What for is Pipe Needed if it is not Reach Your Household?

What for is Pipe Needed if it is not Reach Your Household?

Photo: http://tass.ru

From August 1, the price of natural gas for households in Russia has gone up 3%. At the same time, the prices for gas exported abroad have been reduced. There is still the question of why the Russians have to pay for gas that the Europeans use. The officials and top executives of gas and oil companies give no explanation, and it is very unlikely that they will give it at any time in the future.

Indeed, it is very difficult to justify the price policy of this kind where exported gas costs either as much or even cheaper than gas for the domestic market. As reported by the Russian mass media, according to the new rates, the revised wholesale price of 1,000 m3 of gas for the residents of the Moscow, Volgograd, Voronezh, and Belgorod regions is 3,921 rubles ($53.31.) The inhabitants of the Khanty-Mansi Autonomous Area in the western Siberia will pay 3,140 rubles ($42.69) for the same amount of gas while, for example, the price of natural gas in the Leningrad and Vladimir regions will be comparable with that in the Moscow region and will stand at 3,871 rubles ($52.63) per 1,000 m².

Meanwhile, according to Lenta.ru, in May this year, 1 m3 of gas costs $34 (about 2,500 rubles) at TTF, the largest natural gas trading hub in Denmark, and $60 (4,360 rubles) in the Pskov and Smolensk regions, that is, at Russia’s western border. On May 21, in Baumgarten in Austria at the European hub it costs $53, that is, 3,832 rubles per 1,000 m3.

According to Lenta.ru, Gazprom's losses from gas sales in the first quarter of this year amounted to about 306 bln rubles ($4,2 bln.) To make the revenues from gas sales in Russia equal to export revenues, the price of 1,000 m3 in Europe should not fall below $85 or 6,162 rubles at today's rate.

So far, this has not happened. It seems that producers of Russian gas as a minimum cover their losses to some extent at the expense of the prices for the Russian market. Of course, a 3% increase in the gas price on the domestic market is unlikely to make up for all the losses because the amount of additional revenue turns out to be negligible. For instance, according to the same report by Gazprom, the net revenue from gas sales in Russia in the past amounted to 970.9 bln rubles ($13.32 bln.) It means that a price increase by 3% will bring the company 29.1 bln rubles ($399.33 mln) of additional profit. However, these are only the most obvious expenses the ordinary Russians have to bear for supporting the state oligarchy.

The implicit details are related to the gas distribution services in Russia and the payment for the delivery of gas to Russian consumer. The thing is that people build pipeline extensions to their houses on their own, although officially it is done by the state. Gazprom’s website says that Russia is the world leader in gas distribution. It compares kilometers of built pipelines with the distance to the moon. The commonly known distance of 384,500 kilometers from the Earth to its satellite just disgracefully fades in front of more than 800,000 kilometers of gas distribution lines, which Russia had in 2019.

The truth is that the situation is somewhat different. To put it mildly, the installation of gas services in Russia leaves much to be desired. Most of the installation works are paid for by consumers themselves. For example, in the Moscow region alone, gas is not supplied to a huge number of households so far. Or to be more precise, it is supplied to certain townships, and the residents pay for the further extension of the distribution network themselves.

“The gas pipeline has been installed to the center of our village. Then we have to lay the lines [to our houses] at our own expense,” Andrey Grishin, a resident of the Odintsovo district in the Moscow region, said in an interview with wek.ru. “Previously, the installation of gas services to my house cost an enormous sum. I don't remember it exactly. Now the price has been reduced, but it also comes to 1 mln rubles ($13,722,69.) Luckily, my house is located near the gas-control unit. However, officially gas distribution has been installed in our village.”

A procedure of this kind costs hundreds of thousands of rubles in the Volgograd region. “Our prices, of course, can't be compared with those in the Moscow region,” Timur Stolyarov, a resident of the Volgograd region, told wek.ru. “However, with factual wages ranging from 12,000 ($164.67) to 15,000 rubles ($205.84) that people still need to find the way to earn, it remains unreal. Gas distribution networks are installed in the village, but no one uses it on their households. Personally I have no money to do it. It is cheaper to burn coal or wood.”

Probably, this is the data on which Gazprom's statistics are based. According to it, “as of January 1, 2020, the rate of provision of gas services in Russia is 70.1%, including 73% in urban areas and urban-type townships and 61.8% in rural areas. However, this is a wide cry from reality. Even the above-mentioned figures are overestimated, as to install gas distribution in a populated locality does not mean that every house there will have it. In turn, the owners of households will pay for this service to Gazprom itself, which will probably use these funds to “cover” its losses from gas exports to Europe. Well, somebody has to pay for it. Why not the Russian consumers?

And the payments will be big in spite of allegedly affordable prices, which are specified on the website, for example, Mosoblgaz gas networks operator. Thus, the statement that “the price for the design and construction of a gas pipeline on the customer's land plot and inside the residential building starts from 200,000 rubles” ($2,744.54) is just a marketing ploy. What matters here is the preposition “from”, not the sum of 200,000 rubles.

So, the amount of gas supply services on turnkey basis depends on many factors which we will not dwell on now. Officially, it will cost about 700,000 rubles ($9,605.88) in the Moscow region, 400,000 rubles ($5,489.08) in the Leningrad region, from 200,000 rubles ($2,744.54) in Nizhny Novgorod and Novosibirsk, and 250,000 ($3,430.67) in the Far East. The data is taken from the Council of Engineers website.

In reality, according to the information on the message boards, if a house with a land plot in the Samara region costs 2 mln rubles ($27,445.38,) the provision of gas services is estimated at 810,000 rubles ($11,115.38.) In the Sverdlovsk region the price for these services is 1.6 mln rubles ($21,956.31) only for provision of gas services to the house without installing a system in the house itself, which will cost a little cheaper. The provision of gas services costs 200,000 rubles ($2,744.54) in the Volgograd region, 300,000 rubles ($4,116.81) in the Rostov region and from 1 mln to 2 mln rubles (from $13,722.69 till $27,445.38) in the Moscow region.

In the Moscow region “a gas operator can issue an invoice for the sum of 4.6 mln and 9 mln rubles ($54,890.76, $82,336.15 and $123,504.22, respectively.)” Sometimes, the price might escalate to 120,000 ($164,672.29.) Everything depends on many factors, one of which is the distance from the main pipe to the house. That is why new houses in the Moscow region are built very close to the old dilapidated ones to which main pipes have already been connected. It shortens the distance and, therefore, the payment for gas services of a new house will be smaller.

That is why the 3% increase in the gas price doesn't affect many Russians as they don't have access to gas distribution. The situation is unlikely to change for the better in the near future, as the promise of the Ministry of Energy to provide gas supplies to 80% of the Russian households only by 2035 seems too high-flying even to ministry’s experts.

It is expensive both for the government and Gazprom, which instead benefits from exporting natural gas. If there are any problems with exports and the revenue from the Russian households reduces, then “internal reserves” come in handy. For instance, the increases of prices for the domestic market and, of course, the skimming of money from people for supplying gas to their houses.

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