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Price of gas
for Ukraine and
future problems
Russian Gazprom and Ukrainian
Naftogaz have signed two agreements that regulate the transit of Russian gas
to Europe and supply to Ukraine for the period 2009-2018. In our view,
because of a very short preparation time of one night, the agreements have
two points that may cause serious problems later this year.
First, Naftogaz has absolutely no
incentives to buy expensive gas in May-June and inject it into
underground storage facilities, because the price in November-December
will be much lower. One should keep in mind the following issues.
-
The existing
pipelines of Gazprom are unable to deliver enough gas to meet
the combined demand of Ukraine, Belarus, Moldova and Europe in winter.
-
Gas withdrawal from the storage facilities of Ukraine is a
necessary component of winter supplies.
-
Shortage of gas
in the underground storage facilities of Ukraine can put at risk
the supply of Russian gas to Europe again next winter.
Our projections of the average
price of European exports of Gazprom and the price for Ukraine are shown in
Figure 1 and Table 1.
Figure 1. Price of Brent crude and the average price of European exports of
Gazprom
Sources:
Gazprom; EIA;
East European Gas Analysis.
Table 1.
Export price of gas, USD/mcm
|
|
2006 |
2008 |
2008 |
2008 |
2008 |
2009 |
2009 |
2009 |
2009 |
2009 |
|
|
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Ave |
|
Europe and Turkey |
243 |
346 |
400 |
460 |
500 |
384 |
246 |
180 |
176 |
241 |
|
Ukraine (1) |
230 |
180 |
180 |
180 |
180 |
360 |
230 |
168 |
165 |
190 |
|
Average price of
Brent crude, $/bbl |
62 |
97 |
121 |
114 |
55 |
45 |
45 |
45 |
45 |
45 |
Data for Q3-Q4-2008 and
2009 are estimations of East European Gas Analysis.
(1) The price of 2008 was
$179.50/mcm. In Q1-2006 - the price of gas produced in Russia.
The projections assume the price
of Brent crude at $45 per barrel. Note that Ukraine is unlikely to buy any
gas from Gazprom in Q1-2009 at the price of $360/mcm, because Naftogaz has
enough fuel in the gas storage facilities to meet the low demand affected by
the crisis. So, the average price of gas for Ukraine in 2009 is likely to be
below $190/mcm.
In Q2-2009, when Naftogaz needs
to buy 7-8 bcm of gas and inject it into storage facilities, the price of
gas for Ukraine is likely to be $230/mcm, while that in Q4-2009 $165/mcm.
The falling price is sending Naftogaz a strong and clear signal not to buy. There are two ways of solving this problem.
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Gazprom creates an
incentive for Naftogaz to buy "summer gas" by giving a serious
price discount. In my view, the price of "summer gas" should be
about $100/mcm. Then the average price of gas for Ukraine in
2009 will be about $150/mcm.
-
Gazprom signs a storage service
contract with Naftogaz at European tariff with a 20% discount,
which would be $70-90/mcm. The average price will be about $190/mcm.
There is still time to negotiate
the storage deal. However, it has to be done by mid-April at the latest.
Otherwise, there will be shortages of gas in Europe and/or Ukraine again next winter.
Second, Naftogaz sells
transit services to Gazprom at dumping price because the Ukrainian
transit tariff of $1.70/mcm per 100 km does not cover the cost of transit
operations. It may run counter to the international obligations of Ukraine
as a member-state of the World Trade Organization.
Mikhail
Korchemkin
January 21, 2009
P.S. Currently, Rosukrenergo
(RUE) owns some 11 bcm of gas injected in Ukrainian storage facilities. To
withdraw this gas under a minimum European tariff, RUE would need to pay
$1.3 billion. However, current Ukrainian storage tariff is set at 4% of the
minimum European rate, which reduces the value of the storage contract to a
mere $55 million. Apparently, the energy regulating authorities of Ukraine
are interested in preserving the last remaining profits of the Swiss broker.
Reproduction or use of the materials is allowed only with the reference to East European Gas
Analysis or www.eegas.com
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