No profit: why is it not profitable for Gazprom to gasify Russia

As you know, the level of gasification in Russia is only 67-68%, and this despite the fact that the sale of gas abroad is the main item of the Russian budget.

Moreover, in our country, until now, about 13% of households heated by decentralized heat supply still use non-environmentally friendly solid fuels, and in densely populated and generally gasified regions, such as Krasnodar Territory, Perm Territory, Tatarstan, 0.5 million people they have neither gas nor centralized heating, writes Maria Gaivoronskaya, economist at the Institute for Scientific Forecasting (INP) of the Russian Academy of Sciences.

Meanwhile, in his message, Putin gave Gazprom the task of gasifying Russian housing free of charge for consumers. True, experts have already noted that both Gazprom itself and a number of departments have furnished this instruction with various conditions, so that gasification may turn out to be conditionally free, and for some it will be completely paid (or gas networks will not come to their settlements at all)... Why is Gazprom resisting this program? Because this program will cost him almost $ 2 trillion. rub. This figure was calculated by Gaivoronskaya in her work.

In her calculations, the author cited Russia's need for gasification of the housing stock.

“The domestic market consumes almost twice as much gas as the foreign market - 481 billion cubic meters. m and 248 billion, respectively. in 2018. Including about 60 billion cubic meters. m is consumed by the population, which is 12% of the total consumption of natural gas by the domestic market..."

Further, the author determines the area of housing in which gasification is possible (taking into account the fact that a significant part of dwellings will never be able to be gasified due to the distances and remoteness of gas pipelines - primarily in Siberia and the Far East):

"The need for gasification in Russia as a whole has 9.4% of the area or 13.9 million people living in 5.3 million households."

So why is this program not interesting to Gazprom? The author gives this answer:

Gazprom is responsible for both export and gasification. For the company, these are two competing directions in terms of allocating investment resources. Obviously, the company finances the direction that generates more income (export) at the expense of less profitable alternatives. Therefore, gasification (within Russia) is viewed as a social responsibility rather than a profitable business. It is more understandable and profitable for Gazprom to build a large export gas pipeline or invest in the development of a new field than to build new gas networks and connect a hundred villages..."

According to the expert, the volume of costs for gasification of all households with a need for this is 1 trillion. 868 billion rubles (in 2019 prices; taking into account inflation for a year and a half at the level of 7%, this figure exceeded 2 trillion.

As a result of the implementation of such projects, the level of gasification in Russia as a whole will be increased by 8-10 pp. up to 76%, which will almost completely cover the demand for network gas. Additional supplies of natural gas to the domestic market due to gasification can be estimated at 20-25 billion cubic meters. m.

According to the Proeconomics channel, Gazprom has higher production costs than others (mainly oil companies) or NOVATEK. Transportation costs are roughly comparable. The severance tax (the main tax for the domestic market) is almost two times different - more than a thousand rubles per thousand cubic meters. m for "Gazprom" and almost 2 times lower for other manufacturers. As a result, the profit from deliveries to the domestic market varies significantly. Estimated for Gazprom, it was about zero, and some suppliers are not only profitable, but can also be highly profitable - profitability in terms of revenue is up to 20%. Attraction of these companies to increase domestic supplies to newly gasified settlements can be beneficial to all market participants".