russian gas in Europe has increased markedly since 2014 and gas issues are tightly connected to the conflict between Russia and Ukraine. Nevertheless, Russian gas exports have soared. One implication of this development is that transit through Ukraine will still be needed even if the new pipeline under the Baltic Sea – Nord Stream 2 – becomes operational.

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James Henderson and Arild Moe

Both commercial and political considerations are encouraging Russia to seek alternative markets for gas exports, with the Asia-Pacific region providing an obvious route for diversification. In particular, the proximity of huge gas resources in East Siberia to the world’s fastest growing gas market in China provides a clear opportunity. Chapter 6 analyses the development of Sino-Russian gas relations and how Russian gas fits into the Chinese energy strategy. Russian and Chinese preferences are not always in harmony, and the picture is complicated by the fact that all three major Russian gas producers have set their eyes on exports to the east.

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James Henderson and Arild Moe

LNG is the most dynamic part of international gas trading. Chapter 7 discusses the progress that Russia has made pursuing an ambitious LNG strategy. Gazprom was set to take a lead, but its efforts have not been very successful. Rosneft has also achieved little. Instead the private company Novatek, which succeeded in breaking Gazprom’s export monopoly, has become the national LNG champion and is likely to become an important global player in the LNG market. Tensions with traditional pipeline exports may have repercussions for the organization of the Russian gas sector.