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Thursday, December 8, 2016

Reversible gas becomes ruinous for Ukraine


$ 167 per thousand cubic meters – that’s how much it will cost to Ukraine of Russian gas in the third quarter. Russian gas will be significantly cheaper so-called reverse, which Ukraine prefer to buy in Europe. It will help Kyiv save tens of millions of dollars – but to completely abandon the reverse of Ukraine will not at all desire.

Gazprom has defined the price of gas for Ukraine in the third quarter 167,57 dollars per thousand cubic meters. This low price is formed according to the formula of the contract price from 2009, Chairman of the Board of Gazprom Alexey Miller. In the second quarter, based on the same contract, it was $ 177 dollars per thousand cubic meters, but Kiev with the new year buys only the reverse gas.

“The price under the contract with Russia, which Ukraine denounces as non-market is not just competitive, like all previous times, and, in fact, out of grace”

“A preliminary account of the company “Naftogaz of Ukraine” on display. In order to resume the supply, the NAC should only make an advance payment”, – he said, adding that the current contract does not require any additions. “Gazprom is guaranteed to deliver gas to our Ukrainian colleagues as much as it will be paid”, – assured Miller.

It is curious that the Naftogaz believes that the price of Russian gas will be higher, referring to the caloric value of the gas.

In the letter to Gazprom at the beginning of June the Naftogaz wanted to resume gas supplies at the signing of the additional agreement like the “winter package” under which Ukraine was granted a temporary discount, and was given a temporary exception of the condition “take or pay”.

However, Gazprom insisted that price and so will be more than competitive, so I didn’t see the need to provide discounts. Miller confirmed that “the gas price for Ukraine is lower than in European trading floors to our contract, and the purchase of Russian gas for Ukraine is the best”.

“The volumes that our Ukrainian colleagues to report third quarter significant enough to three billion cubic meters of gas,” said Miller. “This volume is absolutely justified. We are following very closely, as a result of the injection of gas into underground storage facilities. Unfortunately, to date, lagging the previous two years for gas injection into UGS was already more than 2.2 billion cubic meters of gas. It’s a very very large value,” he stressed.

Reversible gas plays in the Russian

Given named Miller of the value of Ukrainian politicians there is not the slightest reason for refusal from Russian because of allegedly unfair prices.

Previously Director of business development of “Naftogaz of Ukraine” Yuriy Vitrenko claimed that Gazprom will sell gas in the third quarter for 177 dollars per thousand cubic meters, while the German hub NCG, according to June 9, the price for July was below the 173 dollars. From this he drew the conclusion that Gazprom should bid even lower.

However, prices on the spot market are changing every day, and besides, the price on the spot – this is not the cost of reverse to Ukraine, so such comparisons are flawed. The price of reverse gas for Ukraine is the price in the hub plus transport costs, plus a margin for European traders that is plus 20-30 dollars to the cost of gas prices on European markets, says the newspaper VIEW Deputy Director of the national energy security Fund Alexei Grivach. Plus Naftogaz bears the fixed costs, regardless of who buys it reverse or not. For example, the Slovak gas pipeline operator Eustream is fixed he is paying 5 million euros for the booking of capacity to reverse,” he adds.

According to him, the whole of June on the European markets, the price of gas was around $ 180-190 per thousand cubic meters. This means that the reverse gas for Ukraine in the third quarter will cost $ 200-220 per thousand cubic meters.

“The price under the contract with Russia, which Ukraine denounces as non-market is not just competitive, like all previous times, and, in fact, out of grace due to the fact that it is based on oil-binding and oil prices were low in the fourth quarter 2015 and first quarter 2016”, – says Alexei Grivach.

When the cost of Russian fuel to buy reverse gas to Ukraine will be extremely profitable. So, for 3 billion cubic meters of Russian gas through 167,57 $ Naftogaz will have to pay 502,71 million dollars. The reverse of the same volume of gas from the EU at a price of $ 200 – 600 million, at a price of $ 220 per thousand cubic meters – to give $ 660 million.

Kiev found the money for Russian gas

Naftogaz intends to resume the active import of gas for injection into underground storage (UGS) in the first week of July, said earlier on Thursday the head of the state holding Andriy KOBOLEV. While he managed to solve the main problem – to find funds for the purchase of fuel, not only reverse, but also Russian.

According to KOBOLEV, in early July, it is planned to purchase and import gas for their own means, and since the 20th of July for the loan of the European Bank for reconstruction and development.

Naftogaz has long been purchasing reverse to European money lenders. But the main feature of these loans is that they are given only for the purchase of fuel from the EU to spend on Russian fuel Ukraine could not. So besides political reasons of failure of Kiev from Russian cheaper fuel there were also purely commercial.

But now the situation has changed dramatically: Naftogaz of Ukraine agreed with EBRD, which should issue a credit for the purchase of gas by Ukraine, on the possibility to spend part of them on the purchase of gas from Gazprom, whereas previously the EBRD provided money only for the purchase of gas from the Western route (reverse). “The last agreement, which we achieved with the EBRD, suggests that part of the funds can be used toward the purchase of the East in particular”, – said the head of the Ukrainian state holding Andriy KOBOLEV, transfers “Interfax”.

This is the second step of Kiev, who speaks of his willingness to buy Gazprom’s gas. The first step was a letter of Naftogaz to Gazprom on June 7 asking to resume gas supplies from Russia to Ukraine in the period from the second half of 2016 until April 2017.

In addition to the loan from EBRD, Naftogaz expects to finally get a loan for $ 500 million from world Bank for the purchase of gas in September – October this year, Kobolyev said on Thursday. Previously, he complained of difficult negotiations with the WB on the loan. If the Bank issued the first tranche of 300 million dollars to pass last winter, Naftogaz and even managed to get him back, WB has not given the company money in the last heating season. Apparently, KOBOLEV hopes that this time will be different, and the world Bank will keep the promise. Can Kiev to get the WB the same right to buy is not only a reversal of the EU, but Russian gas is not yet clear.

However, it is clear that Naftogaz will have in any case to buy reverse gas from the EU, despite the fact that it is not profitable. The reason is financially dependent on European and international creditors that boost Naftogaz on a more expensive reverse gas from the European traders.

How much gas

In any case, three billion cubic meters, which has been requested by Naftogaz from Gazprom, the beginning of the heating season would not be enough. Now in UGS only 9.5 billion cubic meters, of which buffer (inactive) gas is about 7 billion cubic meters (it cannot be pumped out of the storage, says Grivach. That is real gas in storage total 2.5 billion cubic meters.

To pass the winter season without incident, it is necessary to pump 8-9 billion cubic meters, said the Naftogaz. Alexander Novak said the other day about 9-10 billion cubic meters. And this fix does not exclude the fact that in winter Ukraine will need to continue to import fuel.

“The more Ukraine will buy and pump gas now, the better she will be prepared for the heating season and the less they will have to import gas in the current mode in the winter, when prices will be higher. Because the price of oil recovers and the cost of gas under a direct contract will increase in the fourth and first quarter of 2016-2017, at the European sites there is still a price increase in connection with seasonal growth of consumption,” – explains Grivach.

A sufficient volume of gas in Ukrainian underground storage facilities means not only social well-being of Ukrainian citizens in the winter. It is also the reputation of Ukraine itself in front of its European partners. If Ukraine fails to pump sufficient gas into underground storage facilities, interruptions in gas transit to Europe can not be avoided. It will put a big cross in Ukraine as allegedly a reliable and proper partner in Europe to ensure its gas, like trying to imagine Kiev. Reminds you of forgotten the gas crisis of 2008-2009. And even if the words the EU is to accuse Gazprom of the incident, like last time, the rhetoric in the EU against the “Nord stream – 2” is immediately diminished.

Finally, Kiev is another argument in favor of buying Russian gas. Due to the decision of the Stockholm arbitration to deny Lithuania its price claims to Gazprom. The main miscalculation of Vilnius was the fact that he tried to convince the court of some unfair the price of Russian gas – which ultimately failed. Ukraine is stepping on the same rake, and Lithuania. In other words, the experience of Lithuania of Ukraine showed that now there is no need to abandon the purchase of Russian gas for political reasons unfair prices, it’s still the case in Stockholm you will not sew.

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