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Friday, October 21, 2016

Kiev unconsciously recognized the profitability of purchases of Russian gas

Ukraine unexpectedly again began to think about the purchase of Russian gas – especially since the supply of the so-called reverse gas from Europe almost stopped. Despite repeated complaints to the Ukrainian officials for allegedly inflated Russian prices, has once again revealed that to buy gas in Russia is much more profitable than European intermediaries.

Gazprom received a letter from Naftogaz with the request for the resumption of Russian gas supplies in the second half of 2016 and first quarter 2017, reported Chairman of the Board of the concern Alexey Miller.

“This may be an attempt of Kiev to force the European Union to Finance the pumping of blue fuel in underground storage facilities”

On the eve the head of “Naftogaz of Ukraine” Andrew KOBOLEV said that the possibility of purchases of Russian gas since the third quarter.

“This is from nine months: the second half of 2016 and first quarter 2017. That is all about the coming winter and the period leading up to it. 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 the statement KOBOLEV Miller.

As reported, COBOL meant that the purchase possible “in the case that Gazprom will agree to make temporary changes to an existing contract (…), in this particular case, if the price is lower than the price that we offer with European destinations, from the point of view of minimization of consumer spending and common sense will be right to buy this gas from the Eastern direction”.

Indeed, in the second quarter, Naftogaz purchased very meager volumes of reverse gas in Europe. “Today, imported about 340 million cubic meters from April 2016. In June, almost fully discontinued purchases”, – said Deputy Director of the national energy security Fund Alexei Grivach.

Why suddenly Naftogaz stopped buying gas in Europe and at the same time remembered about the Russian blue fuel? There can be several reasons, both commercial and political.

To begin with – at the moment, Ukraine does not need imported gas to cover current consumption, which is sharply reduced in the spring and summer, notes Grivach. However, the purchase of imported gas in this period is necessary for injection into Ukrainian underground gas storage (UGS) – to prepare for the new heating season.

But Kiev decided not to go ahead with the injection into underground storage facilities. “In Ukraine there is an understanding that in the third quarter of Russian gas even more cheaper, so they decided to postpone the fix for the third quarter. But expectations that also fall in price and reverse gas,” – says Grivach.

The price under the contract for Russian gas will fall somewhere in the 5% compared with the second quarter, considered Grivach. In the second quarter contract price was called at $ 180-190 per thousand cubic meters, therefore, in the third quarter it can be reduced to 9-9,5 dollars. Then as now the prices on the spot market in Europe rose to $ 180-190 per thousand cubic meters at the hub. Traders also are guided by prices in the European gas hub, and if they supply gas to Ukraine, then added to the spot price, the transport costs plus a margin, which is almost 20-30 dollars. Thus, the cost of reverse gas from Europe to Ukraine in the next quarter could reach $ 200-220 per thousand cubic meters against $ 180-190 for the Russian.

Thus, when the purchase of Russian gas Ukraine would be significantly saved about $ 160-250 million, given that Naftogaz of Ukraine is planning this year to pump into underground storage facilities 8.2 billion cubic meters of gas.

“Reverse gas will not become cheaper in proportion to Russian, because the reverse still needs to earn the European Resellers. Gas contract by reference to the oil will be cheaper. This is more proof that all claims of Naftogaz that the price of Russian gas allegedly non-market for Ukraine that is in dispute to the Stockholm arbitration, breaking on the harsh practices of life,” said gas expert of the national energy security Fund.

On the other hand, Naftogaz bought a more expensive reversible gas for many months, talking about its “independence”, rightly notes Grivach. The President of the country Petro Poroshenko declared then that Ukraine “found the strength” to buy reverse gas, not Russian, despite the fact that the Russian was a third cheaper. Now, however, the fiscal situation at the Ukrainian company, apparently, much worse than before.

Thus, we can assume that Naftogaz decided to abandon unnecessary additional costs assumed for the sake of politics. On the other hand, such a statement could be an attempt of Kiev to force the European Union to Finance the pumping of blue fuel in underground storage facilities.

As Ukraine makes Russian gas purchases europejskiego reverse the money for European lenders, in particular the EBRD and the WB. And for the purchase of imported gas for injection into underground storage facilities is also going to use the credits. However, this ran into difficulties. The head of the Ukrainian companies have complained of difficult negotiations on the loan for the gas with the world Bank for 500 million dollars. KOBOLEV noted that the negotiations are more complex than the loan of the European Bank for reconstruction and development, of which the first tranche of 300 million dollars, the NAC has been able to attract for the passage of the last winter period and has managed to return. But the world Bank never issued money to Naftogaz in the last heating season.

He KOBOLEV noted that in connection with the political crisis in Ukraine lenders have taken a wait that may complicate the process of gas purchases in the new season.

“Ukraine itself can delay the fix to have a way of putting pressure on Europe. Because without the injection of a sufficient volume of gas in Ukrainian underground storage facilities transit risks for the EU for the next winter will rise” – says Grivach. According to June 4, 2016, in Ukrainian underground storage facilities 9.3 billion cubic meters of gas a third of their capacity. “It’s nothing at all, in fact they have no capacity for the selection of gas from underground storage facilities”, – the expert adds. For the heating season, the optimal level will not be less than 17 billion cubic meters, says Andrew Shevchishin from GK Forex Club. In the Naftogaz noted that for the upcoming heating season plan to upload in underground storage of approximately 8.2 billion cubic meters of gas, which requires 1.5– $ 1.8 billion, depending on prices.

Actually no problems with the resumption of purchases of Russian gas by Ukraine. “They need to submit an application, pay an advance and to get gas. The contract has not been canceled,” – said Grivach. Another thing is that Naftogaz is once again calling for a discount. And it will probably become the formal reason for that not to resume the purchase of Gazprom’s fuel.

Meanwhile, Ukraine every year reduces the volume of purchases of imported gas that policy serves nicely as getting rid of gas dependence. According to official statistics, natural gas consumption for four months 2016 fell by 9.3% in April, the reduction in consumption was 24.3%.

Actually reverse gas from the EU – the same Russian, only it is sold through European intermediaries. Secondly, the production of its own gas to Ukraine does not increase but decreases: with 21 billion cubic meters in 2013 to 19.9 billion cubic meters in 2015. And this year in Kiev are waiting for the decline to 15-17. 5 billion cubic meters.

Thirdly, there has been a sharp fall in gas consumption by the population due to bring gas prices to European levels (with preservation of Ukrainian low wages). In particular, the price of gas in 2014 increased by 62,8%, in 2015 – by 273%, and for the first four months – a further 48.4 per cent, said the Shevchishin. Finally, there is a decline in gas consumption by the industry due to the deep economic crisis.

As a result, the Ukraine is required less and less to buy imported gas. However, without Russian gas, neither Kiev nor Brussels continue to handle winter on their own can’t do that once again confirmed his statements and the head of Naftogaz and the European Commission.

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