Ukraine expects Gazprom to cut prices

Despite the fighting in eastern Ukraine, Ukrainian state-owned gas company Naftogaz is looking for a new gas deal with its Russian supplier Gazprom – but it is asking for a hefty discount. “Currently we are purchasing Russian gas for $329 per barrel”, Andriy Kobolyev, Chief Executive Officer of Naftogaz, told news agency Reuters on Friday at the Security Conference in Munich.

“However, we are buying European gas for currently less than $300. This is why we are right now reducing the purchase of Russian gas to a minimum.” Instead, gas is being bought from the West and being taken from the country’s gas storage facilities. “Because prices will continue to go down”, he said.

Naftogaz has to negotiate a new contract for gas deliveries starting from April 1. The European Commission wants to play a mediating role. “I think it would be desirable to have a trilateral agreement for gas deliveries to Ukraine this year”, said Maroљ Љefиoviи, Vice President of the European Commission and in charge of the Energy Union, on Friday in Riga. The EU had been asked by the Ukrainian side to mediate. “We are ready to do so”, he said on the sidelines of an energy conference. Russia, however, is still reluctant. The energy discussion is further strongly impacted by the situation in eastern Ukraine.

The gas supply for this winter could also only be made possible through massive assistance by the European Commission, since Gazprom and Naftogaz were suing each other because of unpaid bills and high prices. Due to the political tensions between Russia and Ukraine, worries existed in 2014 that Gazprom could completely abandon gas supplies to its neighboring country.

The Vice President of the European Commission, Maroљ Љefиoviи, just recently lobbied in Russia for a gas deal with Ukraine since their storage facilities would need to be refilled in summer. But the Russian side had told him that they are not willing to offer special conditions such as for this winter, said Љefиoviи on Friday.

He thus confirmed statements to be found in a paper by the German government, according to which the EU is striving for a “summer package” given Ukraine’s financial problems. Russian Energy Minister Alexander Novak told Rossiya-24 television, however, that Russia is ready to negotiate provided Ukraine pays its disputed old gas debts.

Nagtogaz chief executive Kobolyev said that the bargaining position has improved since the country could by now be supplied with gas from the West via Slovakia, Poland and Hungary and because global market prices have fallen sharply. Naftogaz would like to have a flexible purchase price. Here, the company puts hope into a drastic reduction. “It would be fair to match prices with these for European gas and also deduct transportation costs that do not apply”, he said. “Currently, the spot market price in Europe is around $250.”

Kobolyev called on the EU to fully integrate Ukraine in the European gas market. “We have to abolish the last barrier still existing for full supply of gas from Slovakia”. At the moment, Gazprom would still prevent the utilisation of old gas pipelines.

In emergency cases, the EU could then also supply gas to Hungary, Romania or Bulgaria. Further, it would be desirable to have international investors supporting the planned privatisation of a Naftogaz subsidiary which produces gas in Ukraine.

Kobolyev said that the Russian announcement to bypass Ukraine as gas transit country from 2019 onwards, is a bluff. Anyhow, it would uneconomic to bypass Ukraine.

Already at the end of the month a decision will be taken regarding the question of how much the gas price will be raised for customers in Ukraine. The abolishment of the massively subsidised price is a core demand by the International Monetary Fund (IMF) who currently negotiates with Ukraine another multi-billion financial package. Kobolyev said that prices for customers in Ukraine will at least double. The increase would than become effective in March or April – most likely in connection with subsidies for poor sectors of society.