Gas Communism for Russians?

Gas Communism for Russians?


In the annual address to the Federal Assembly on April 21, 2021, Russian President Vladimir Putin once again raised the issue of free gas infrastructure development. People should not pay for connecting their homes to gas supply networks, he said ordering the government and municipal authorities to draw gas supply plans for the regions.

‘Last Mile’

At present, Gazprom builds inter-settlement gas pipelines, while municipalities are responsible for providing a local network to distribute gas to streets in towns or settlements. Residents have to pay for the pipe from the gas main to their houses.

"In this context, I support United Russia’s initiative, notably, that people do not have to pay for laying gas pipes directly to the border of their land plots in a residential area," Putin said at the time.

So why is this issue so acute? This is what the president said: "Quite a few Russian families live in areas connected to gas networks but their homes still have no access to gas for some reason. It seems the pipe is there but there is no gas at home.”

The reason might not be quite clear to the authorities, but the population understands it very well: it is not just expensive to bring gas to a household. It is extremely expensive.

A resident of the Neyvo-Rudyanka settlement in the Urals says: "We are currently charged 2,500 rubles ($34.05) per running meter. More than 700,000 rubles ($9,534) are needed to lay the pipe to the land plot border.”

A man in a Voronezh region settlement said as he showed the papers: "Here are the documents. A gas pipe to the borders of my plot will cost 483,539 rubles ($6,585.)”

“Unfortunately, rates across the country differ by a factor of 13. For example, in the Kaliningrad region, pipe laying costs 530 rubles ($7.22) per running meter versus 7,000 rubles ($95.34) in the Novgorod region. Of course, this is a tangible difference for people. In addition to the pipe, they have to pay for a package of documents, and often for the services of intermediaries who help avoid delays in the work," said Mikhail Kuznetsov, an All-Russia People’s Front expert.

The "record" was set by gas workers from Kyshtym. They offered a local to lay gas pipes to his house for 25 mln rubles ($340,500.)

"For 25 mln rubles, one can buy a plot of land with a palace. Clearly, this sum is unrealistic. How long should I save for? I will never be able to earn so much money," Alexei Kharlamov said.

Gas workers calmly explained that it is necessary to lay new pipes. However, judging by the sum, Alexei would not get a standard pipe 10-15 cm in diameter, but his personal ‘Kyshtym Stream.’

Chances are all these people will be lucky and pay a lower connection price. According to the new rules, Russians whose land plot is located within 200 m from the gas pipeline enjoy free connection.

What Gazprom and Government Offer

The number of regions which will test a new model of gas installation is to increase from 4 to 15. Gas will be brought to households free of charge. Last autumn, the Ministry of Energy was going to launch the pilot project in the Moscow, Chelyabinsk, Kurgan and Tyumen regions.

Now, the Amur, Arkhangelsk, Irkutsk, Murmansk and Pskov regions, the Zabaikalye, Krasnoyarsk, Perm and Primorye territories, and the Republics of Buryatia and Dagestan will also join the program. The Moscow and Tyumen regions have the highest gas penetration rate (85.9% and 79.8% respectively.) The Murmansk and Amur regions have the lowest rate (1.3% and 0.6%), according to the Ministry of Energy.

In total, 67 Russian regions are included in Gazprom's Gas Supply and Gas Infrastructure Expansion Program for the period of 2021-2025.

Map of Gas Infrastructure Expansion in Russian Regions

According to the map published by Gazprom, 290 km of gas pipelines will be laid in the Arkhangelsk region within 2021-2025. A total of 1,060 households and 24 boiler houses will be connected to the pipeline. In Yakutia, it is planned to supply gas to 5,135 households, connect 58 boiler houses and enterprises and build 223 km of gas pipelines.

Gas will be supplied to 1,252 households and apartments and 11 boiler houses in the Khanty-Mansi Autonomous District as it network will extend by 88 kilometers. In the Amur region, Gazprom is to build as many as 91 km of gas pipeline in five years. A total of 4,835 households and apartments, as well as 22 third-party facilities will probably be connected to the gas main. These plans are admittedly petty given the scope of the president’s order to have gas supplied to practically every household by 2030.

Things Could Have Been Different

The Irkutsk and Baikal regions and the Krasnoyarsk Territory though included in the 15 pilot projects, are not in the plans for the next five-year period. They are missing from Gazprom's map.

The large Kovykta gas condensate field is located in the Irkutsk region. It could have launched gas network development in the early 2000s by the East Siberia Gas Company established in 2003 as a joint venture of TNK-BP, a British-Russian company, and the Irkutsk Region Government. The East Siberia Gas Company intended to develop the Kovykta field and extend the pipeline to Sayansk in the south of the region and then to Irkutsk where it planned to create a world-class gas chemical production facility.

The project was developing dynamically. The construction of the Kovykta-Zhigalovo gas pipeline started in 2006. Gas was to have been supplied to the village in 2007. The construction had to be fully completed in 2010, which might well have happened as TNK-BP had both the ambition and the money for this.

If the big gas pipeline project had been finished, not only would the largest enterprises of Bratsk, Angarsk, and other industrial cities of the Irkutsk region have converted to gas-fired equipment, but ordinary people of the entire region would have enjoyed gas supply.

However, the plans never materialized. Why? The first reason is that in the mid-2000's, the Russian government banned all non-state companies from exporting gas. The plans of TNK-BP, a British-Russian company regarding Kovykta collapsed and, consequently, the project was frozen for decades.

An overgreedy Gazprom was the second reason. In 2007, it announced the large-scale Eastern Gas Program as 'an integrated gas production, transportation and supply system.'

The company was confident that the mega project with almost 100% state participation, thousands of kilometers of pipes to be laid in the taiga and tundra, no clear prospects and unspecified number of foreign customers would nonetheless pay back. Actually, China has been the only foreign buyer in the east.

In 2011, Gazprom managed to buy a controlling stake in the East Siberia Gas Company from TNK-BP and receive the rights to Kovykta. Gazprom's dreams came true, but not those of Irkutsk residents’.

At a meeting with Putin last July, Irkutsk region acting governor Igor Kobzev once again raised the issue of gas infrastructure expansion in the area.

"This is not an easy issue, but in fact a reasonable one. After all, the most important thing for us is not to sell this gas abroad, but to supply it to our own consumers, both industrial consumers and households, of course," Putin said.

So will Russians have gas in their homes?

“You might assume that the authorities will be fully responsible for laying the pipe from the main pipeline to the gas equipment in residential buildings, but this is not true. Laying a pipe to the house and installing equipment costs tens of thousands of rubles. It is clear that nobody is going to build ‘gas communism,’ neither Gazprom, nor other companies," said Stanislav Mitrakhovich, an expert with the National Energy Security Fund and senior researcher at the Financial University under the Russian government.

Analyzing the President's instruction, experts agree that even if these tasks are approved in regulatory acts and target programs, they will not be accomplished in practice. The total cost just for the ‘last mile’ will exceed 200 bln roubles ($2.72 bln), and the country needs more than 2 trln roubles ($27.24 bln) a year for gas network expansion. Even the federal budget cannot provide such funding. If Gazprom does not receive guaranteed compensation of costs from the budget, the gas supply program will be delayed and sabotaged, as is the case now.”

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