The Russian gas price reform and its impact on Russian gas consumption

This article provides quantitative assessments of the impact of Russia's ongoing reform of domestic natural gas prices on the country's consumption of natural gas. The base assumption is that Russia could go through an adaptation process analogous to what occurred in more advanced transition countries. Empirical gas demand models are thus estimated for the transition countries of Central Europe for the period 1992-2006.

The results are used to calibrate gas demand functions for the Russian Federation. Forward projections are then made up to 2020, separately for both industrial and residential consumption. This is complemented with estimates based on benchmarking for potential savings in generation of electricity and heat, and for gas transmission and distribution. The projected levels for total gas savings are large: in a range of 83 to 134 bcm per year by 2020 as compared to the 2007 level, provided price reform paths remain strong and assuming favourable conditions for rapid and large-scale investments in the electricity and heat generation sector. The results also suggest that Russia's net export potential should rise provided developments are favourable on the production side as well.

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