Russian gas market: Domestic market deregulation impact on electricity prices

Abstract

Russia is the second largest gas producer in the world after the US and the main exporter of natural gas to the EU. There were 257 gas-producing companies in Russia at the beginning of 2016, among them the largest producer and exporter of the pipeline gas — Gazprom with production share of 64 %. Currently, Gazprom maintains the status of the pipeline export monopolist. At the same time, it receives the regulated tariffs in the domestic market, as a measure to restrict the market power in the domestic market. The objective of the paper is to examine the impacts of natural gas policy change on the domestic electricity market of Russia. The paper considers different scenarios of the Russian gas market deregulation, and their impact on the electricity prices. A mixed complementarity approach is used to estimate gas prices and its volumes depending on specific policy decision, and final electricity price in different price zones. Russian domestic gas market policy is an important topic, which is often interrelated with export policy, however, receives less attention, and a current paper aims to fulfill this gap.