According to Kirill Molodtsov, the Russian Deputy Minister of Energy, exchanges within Russia will begin trading natural gas in 2014. The announcement came during a meeting covering the government’s assistance to the Russian gas market.

Deputy Energy Minister Molodtsov recently indicated that his Ministry is finalizing a package of legislative measures required for the free-float trading of natural gas. The Deputy Minister is hopeful that the first transactions involving the sale of gas at exchanges will begin next year.

It follows from Deputy Minister Molodtsov’s announcement that all state-created barriers to trading gas on Russian exchanges are to be lifted by the end of December 2013. Once that result is achieved, market participants that are willing to trade gas at exchanges would be able to do so freely.

As the Ministry of Energy drafts the regulations authorizing exchange trading to occur, it will be working in coordination with Russia’s Federal Antimonopoly Service. The two agencies are likely to rely heavily on the knowledge that they have accumulated in authorizing exchange trading of petroleum products. In the view of Mr. Molodtsov, the Ministry is not terribly preoccupied about handling the challenges that are similar to what it had encountered earlier with oil.

The government extended to the Russian gas monopoly Gazprom the right to trade gas at exchanges at below-FTS (Federal Tariff Service prices. According to an earlier statement by the Minister of Energy Alexander Novak, Gazprom was to be permitted to trade gas at prices that were 10 percent lower than those set by the FTS.

Separately, the Ministry of Energy is reviewing the request of independent producers to decrease the fees for transporting gas. Based on Mr. Molodtsov’s comments, the Ministry is at this time considering a possible reduction for both underground storage and transportation fees.

Alexander Natalenko, who serves as the Chairman of the Board of Directors at Novatek, indicated that the gas transportation fee comprises nearly half of the price that the enc consumers are billed at. Transportation rates are also going up. According to Mr. Natalenko, it is the underground storage facilities that present the most difficulties because they are not subject to any regulation.

Another independent producer of natural gas Rosneft has made a proposal for replacing the system of progressively rising transportation fees with a framework of progressively decreasing rates, which would be conducive to a more intensified development of Russian gas reserves. Oleg Ivanov, the deputy director of Rosneft was the one to announce the initiative of the state-owned oil company relative to the gas sector. According to Mr. Ivanov, Russia’s internal fees for gas transportation have been on the rise for a number of years, such that they are now nearly 80 percent above comparable prices in the U.S. While transportation fees typically comprise approximately half of the cost of gas across most regions of Russia, there are instances where they account for as much as 70 percent of total cost. According to the Rosneft representative, his company cannot afford transporting the natural gas it produces to remote areas of the country. Altogether, Mr. Ivanov reiterated that problems with development are particularly acute for independent producers of natural gas. He further went on to say that independent producers are essentially being forced off the market.

For purposes of following through with the company’s plans after the downward revision of the rate of economic expansion, Rosneft’s gas producing division is confronting a host of problems. On the one hand, transportation fees are increasing, and on the other the gas prices set by the FTS are not going up. While it is possible for Gazprom to mollify the effect of these market challenges thanks to the company’s tax breaks and the immense profits it receives from exports, independent producers cannot cope with the market problems as effectively.

In view of the difficulties that the producers have encountered, Rosneft decided to lead the charge in demanding for a reduction of transportation rates to the levels used in most industrial nations around the world. In particular, Mr. Ivanov has said that for purposes of spurring development in the gas production sector, the rise in transportation fees must stop. It is also Rosneft’s position that the government should implement clear regulations for fee assessment for underground storage.

Rosneft has further indicated that it will call on the government to create within the FTS agency a committee, whose purpose would be to take into account the concerns of independent producers in setting the rates for gas.

Voicing a different view, Mr. Vasily Smirnov of Gazprom’s economic analysis department responded to the objections of the independent producers with a comment to the effect that the Russian and the American systems of natural gas transportation rate structuring may not be compared. In Russia, there is an entire infrastructure for delivering the gas from the north and the northeast to the west and the southwest. By contrast, in the U.S., the system is set up as a distribution network, and the gas fields are largely connected to the end users.