Monday, January 19, 2009

Ukraine-Russia gas transit and supply contracts: Europe will not suffer from gas-cut during next 10 years, gas price for Ukraine still in shadow.

First of all, I would like to thank Tammy Lynch, Bakinets, and Anonymous reader for their comments to my gas posts. Well, I have to confess that my price prognosis has appeared to be rather pessimistic. I will be really happy, if I am wrong: the less the gas price is, the better it is for Ukraine and its economy.

Why I suggested that the gas price for Ukraine will be around $320 per tcm in 2009? My thoughts were based on three things:
1. Ukrainian negotiators were insisting on fixed gas price (I was pleasantly surprised when I’ve heard today that the gas price formula has been worked out for Ukraine).
2. The Prime Minister of Russia Vladimir Putin, President Dmitri Medvedev and the head of Gazprom Alexei Miller were declaring the “European price” for Ukraine at the level of $450 per tcm (last time Mr. Putin told that on Saturday, 17 January).
3. Gazprom has just switched to some “European formula” in his relations with Turkmenistan, and the price of Turkmen gas for Russians in the first quarter of 2009 will be about $300 per tcm.

It seemed logical to assume that the gas price for Ukraine should be at least more than $300. It is really great if the today’s statement of Prime Minister of Ukraine Yulia Tymoshenko is true, and Naftogaz will pay only around $235-250 per tcm. (She also told that the 20% discount will save $5 billion, which is possible when the price is $220). It would be like a miracle, if the average price for Ukraine were $199 as was suggested by the Secretariat of Ukrainian President. But we have to think, why Moscow agreed for such a low price level, as the Gazprom is clearly not a charity foundation, especially at crisis times.

Anyway, it is still difficult to say, how much Ukraine will pay for gas in 2009. There is not much information about the gas supply contract at all. Here is all I know today:
a) Gas supply and gas transit contracts are signed for 10 years;
b) Starting from 2010, the transit fee and the gas price will be calculated on a base of a clear formula (I hope this “Ukrainian formula” does already exist);
c) In 2009 there will be a fixed gas price for Ukraine, based on “average European gas price minus 20%”;
d) Transit fee in 2009 will stay at the level of 2008 – $1.7 per tcm for 100 km;
e) There will be no mediators in gas trade between Ukraine and Russia (but I think it’s early to say good bye to RosUkrEnergo as a player on European gas market).

Yulia Tymoshenko promised to make the new gas price public “in one-two days”, and it seems that the price is not agreed yet, despite of any paper signed. As the Russian TV reported, after signing the documents and press briefing Mrs. Tymoshenko went to the Gazprom office for some extra negotiations.

Talking about the gas price in 2010, I would like to propose a link, which leads to the fresh prognosis of Goldman Sachs Group Inc., forecasting “swift and violent rebound” in energy prices in the second half of the 2009.

Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said at a conference in London today. A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.

New York crude futures for delivery in December, trading near $56 a barrel, currently cost some $15 a barrel more than March futures, a market situation known as contango, where prices are higher for later delivery. The contango is likely to flatten as supply cuts by OPEC and other producers take effect, reducing the availability of oil for immediate delivery, Mr. Currie said.

1 comment:

Leopolis said...

"The less the gas price is, the better it is for Ukraine and its economy."

The reliance on "cheap gas" has harmed Ukraine's energy security and will continue to harm it by tethering it to Russia and discouraging modernization. When energy prices are high, people take more measures to seal their windows instead of opening the fortochka.

Ukraine is an unrepentant gas junkie. Look at the amounts discussed -- over 50 bcm -- approaches levels of German consumption. And how much larger is the German economy? Poland alone is twice as energy efficient as Ukraine.

In 2006 when the Ukrainian economy was booming, Yushchenko could have taken steps to enact energy-saving measures in both the residential and the commercial sectors. Instead, he pushed for cheap gas and continued subsidies because he warned it would damage the economy (we see that it was the financial crisis that hurt Ukraine more than "market prices").