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Netback pricing as a remedy for the Russian gas deficit

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Abstract

This descriptive study discusses the effects of increases in domestic gas prices on the Russian gas market. Domestic natural gas prices have remained below their long-run marginal cost for more than a decade since Russia's movement toward a market economy in 1991. As a result, the ability of the Russian gas sector to meet future growing demand from domestic and foreign consumers has come under question. In an attempt to avoid gas shortages in the future, Russian government wishes to introduce netback pricing of natural gas after 2011. Netback pricing refers to the process of equalizing the gas price in Russia to the gas price in Europe after adjusting for export taxes, transportation costs, and transit tariffs. The paper concludes that netback pricing can help Russia to avoid a gas deficit. However, the gas supply in Russia will remain tight until 2011. The downside of netback pricing is that it increases the ability of Gazprom to strengthen its control over the Russian gas industry.

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  • Marina Tsygankova, 2008. "Netback pricing as a remedy for the Russian gas deficit," Discussion Papers 554, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:554
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp554.pdf
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    1. Spanjer, Aldo, 2007. "Russian gas price reform and the EU-Russia gas relationship: Incentives, consequences and European security of supply," Energy Policy, Elsevier, vol. 35(5), pages 2889-2898, May.
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    More about this item

    Keywords

    Russia; natural gas; netback price; supply shortage; deficit;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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