Bargain: achieve, whether Ukraine a discount on Russian gas

Why Ukraine wants to resume deliveries of Russian gas?

Naftogaz, which buys Russian gas from “Gazprom” from November 2015, wants to resume its purchases from 1 July, on Tuesday said predpravleniya “Gazprom” Alexey Miller. According to him, it is about nine months — the second half of 2016 and first quarter 2017.

“Position “Naftogaz” is unchanged in the last year and a half: the purchase of gas from “Gazprom” is possible, if the Russian company will offer a lower price than European suppliers”, — said the Ukrainian company. In the winter of 2015-2016 first time that Ukraine has not purchased gas from Russia, underlines a press-service of the company: instead of Russian gas, Naftogaz bought gas from European suppliers for the reverse system (supply through transit pipelines in the opposite direction).

“The changing moods of the Ukrainian company is clear. Daily volume of reverse supplies from Europe decreased in June by 6.4 times compared to may and 16.8% compared to April,” said Miller. The decrease in reverse in the “Naftogaz” officially explain the principle of economy: the company has reduced purchases from European traders and waiting for September to buy gas will be cheaper than now.

Ukraine began to build a reverse supply from the EU in 2014, after the aggravation of political relations with Russia. Kiev buys gas reversal from Slovakia, Poland and Hungary, explaining that its price is lower than in Russia. According to “Naftogaz”, in 2015, Ukraine imported from Europe 9.2 billion cubic meters, and from Russia — only 6.1 billion cubic meters.

Ukraine is now turned to Gazprom with a proposal to resume gas supplies in the hope to agree on more favorable price, compared with products from European suppliers, in reverse, says Korchemkin. After all, by September gas prices will play the drop in oil prices in January 2016 (in January the price of Brent crude hit a low of $27 per barrel, and June 7 exceeded $51 per barrel; gas prices late for oil with a difference of up to nine months). In addition, for the implementation of Russian gas transit to Europe, Ukraine is obliged to fill its underground storage facilities before the heating season in September-October, he adds.

At what price, “Naftogaz” is ready to buy Russian gas?

On Tuesday, the press service of “Naftogaz” specified that the company “is ready to consider proposals of “Gazprom” [on gas supply] for the next three quarters,” but under the condition of reducing the cost of Russian gas to the level of the rates of gas hubs in Europe minus transportation costs (“transportation hub minus”). To do this, “Naftogaz” proposes to sign an additional agreement on Russian gas supplies, signed in 2009.

According to Director East European Gas Analysis Michael korchemkina, the price of gas at the hub Baumgarten on June 7 was $160 per 1 thousand cubic meters Transportation via Ukraine and Slovakia, according to his calculations, the cost is $40-45 per 1 thousand cubic meters of gas. That is according to the formula proposed by Ukraine, Russian gas would cost Kiev $115-120 per 1 thousand cubic meters And on the border with Germany, minus taxes and duties the price would be and is $80 for 1 thousand cubic meters. m according to the formula proposed by Ukraine.

In late may, the Minister of energy and coal industry of Ukraine Igor Nasalik said that the cost of fuel for Ukraine should be $130 for 1 thousand cubic meters, if it was formed on the basis of economic indicators. According to estimates korchemkina, in the third quarter (taking into account the fall in oil prices early in the year), the price of Russian gas will amount to just about $135 per 1 thousand cubic meters.

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In the first quarter of 2016, Naftogaz paid $198 for 1 thousand cubic meters for purchase from European suppliers of gas taking into account transportation, the company said on its website. And the price of Russian gas for Ukraine during the same period under the current contract with the discount was $212,3 per 1 thousand cubic meters (the size of the discount — $1, of 17, 77 thousand cubic meters). The validity of this discount expired April 1, but due to the fall in energy prices the price of Russian gas for Ukraine is still decreased, to less than $180 for 1 thousand cubic meters, said in early April the Minister of energy of Russia Alexander Novak. Kiev, however, continued to demand a discount, and the parties failed to agree on the resumption of deliveries in the second quarter.

The head of “Naftogaz” Andrey KOBOLEV on Monday said that the company is already more than a year negotiating with the world Bank on a loan of $500 million for gas purchases. He hoped that for the next heating season, this tranche will be received. In the past heating season, Naftogaz borrowed $300 million loan for the purchase of gas from the EBRD and has managed to get them back. Moreover, in 2016 Ukraine plans to reduce gas imports to 11 to 13 billion cubic meters — that’s 33% less compared to last year.

At what price Gazprom is ready to sell gas to Ukraine?

Compared to the European price of reverse average price of deliveries “Gazprom” (if Ukraine in 2015 he bought gas directly) would have been lower by $4.6 for each 1 thousand cubic meters: $262,7 against $267,3 for 1 thousand cubic m year, according to RBC head of contracts structuring and pricing Department of analysis and optimization of “Gazprom export” Sergey Komlev.

In the fall of 2015, Prime Minister of Russia Dmitry Medvedev said that Ukraine buys from the European traders of Russian gas via the “virtual” reverse gas purchased by the end customer, but physically he doesn’t get) 20-30% more expensive than they could buy directly.

At the same time, the average price of 2015 for the European countries under long-term contracts totaled $238 per 1 thousand cubic meters, said in late may at the press conference, the Chairman of “Gazprom” Alexander Medvedev.

In April 2016, the Ukrainian Minister of energy and coal industry Volodymyr Demchyshyn (later in this post it was replaced by Igor Nasalik) said that Russia offered to supply gas to Ukraine at $185 per 1 thousand cubic meters in the second quarter, which also exceeded the prices of European traders. The interlocutor of RBC in “Gazprom” considers the price fair, based on current oil prices. Supply of gas at European hubs excluding transportation ($115-120 per 1 thousand cubic meters in the third quarter) would mean that “Gazprom” will supply gas at a loss, he said. However, the Ukrainian market is important for Gazprom, so the company will continue negotiations with “naftogazom” on the basis of “reasonable market position,” he added. Official representative of “Gazprom” declined to comment.

Still debating about what “Gazprom” and “Naftogaz”?

The contract of Naftogaz with Gazprom, signed in 2009 by Yulia Tymoshenko’s government, no longer satisfied with Ukraine. But it expires only in 2019. Naftogaz disputed the terms of this contract to arbitration in Stockholm. “Gazprom” has put forward the buyer’s counterclaim in the same arbitration for failure to comply with conditions of gas extraction by the “take or pay”. The total amount of claims “Gazprom” to “Naftogaz” has already reached $32 billion of the claim “Naftogaz” to “Gazprom” on revision of the prices are estimated at $25.7 billion

Now “Naftogaz” offers “Gazprom” in addition to the gas contract to fix the abolition of the condition “take or pay” and to assure Kiev that the prepayment will not be credited for repayment of debts and will not go to pay for gas for DND and LNR, informs the Internet-edition of “Apostrophe. Economy” referring to own source.

Five years ago, Kiev was one of the largest buyers of gas from Gazprom: in 2011, the Russian company sold the Ukraine, almost 45 billion cubic meters of gas worth about $13 billion, Korchemkin reminds. But since 2013, Ukraine has sharply reduced purchases in that year “Gazprom” has put to Ukraine 25,84 billion cubic meters of gas in 2014 to 14.5 billion cubic meters, and in 2015 — only 6.1 billion cubic meters.

Forecasts for the year

Average contract prices for Russian natural gas, according to the International monetary Fund, on the border of Germany in April 2016, amounted to $of 144.7 per 1 thousand cubic meters, or 45.6% less compared to the same month last year, according to monitoring of Ministry of economic development. The average price of gas exported to Europe in 2016 under long-term contracts will be approximately $167-171 per 1 thousand cubic meters. m (in 2015 — $238 per 1 thousand cubic meters), said in late may, the Chairman of “Gazprom” Alexander Medvedev. Scope of supply — about 165 billion cubic meters compared with 159 billion cubic meters in 2015.