Ryazanov said the concern aimed to hit its objective of producing 547 b cm this year and added that natural gas output was projected to increase to 580 b cm - 590 b cm by 2020. He went on the say the company would incur a $700 million loss from domestic sales in 2005 and wanted to liberalize the gas market for industrial customers by 2008.
The official added that 2005 export revenue would reach $27 billion and domestic sales $11.4 billion.
This is not first time Gazprom has raised the issue of freeing up gas prices for industrial customers but up to this point they have been rejected by the government. Not only does Gazprom incur losses at home due to regulated domestic process, but this also hurts the company share price.
Although domestic prices have risen relatively sharply since 2000, and are supposed to go up further as a condition of Russia's membership of the World Trade Organization, they remain low. The average wholesale price in Russia on 2004 was $29 per thousand cubic meters (tcm); for exports to western Europe, the average price was between $140 and $160. The result is what could be described as reverse dumping. Gazprom receives two-thirds of its revenue from the one-third of output that it sells abroad.
While this situation is undesirable for Gazprom, it does have benefits for Russia. When considering domestic price hikes for natural gas, the company and the government must take into account the impact on inflation growth and the ability of consumers, particularly the residential sector, to pay.
