Moscow Times: Why Gazprom May Go From Lion to Mouse

Prime Minister Dmitry Medvedev shocked many in Davos on Wednesday when he told Bloomberg that "Gazprom may lose its monopoly on gas exports from Russia."

This statement underscores the rise of the independent gas producers and marks a paradigm shift for the Russian gas market. Last year,Gazprom's production decreased 5.4 percent, while the independents increased their output. For example, Novatek's production grew 7.1 percent in 2012.

Inside Russia, the key impact has been that Gazprom, the dominant supplier, lost important clients such as E.On Russia. There was a similar story at a previous development, when Qatari gas first started to compete in Europe. Traditional suppliers lost market share because of newcomers' competitive pricing.

Currently, gas trade in Russia is regulated by the Federal Tariffs Service, or FTS. While Gazprom has to respect FTS' prices within a 3 percent margin, independents can sell below the minimum tariffs, allowing them to gain market share. In an oversupplied gas market, the reintroduction of spot trading, expected this fall, could boost even more the expansion of the gas independents at the expense of Gazprom.

Independents have key advantages over Gazprom. They can secure new supply contracts, control lifting costs and buy gas production and distribution assets. Their ability to lobby for tax breaks has also contributed to their success. For example, the favorable tax regime was a key factor in Total's decision to partner with  Novatek.  MORE